ITC DIA Europe

Zego’s vision for the future of Insurance

Written by Jolijn Schalkwijk on Mar 12, 2024

We sat down with Sten Saar, CEO and co-founder of fleet insurance company Zego. Zego offers a selection of products that range from hourly to yearly policies, and has been one of the first to truly unlock the potential of flexible insurance. Sten has led the innovation charge at Zego with recent changes such as creating in-house processes and using AI to automate claims. Zego is his fourth business, and his largest. They raised $280 million in total, have 350 people, do close to $200 million in business and operate in 12 countries in Europe. We had the privilege to discuss the latest trends in the industry with Sten, and his vision of the future for insurtechs.

There’s a lot of uncertainty around insurtech at the moment, what is your perspective of the market?

Sten: “Around 2021, the goal was to grow at any cost. But in 2022, things changed. You now somehow have to figure out a viable business with whatever you have in the bank account. The Full-Stack insurers need to have the underwriting, and expense ratio right, and need to be very good in claims. The ones that are selling software need to have customers and revenue coming in. Unfortunately, loose branches get blown off the trees.”

How can companies have a sustainable period of success in the insurtech market?

Sten: “There are three types of insurtech companies, Full-Stacks, MGAs and companies that sell software to insurers. As a Full-Stack or MGA, you have to have an underwriting advantage. You have to be able to underwrite so that when you sell ten euros, it’s costing you eight, not the other way around. Next, I’ve always found software in insurance one of the hardest sales you can have, because the systems of large incumbents are so multifaceted. A lot of systems have to integrate with large incumbents’ claim systems, which can be decades old. I would say trying to change a policy management system is a near-impossible task because it relates to systems, reporting and everything else.

So to conclude, as a Full-Stack, you need to have a product that the customer really wants and where you have an underwriting advantage. As a software seller, you need software that solves a genuine problem and that can easily be integrated. Focus on what matters, the rest is just noise.”

What does competition in the insurance industry look like now? Are insurers still each other’s biggest competitors or are tech companies taking over?

Sten: “My conviction is all about: “How can I select risk better than my competition? What do I know more, maybe 1 or 2 data points more than my competition?”. This way you can judge who you want as a customer, and that is underwriting advantage. You don’t have a chance of winning without having underwriting advantage. I think at Zego we focus on telematics data, because most insurers don’t use that. They don’t know how to do it properly. And if I have that data, I can pick better risk, I’ll drop the rate for better drivers 30%, 40%, and I’ll increase for bad ones to 40%, 50%, and they go out to the market.

With Full-Stacks, they may say that they’ve got it, but it’s not come through in loss ratios. You might have better operational efficiencies, but when you think of €100, for example, you pay out in claims or indemnity, depending on a product, 60% to 70%, which is the majority. So if you optimise your cost of service from 5% to 3% to 2%, it’s marginal. Therefore, I think underwriting advantage is the most transformative way to win insurance against the likes of Ubers or other large insurance companies.”

How has Zego managed to keep a relatively healthy loss ratio compared to the rest of the market?

Sten: “Five out of seven products are profitable. They’re providing underwriting profit in the current climate. The other two aren’t far off either. We’ve gone into segments that we find an underwriting advantage and brought them to life. We price food delivery drivers based on how long their shift is for example. If you work more than six hours, your risk goes up exponentially. With Uber, we take the Uber driver score as a factor. On top of that, we take into account what time of day they’re driving. If they’re driving mostly during normal hours, they’re mostly sitting in traffic jams where the risk is predominantly just property damage. Whereas if they work more at nighttime, the speeds are greater where the bodily injuries are greater.

With vans and Uber drivers, we also started to go into other areas where we take telematics data as a factor. If you’re a good driver, you get discounted 30%. If you’re a bad driver, you get loaded with a price of 60%. For good customers, we got a retention of 95%, for bad ones we got like 45%-50%. We use the data in claims as well. Fraud goes up in recessions, we’ve seen a lot of theft of vehicles, and also more general claims fraud. With those data points, you reduce that.”

What do you think are the technologies that are going to be key for the future of insurance?

Sten: “Well, how are insurers going to use the big wealth of data? Think of all the AI innovation at the moment, there’s a lot of noise around different models and so forth. What is clear is that the models will be commoditised. They become like running water effectively. Who wins in that world is what data you put into those models. And if your data is proprietary and unique data, then the model will do magic. I am slightly nervous because, if an insurer decides that it’s going to put all of its data into one of those models, they can find something that I do not have.

Everyone talks about AI, but I think a lot of people don’t understand what it fully means. It’s just a new word for a technology. But that’s one area where I think lots of underwriting advantages can be uncovered when putting the insurer’s proprietary data into those models.

Secondly, self-serving capabilities such as chat interactions are very intuitive for people. People have been interacting with messages for decades now. In Zego’s case, there’s one product where 80% of interactions are self-served: From purchasing to mid-term adjustments to cancellations. We do not speak to the customer. Five years ago I thought that large insurers did not stand a chance, because of the complicated infrastructure that they have and how they each talk to each other or don’t talk to each other. And all the costs that it brings. Now that barrier has massively changed. So, I think insurers can almost like, skip a step if they want.”

What do you think a successful insurtech will look like in five years?

Sten: “Everyone in the industry is talking about how we experienced a lot of growth, but it’s just price increase growth. We’ve done well because we put prices up. Nothing changed in that sense. Therefore, the insurance market has been growing by 5% year over year. An insurtech’s ideal position is that you grow around kind of 25%-30%. And if you do that every year for the next five, or ten years, that is a winning formula whereby you grow 5 or 6 times more than the industry.

You have to be track-driven, you have to be enabling self-serve capabilities, you have to have an underwriting advantage, and your product has to resonate.”

What are you most excited about in the future?

Sten:  “Recently, I have been uncovering and playing with AI myself. Bear in mind that I have no clue about coding whatsoever, but I built a mock-up of a mobile app. I drew it on a piece of paper, uploaded it and it gave me the piece of code. I uploaded and analysed our employee data anonymously on ChatGPT. I asked it questions and gave me charts. It was almost like I had a data analyst next to me. I feel like just with these two examples, the labour market is going to change massively.

We are going through cycles of transformations in the labour market. This is very exciting but also terrifying. When you look at history, there have been dozens of those transformations, and they always end up in a much better place than people thought they would. So I’m excited about that. And I’m also actually excited that this hype around insurtech has kind of disappeared. Now there’s no pressure. You can build great businesses without the feeling that everyone has to be looking at you. You can now genuinely focus on solving hardcore problems, which I’m very excited about with Zego.”

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