Think - AT LONDON BUSINESS SCHOOL

Changemakers: Steven Mendel

What do you do when your insurance is prohibitively expensive? Start your own insurance company, of course

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Steven Mendel is one of the most open people you could wish to meet. It is a quality that defines him personally as much as the company he founded in 2012 with business partner Guy Farley to provide insurance to niche sectors ignored by mainstream suppliers.

Prior to starting Bought By Many, Mendel had spent his working life with financial services institutions, beginning as a pensions actuary with AON Consulting, then spending six years with McKinsey as a management consultant, followed by eight years in wealth management with a number of blue-chip corporations in the sector.

The idea for Bought By Many came as a result of trying to buy private medical insurance after leaving a company scheme and being shocked to discover that continued cover for himself and his family would be four times the cost of the corporate scheme. Realising that individuals are at a big disadvantage when buying insurance upset his thoroughly egalitarian sensibilities:

“Everybody’s different. It’s what makes us human. So why should being different make insurance difficult and more expensive to get?”

He had noticed a trend for group buying in other sectors, such as utilities and telecoms. The idea of applying collaborative buying to the insurance market was born. The original business model worked by using millions of lines of insurance search data to identify demand for specific insurance needs. Bought By Many then created online groups for people with these needs and negotiated deals and discounts for them with established insurers.

‘Everybody’s different. It’s what makes us human. So why should being different make insurance difficult and more expensive to get?’

The business has since evolved to offer its own products and customer journey. It designs everything from scratch to improve the insurance customer experience, including launching products with unique features that fulfil the unmet demand identified in its search data.

Aside from the consumer, technology is at the heart of the concept. Mendel is “proud to be at forefront of fintech innovation” and believes passionately in the need for more transparency and innovation in financial services. This is reflected in the business model: ultra-transparency (policy documents that tell you exactly what your insurance does and doesn’t cover); an innovative, hassle-free online claims process; and straightforward arrangements with insurers.

The approach has brought both success and recognition. In the wake of securing a £15 million Series B funding round in July 2018, launching in Sweden, recording £20 million in premium income in the financial year ending 31 March 2018 (doubling gross written premium on the previous year), Bought By Many was ranked 13th in the Sunday Times Hiscox Tech Track 100 list and named the fastest-growing private insuretech company in the UK in September 2018.

The company’s initial attempts to work with insurers drove home just how opaque and clunky the industry is: “Even when we found insurers who were willing to innovate, their ability to understand the pricing, the product and the customer experience was woefully disappointing,” Mendel explains. “They agreed it was required, but couldn’t make it happen due to system, management, cultural and investment constraints. Insurers were unable to capitalise on the opportunity we were bringing to them.”

He recognised they would have to “do it themselves” and over 2015 to 2016 set about putting the necessary building blocks in place to launch their own products. Then another major challenge arose. Bought By Many needed access to the insurers’ delegated authorities, or DAs (external delegation by insurers to intermediaries and other third parties to enable the outsourcing of functions) in order to “own the whole customer journey”, but the insurers were reluctant to give them access. Essentially the message was: “Who the hell are you? Come back in 10 years’ time.”

“One of the things you have to learn as an entrepreneur is how to respond to a change in the wind. How do you respond to things that are completely unexpected?”

So Mendel decided to buy a full-service broker which already had a number of DAs from insurers and (here is the clever bit) use insurers’ money to buy it.

Knowing that the industry has never been short of capital but has also never known how to use that largesse to innovate, he persuaded one insurer to put up “a stack of money” to enable Bought By Many to make the acquisition and subsequently expand their DAs.

The scene was set to go into partnership with one of the world’s largest insurance companies, only for it to announce it was pulling out of the UK insurance sector.

It was here that one of Mendel’s other defining qualities, tenacity, came to the fore: “One of the things you have to learn as an entrepreneur that cannot be taught in a classroom is how to respond to a change in the wind. How do you respond to things like that which are completely unexpected, which do not go your way? How do you react when something goes dramatically wrong for you, when you have planned on an outcome for so many months?” His response was another lateral manoeuvre. He stepped around the carriers (the direct-to-consumer side) and went directly to reinsurers.

Traditionally reluctant to become direct carriers themselves for fear of upsetting their core customer base, he told them, “It’s time for you to start ignoring the carriers, because they’ve started ignoring you.”

One of the oldest reinsurers, Munich Re, which also participated in Bought By Many’s Series A funding round, was all ears to their plans and in record time – a mere three months – heads of terms were agreed. The only questions now were where to start and which product to launch first.

It was at this point that his Executive Education programme at London Business School proved indispensable: “This is where proper, textbook, business-school learnings really helped,” he says. “We were looking for a big insurance marketplace that was growing fast and that we could disrupt. That is why we chose pet insurance in the UK. The two largest players have always been the two largest players, the product design had not changed in over 30 years and penetration rates were only 30%. And, critically, everyone else was focused on motor and home insurance – no one else was interested in this space.”

The next step was to engage potential customers. “We collated 40,000 comments from pet owners on our posts and ads on social media. This insight revealed what people hated about existing policies and shaped the design of our products. There was a lot wrong with what incumbent insurer’s offered, so we decided to change every step of the customer journey, from looking for a quote to claiming and renewal.”

It is an understatement to say it was a winning formula. In the space of two years, Bought By Many has become the fastest growing pet insurer in the world by a significant margin, and almost certainly the fastest growing insurer in any sector in Europe.

The connection with Munich Re has blossomed with that rapid growth: “It’s been a beautiful and symbiotic relationship – to see how a business as big and complex as Munich Re can do something innovative and support a small business at the same time.”

Beyond business success, says Mendel, “The changes we’re making have a real impact on people’s lives. We’re covering pets that have been rejected by other companies, for example. We’ve done some great things, but we’ve still got a long way to go.

“We really want to drag the insurance industry kicking and screaming into the modern age. If we can manage to do that effectively, we will just hang up our boots. Job done.”

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