Government’s Disruption in Insurtech Market: The Zebra CEO

By Adam Lyons | July 24, 2017

Unsurprisingly, discussion surrounding government’s role in free markets with large corporations can be contentious, but it’s critical to understand that laws and regulations serve a purpose. To what extent regulation is appropriate has always been a hotly debated issue. The conversation is shifting from a debate on regulating large corporations to government’s role in tech companies’ ability to innovate–those like Uber, Airbnb and many insurance upstarts.

Today, most consumers in the U.S. have computers in their hands more powerful than IBM’s biggest computer just a few years ago. Technology impacts our lives in more meaningful ways than ever before, and at an increasingly accelerated pace. I had the privilege of addressing the issues surrounding technology regulation on a global stage in March at the South by Southwest (SXSW) Interactive Festival, which takes place every year in Austin, Texas, where my company, The Zebra, is headquartered. During a featured panel titled “Is Government Disrupting Disruption?” Mark Cuban and I discussed the political impact on tech companies at a global, national and local level. When is government a boon to innovation, and when does it run the risk of “disrupting” disruption?

At The Zebra, we’ve built a business addressing the consumer pain felt as a result of the complex regulatory environment that is property/casualty insurance. Our quote comparison marketplace leverages technology to help increase the efficiency of what has become accepted as the status quo in insurance distribution. Without delving too much into my own story, I’ll state a few relevant reasons I started this business:

  1. The increasingly ubiquitous consumer expectations for optionality and immediacy (which are still, to a large extent, unfulfilled).
  2. The lack of understanding of insurance– the different products, distribution, general value, etc.–among consumers, including my own family and friends.
  3. My experiences working in international insurance markets and observing the success and widespread use of insurance comparison tools, and my consequent questioning of why that sort of solution didn’t exist yet in the U.S.
  4. My understanding of both the limitations and opportunities of the state-level insurance regulatory environment in the U.S.

The former two indicated to me a need for a solution, while the last two drove my business plan–one which would disrupt the $200 billion-plus personal lines insurance industry.

Regulation created both a barrier and an opportunity when I first conceived of bringing a true online auto insurance comparison marketplace to the United States.

Regulation created both a barrier and an opportunity when I first conceived of bringing a true online auto insurance comparison marketplace to the United States. Such a marketplace didn’t exist here because each state regulates insurance independently, setting different requirements for minimum liability coverage, uninsured motorist coverage and how insurance companies can price for certain rating factors, among other things.

My team worked hard to navigate the insurance industry, and we used its highly regulated nature to our advantage–seeking publicly available information, building relationships with state insurance departments and understanding how insurance carriers evaluate risk.

The nature of The Zebra’s business model is, among other things, applying existing technologies to the data we obtain from carrier partners, rating platforms and publicly available rating information collected by state insurance departments to provide education for consumers on our platform. Consumers submit information once, and we immediately run that data through our proprietary technology to source full quotes from all applicable insurers for those consumers. A quote includes the coverage levels, effective dates, policy features and more, versus just the rate. The Zebra also goes beyond the quote and educates the user on how variables such as age, miles driven and region impact the rating.

We view the insurance regulatory environment as a barrier to entry for incumbents or other newcomers looking to disrupt the industry. However, it can be an advantage when there is this much nuance and complexity. It is the reason we chose to take a different approach and to innovate with cutting-edge technology. However, there are many cases in which regulation has slowed our efforts to the detriment of both consumers and insurance carriers.

Perhaps the biggest challenge is educating consumers on such a complex, overmarketed and therefore misunderstood product–one which they are required to purchase. For licensed agents, all the sales infrastructure and licensing fees add to both carrier acquisition costs and consumer rates. The varying regulation state to state confuses folks who are not in the industry and results in dumbed-down or oversimplified messaging. Consumers don’t know what to shop for, and carriers are forced to compete on pricing rather than product and brand differentiation.

The steep and slow-moving regulatory environment hinders insurers’ ability to respond (particularly from an underwriting standpoint) to new technology and market conditions. This ultimately harms the consumer, despite the purpose of trying to protect them. The 13 percent rise in claims through 2016 while premiums only rose 7 percent highlights the profitability challenges now affecting consumers. (Editor’s Note: Source of direct premium and loss changes, Brian Sullivan, Auto Insurance Report, based on an analysis of preliminary SNL Financial data, March 27, 2017.)

At The Zebra, we see carriers using our platform to get more and more targeted in their acquisition strategies, leaving more and more consumers with reduced options. Carriers can specify what type of consumer they are looking for.

All of these challenges prompted Cuban, moderator Michele Skelding, an Austin tech executive, and me to discuss government’s role in tech at SXSW.

Cuban, though known more for his Shark Tank stardom and courtside antics as owner of the Dallas Mavericks, has led, advised and financed many companies–The Zebra included–and has navigated government regulation time and again. He is a true entrepreneur.

In fact, during our panel, he discussed the time Uber CEO Travis Kalanick approached him with the concept of a new app-based ride-hailing service–an idea Cuban spurned because he questioned any new company’s ability to take on taxi associations and transportation organizations. (Editor’s Note: Cuban’s remarks about seeing the regulations of taxi associations as an obstacle to investing in Uber were also reported by the Dallas Morning News and on CNBC.) Consumers will ultimately win, evidenced by the adoption of ridesharing and success of TNCs (transportation network companies).

The insurance industry is currently seeing challenges and opportunities from technological innovation in the form of AI and driverless vehicles, enhanced safety technology, IoT. These aren’t just buzzwords. They’re real and powerful innovations that are changing the ways we get around, communicate and learn. Many insurance industry players are already taking advantage of these advancements, and others will be left behind.

What the industry wants to know, though, is whether the government will help or hinder that process.

For instance, with what many believe will be the onrushing prevalence of autonomous vehicles, consider if the government were to apply strict restrictions around rollout of this technology (testing periods, etc.). How could that affect adoption?

As automakers have the capabilities to add enhanced safety functionality or more environmentally friendly systems, might the government enforce strict regulations that require all new vehicles to be outfitted with said technology? And does that help automakers become more competitive, or does it inhibit their strategy by adding red tape? Does that benefit insurers more by potentially reducing losses due to collision claims, or raise premiums as those vehicles prove more costly to repair and replace?

If the government cracks down more on distracted driving, which has proven to be nearly as deadly as drunk driving, how will that affect the insurance industry? Currently, data compiled by The Zebra reveals that carriers are not penalizing texting while driving or phone use violations anywhere near the extent to which they’re penalizing DUI/DWI violations. Yet, the industry claims that fatalities are up because of distracted driving. Would they support government requiring phone makers to enact phone disabling when the owner is operating the car?

I realize I’m raising more questions than answering, but that’s the point. In the insurance industry, we welcome insurtech, and we need to foster its growth by engaging in these conversations as technology and other markets evolve.

About Adam Lyons

Lyons is the founder and CEO of The Zebra, an Austin, Texas-based insurance quote comparison site designed to help users understand car insurance and to help carriers target and acquire policyholders.

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