Octopus portfolio company Bought By Many works by bringing together communities of people who have similar, but niche, insurance needs. By negotiating for the group as a collective, the company tries to secure better insurance deals than if the individuals went it alone.
In a business world that is increasingly seeing more innovative approaches challenge incumbents, this format should scare the big insurers. But founder Steven Mendel observes that the more established names aren’t likely to be pivoting in response any time soon – a situation that could well allow his company to establish a serious foothold. In this piece, the founder discusses the ridiculous insurance quote that inspired the company’s birth, the problem of prioritising your efforts in a scale-up, and just why he isn’t that concerned about his giant competitors.
How did you get the idea for the company?
I’m an actuary by profession, and in my last corporate job I ran the wealth management business for Close Brothers. I was getting ready to leave and do my own thing, envisaging something insurance-based.
As a Close employee, I had benefited from a corporate healthcare package, and I got in touch with AXA for a price on continuing my cover for my wife and kids. I required exactly the same policy, but I would be paying for it myself. I found out it was £6,500 – four times the price of my policy at Close!
I had expected something a bit more expensive because of the extra admin when you’re dealing with one person rather than just one corporate, but four times the price? So from that I learnt about collective buying power, the ability to negotiate as a group, which as an individual you just don’t get.
What happened next?
[My co-founder] Guy Farley, who was also my CTO at Close, and I were talking over lunch. I told him I was going to leave and he told me he wanted to do something different too. One brief sandwich in Pret gave rise to many more and in September 2012, the two of us and our first employee set up Bought by Many.
We started out as an introducer; we would go to insurance companies and say to them, ‘Tell us where you want to grow your book of business, where do you want very specific targeted access to insurance risk, and we’ll go and build you those communities that represent that risk’.
“I used to worry why insurers were letting us be as successful as we were”
Insurers liked this because they got lower-cost targeted acquisition, we brought them books of business that were much more sticky; the customers renewed their [policy]. They also had a better claims process because we worked to improve the experience of the community and yet the insurers were really only able to offer a benefit to the individuals of better price. They were really not able to design the product better or to give their customers a better experience.
We knew we had to do more and different. So we then recognised that we would have to step out of just being an introducer and start doing a whole range of new things in the insurance space, and we bought a small business with the right regulatory permissions that enabled us to do that. After we bought and built out the new business we then launched our own products.
Which space did you start out in?
We chose the pet insurance space to start with, and in that you will see differentiated products, products that consumers are asking us for that are not available anywhere else. You will get an end-to-end customer journey that’s completely different from anything you would experience anywhere else. We took the opportunity to completely re-imagine the whole customer journey from making customer contact simple, easy, straightforward, the whole way through the process; live chat, Facebook messenger, email, telephone, whatever you want.
We rewrote all the policy documentation and made them bespoke to each client, so whatever optionality you pick, everything you tell us about yourself, and in this case your pet, is reflected in the document.
How did larger insurers react to your model?
I used to worry why insurers were letting us be as successful as we were. I couldn’t understand why weren’t they coming to steal our lunch; what was I missing? And then I would worry that they were just going to come and do it, throw a ton of money at it and we were going to get walked all over. Now I don’t worry about it at all because it hasn’t happened. I increasingly understand that when you have got a large historic incumbent book of business on old school legacy systems, it is very hard to make a change.
Some of the changes we made are really easy; for example, one of the things we introduced was to give consumers a zero-excess option. It’s not cheap; you have to pay for it, but people asked us for it and it’s hugely popular. And this would not be impossible for a large-scale incumbent insurer to copy. It’s not rocket science, yet nobody has done it. Interestingly a few start-up insurance companies have copied this but none of the incumbents have.
Will there be a point, though, at which they have to pivot?
A lot of the large insurers think that brand is the only thing that matters, and particularly in a conservative industry like insurance, their expectation is that people will buy from a brand they recognise because if push comes to shove and they’ve got to make a claim, they want a large insurer to be there so the consumer will know that they are going to get paid and they’re not dealing with some fly-by-night business.
We have addressed that particular issue head-on in a very specific way; we ask every single person who comes into contact with us to publicly rate us on Feefo. And we don’t care why they’ve been in contact with us: it could be to ask a question, it could be to buy a policy, it could be to make a cancellation, it could be to make an adjustment, it could be to make a claim, we don’t care. We give them the option to review us and lots do; and many more than any other insurance companies’ customers do.
“We can see from the searches and social demand that there is an enormous part of the marketplace where there is no credible offering”
We make all of those reviews and all of their commentary completely public, which is unusual. Whether you are a claimant and we’ve turned down your claim, or you’ve just bought a policy and you think it’s the best policy you’ve ever seen in your life and you’ve been looking for it for years, we put all of it together. The outcome is a Feefo rating of 4.8 out of 5.
We’re currently paying 94 per cent of all claims and we’re paying them within 48 hours, and we’re doing nearly 2,000 claims a month so these are significant volumes now of people who are getting proper exposure to something that only a few years ago you would never have heard of.
How did you target the business sector?
We are very focused on tradespeople; market traders and craftsmakers and mobile hairdressers and the like; people who have something that they worked hard to build up but it isn’t a white collar profession; we think that marketplace is already well served.
We can see from searches and social demand that there is an enormous part of the marketplace where there is no credible offering and actually many consumers don’t even understand what a credible offering looks like. They don’t really understand what questions they should be asking and what they should be doing. And so our agenda here is to help them understand what they should be doing and then to understand their needs and to deliver for that.
How did you come by Octopus Investments for your backing?
Octopus led our Series A which was October 2016. We had known them for about three years by that point; we know a number of the individuals there very well. And so it was natural for us to start a dialogue with them about possibly them leading our Series A, and it’s been a very good relationship. We get on very well with them. They think we’re a great investor’s company and we think they’re a great investor. So it’s a mutual agreeable arrangement.
What are the biggest challenges at this point?
The biggest issue for us is just prioritisation. There is just so much we could do. It’s about staying focused and only adding a new capability and new areas of interest when we’re genuinely ready to do that, rather than going ‘oh that’s really interesting, let’s go and look at that’. Somebody last week said the pet insurance industry in Japan is about to explode, you should definitely be there. And I’m thinking oh that’s really interesting, Japan, big pet-owning country, no pet insurance, it’s going to explode, should we – hang on a minute, what on earth am I thinking about?
This is genuinely not on our short or medium-term agenda. Stay focused. So I said to these guys, thanks for the information but genuinely we have other things to be getting on with right now.
What’s the exit plan?
Whatever I tell you will absolutely be wrong. If I say in ten years time it will be next week. I literally don’t know the answer. So our agenda here is about building a long-term, sustainable business. And if at some point in the process, exit happens, that’s not going to stop us wanting to keep doing this.