Insurtech Oyster Opens up Its Pay-as-You-Go Workers’ Comp Model in California

By | November 29, 2018

A new insurtech wants to provide pay-as-you-go workers’ compensation to as many small businesses in California as possible, and it hopes to use the momentum it’s built following a quiet launch in the East earlier this year to do just that.

Oyster Insurance, which started providing workers’ comp to 70-plus classes of business in New York and New Jersey without much fanfare or media coverage in January, began operating in California this week.

According to Curt Stevenson, managing director of the Waltham, Mass.-based firm, they now have more than 500 clients and roughly a dozen companies have signed up in California in the last few days.

They aren’t the first insurtech to begin providing workers’ comp coverage in California. Pie Insurance in October got into the state’s comp market. The Washington, D.C.-based insurtech is a direct provider of workers’ comp that touts its ability to leverage “data analytics, easy-to-use online features, and a seasoned team of insurance experts to create an insurance model that’s as easy as pie.”

Oyster operates as a managing general agency, using Lancer Indemnity as a fronting company, with reinsurance reportedly from one of the “top five reinsurers in the world,” although Stevenson declined to name the company.

A screenshot of insurtech Oyster’s online workers’ comp platform for small businesses.

The firm received licenses from the California Department of Insurance in June and August to operate as a casualty broker-agent, property broker-agent and surplus lines broker. Its surety bond was issued by Travelers Casualty and Surety Company of America.

The firm initially began offering workers’ comp coverage to professional classes – software consulting firms, lawyers and medical and dental offices – and later expanded into grocery stores, bakeries, restaurants, drug stores, jewelry stores and florists.

The average annual premiums Oyster customers pay is between $1,000 and $2,000, according to Stevenson.

“Our ideal customer and target customer, they’re typically a new business,” Stevenson said.

Oyster partners with high-tech payroll services providers to distribute workers’ comp. The partnerships enable business users to add options such as getting a quote and binding insurance online during the process of signing up for payroll and other human resources services.

“Very often these are businesses are starting up for the first time, hiring their first employees and it’s their first time setting up a payroll system,” Stevenson said.

Businesses going through the process can get a quote from an API (application program interface), and then bind right away.

“It’s instantaneous. It’s seconds,” Stevenson said.

The process is streamlined because the payroll companies most often already have payroll information, class codes, and demographics information, according to Stevenson.

“That gives us everything we need to provide a quote,” he said.

Christopher J. Boggs, executive director of the Big I Virtual University for the Independent Insurance Agents & Brokers of America Inc., isn’t sure agents would want to take businesses from companies that don’t have a problem buying a product that’s as intricate and crucial as worker’s comp online.

“Workers’ comp, as a coverage, is somewhat simplistic,” he said. “What is not simplistic is all the laws that surround workers’ comp – that’s where the problems lie.”

How does the insured address weird situations like employees traveling to other states to work on a temporary basis – extraterritoriality and reciprocity? Who or what helps the insured manage a claim situation? Does the employer know the best way to manage the worker? Who is giving them advice? Who is looking out for the worker – the employer, the carrier or the attorneys? Who is an employee and who is not an employee?

Those were the among the numerous questions Boggs said businesses that are serious about being thoroughly protected by a workers’ comp policy should be asking, but may be unable to ask through a quick online quoting and binding process.

“As you might guess, workers’ comp is more complicated than just applying payrolls to rates,” Boggs said. “Because it is statutorily heavy and subject to a lot of legal interpretations, there are a lot of cracks and crevices where an agent is needed to advise the client.”

Admittedly, it’s Boggs’ take that there is very little in insurance that should be done online if clients wish to truly be protected when something bad happens.

“Workers’ comp should certainly never be purchased without the benefit of a knowledgeable agent,” he added.

Oyster does involve underwriters in the process in cases where customers can’t get insurance bound by answering the roughly five questions that it typically takes to seal the deal, according to Stevenson.

Oyster has 12 employees, three in its underwriting department.

Oyster has teamed with an agency to sit between the firm and the payroll partners, and the agency can take over any workers’ comp business that is more complex than the process is set up to handle, according to Stevenson.

He wouldn’t name the agency, other than “it’s a good-sized agency.”

The licenses from CDI show Eric Hardnden, managing director of AP Integro Group, on the endorsed agents list and they include AP Integro’s address.

Stevenson said Oyster intentionally tries to keep the business classes it handles simple.

“Because of the agreement we have with our reinsurance company, we have some highly predictable classes of business,” he said. “From a risk perspective, they’re a good risk.”

He also believes the firm’s pay-as-you-go workers’ comp model will prove to be attractive for small startups with limited cashflow.

When doing business with traditional workers’ comp providers, companies that add employees throughout the year can get hit by charges at the end of the fiscal year during audits by carriers.

“There’s a surprise factor for the small business owner and there’s a cash flow issue for the small business owner,” Stevenson said.

Oyster users can choose to have premiums added up every pay period and pay them though the EFT system they set up during the payroll enrollment process.

“We make it no surprises, better cashflow management for the small business,” Stevenson said.

Oyster is licensed in 26 states, but is currently only active in New Jersey, New York and California. The plans are to get licensed in six more states in 2019. Stevenson declined to say which states are next.

As for the origins of the name, Stevenson said it comes from the idea of protecting what’s precious, like an oyster shell protects a precious pearl.

Thus the firm’s slogan: “Oyster’s mission is to create a world where small businesses are protected, supported, and empowered.”

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