Caveat: I am not a compliance lawyer and this article does not constitute legal advice. It has been written to provide a helpful starting point to tech platforms looking to make insurance products available to their customers. But firms should always seek their own legal advice.
As the role of SAAS solutions grows, an increasing number of online platforms are looking to make insurance products available to their customers. Examples include online retailers offering extended warranty cover on electronics products; online marketplaces offering freight/transportation insurance; or cloud accounting platforms protecting small businesses owners against the risk of unpaid invoices.
However, starting to offer insurance, or indeed other financial products, can be daunting. In most countries the distribution of financial services products is a regulated activity, meaning that platforms need to understand the regulations and make sure they comply with them.
This article, the first of two, provides a primer for firms looking to offer insurance products within Europe.
The chart above shows a simplified representation of the product life-cycle of an insurance policy. Broadly speaking, we define the steps as follows:
Different elements of this life-cycle are regulated in different ways. Generally speaking, in Europe, the activity of introducing insurance can be undertaken by unauthorised firms, so long as they are careful to avoid certain activities (discussed later).
Meanwhile, selling insurance, as well as risk selection/pricing and administering insurance are normally viewed as regulated activities. These can only be undertaken by authorised insurance intermediaries, such as insurance brokers or insurance agents. Authorisation is obtained from national regulators such as the FCA in the UK or ORIAS in France. These regulators are looking to ensure that customers are not mis-sold insurance or misled about how their insurance cover will work; that the intermediaries are protecting clients’ premiums before passing them onto an insurer, and are generally treating customers fairly.
Finally, the risk bearing activity is also regulated, and can only be undertaken by insurance companies. These firms are authorised by regulators such as the PRA in the UK and ACPR in France, and the regulators are seeking to ensure, among other things, that the insurer has adequate capital to pay potential future claims. In most countries, an insurance policy will state somewhere that it is “underwritten by” company X. This is the insurer, whose balance sheet backs the promises in the policy.
In general, the platforms we speak to are looking to introduce insurance, and in some cases to sell it as well. They are only occasionally looking to do risk selection, pricing and administration themselves, though they clearly have a strong interest in these activities being done well, and being done digitally and in real time, in order to support a positive customer experience.
In many European countries, unauthorised firms have long been able to introduce customers to insurers and insurance products. Historically, this might have happened through a vet leaving leaflets for pet insurance in the waiting room, or a car dealer referring new car buyers to the local insurance agent, in exchange for an introduction commission.
In October 2018, the Insurance Distribution Directive (IDD) formalised this across the whole EU, stating that the activity of sharing details about an insurer with a potential customer and vice versa is exempt from regulation.
How does this apply in a digital world? The details of the IDD implementation vary by country. But in both the UK and France, the two countries where Hokodo has been most active, we have seen that, so long as certain controls are in place, platforms are able to include buttons, links, or other calls to action, which take the customer to the website of an authorised partner where they can purchase insurance. In Hokodo, we refer to this as the “light integration” model.
For platforms looking to do more than making introductions to purchase insurance, a number of options are available, which I will explore in the next article.