Bee-sure AG. A Digital Insurance Company with payback revolutionizing the insurance market

Table of contents

Executive Summary

Table of contents

List of abbreviations

List of figures

List of tables

1 Introduction
1.1 Problem and objective
1.2 Scope of work

2 Company Description

3 Vision & Mission
3.1 Vision
3.2 Mission

4 Product & Service Description
4.1 Products
4.1.1 Living
4.1.2 Liability
4.1.3 Disability
4.1.4 Situational insurance products
4.2 Service offerings
4.2.1 Living service offerings
4.2.2 Disability service offerings
4.2.3 Additional services

5 Industry Analysis
5.1 Industry overview
5.2 Barriers to entry the market
5.3 External influencing factors (PEST analysis)
5.3.1 Political factors
5.3.2 Economic factors
5.3.3 Social factors
5.3.4 Technological factors

6 Marketingplan
6.1 Social Media Marketing
6.2 Referral Marketing
6.3 Cross-selling with predictive Marketing

7 Sales Plan

8 Competitive Analysis
8.1 Competitor Overview
8.2 Competitor Analysis (SWOT-Analysis)
8.2.1 Strengths
8.2.2 Weaknesses
8.2.3 Opportunities
8.2.4 Threats

9 Operations Plan
9.1 Location and Infrastructure
9.2 Policy administration and claims handling
9.3 Operational team

10 Management Team

11 Financial Plan
11.1 Financial Summary
11.2 Current Ownership Summary
11.3 Funding Request / Terms of Investment
11.4 Sources and uses of funds
11.4.1 Sources of funds
11.4.2 Uses of funds
11.5 Exit Strategy
11.5.1 Management-Buy-Out / new long term investor
11.5.2 Takeover by a competitor
11.6 Projected Financial Statements
11.6.1 Costs before start of operations
11.6.2 Financial assumptions
11.6.3 Projected profit and loss statements

12 Conclusion and Outlook

References

ITM - Integral Total Management

List of abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of figures

Figure 1 : Smart home solutions

Figure 2: Lemonades automatic claim handling process

List of tables

Table 1: Insurance contributions by division in bn

Table 2: Insurance policies by division in m

Table 3: Costs before start of operations

Table 4: Number of policies planning

Table 5: Human resource planning

Table 6: Projected profit and loss statement 2018

Table 7: Projected profit and loss statements 2018 - 2022

Executive Summary

The insurance industry is one of the most relevant industries in Germany. Currently the overwhelming majority of conclusions for insurance policies still take place in the offline world despite the fact that today’s customers expect digital services with faster processes from their insurers. Simultaneous, price consciousness and the willingness to switch to another insurance company continues to increase. This market development opens up enormous potential for new market entrants with new digital offers and modern processes.

Bee-sure AG will be the first fully digitalized insurance company, offering affordable, individual and flexible products and very fast processes of applying and claims handling. The high degree of automatization and the renunciation of the usually very high commissions, lead to an extremely low cost structure. In contrary to traditional insurance companies, Bee-sure is not in conflict with the customers’ expectations and gains no profit by denying any claims. Only a fixed fee out of the premiums is taken to settle the operating costs and to make a profit. If, at the end of the year, surpluses have arisen from the rest of the premiums, these are paid back to all customers that did not have a claim during this period. If the claims exceed the capital available, the difference is paid by a reinsurance company. By offering additional non-insurance-related services, a comprehensive “everything-from-one-hand” solution is provided to the customer. This generates additional revenues, opens up further growth by offering supplementary products, intensifies the contact with the customers, and thereby very likely increases their loyalty to the company.

Bee-sure is expected to revolutionize the insurance market and is now looking for partners on its successful journey! Once the foundation phase has been completed, the return on invested capital (R0IC) is expected to be at around 10 % showing a further increasing trend in the following years.

1 Introduction

1.1 Problem and objective

The insurance industry is one of the most relevant industries in Germany. As of the end of 2016, 431 million insurance contracts with an annual amount of premiums of € 194.2bn exist. This represents between 6 and 7 % of Germany’s gross domestic product (GDP).¹ But during the last years, insurance companies are facing increasing challenges in generating new business. In addition, the industry is lagging far behind on issues regarding digitalization. Despite it becoming more and more common or even a natural requirement for many people to obtain their information about products or buying goods online, the overwhelming majority of conclusions for insurance policies in Germany still takes place in the offline world.² Within the divisions of life- and health-insurance, which are usually advice-intensive products, only 3-6.1 % of the respective applications in 2015 were submitted and finalized online. More than 90 % of the business occurred through an insurance agent, broker or bank distribution. But even in the division of property and causality insurance the share of online deals in the new business were only about 13.5 %. However, about one-third of the population aged 18 and more has already taken out insurance online and 50 % can imagine doing so in the future.³ 82 % of the people do inform themselves online before applying for an insurance policy. For about 60 % of the German citizens, the internet is the most important channel in order to interact with an Insurance company in the future. This includes seeking advice, contract conclusions, and also notification of claims.⁴ 43 - 46 %, respectively, expect the opportunity of managing their contracts online and demand an automatic claim settlement.⁵ These figures demonstrate the importance of providing digital offers from insurance company in order to stay in contact with their customers. Whereas in the past the relationship management was done by the agents, customer retention by positive digital experiences becomes more and more important. Especially the Generation z (born 1995 to 2012), which presents a large potential of new business for the insurance industry within the next decades, are used to the conveniences and possibilities available by their smartphones and by the digital world.⁶

While the customer expects more digital offers and services with faster processes (especially regarding claim settlements⁷ ) from his/her insurers, the price sensitivity and the willingness to switch to a better offer of another insurance company increases.⁸ Online comparison portals enable the customers to compare prices and find a more suitable offer very quickly. This means in consequence that insurance companies have to improve their digital offers, accelerate and automate their processes without raising or perhaps even by reducing their prices. However, two thirds of the global insurance companies still work with IT systems from the 1970s or 80s⁹ that will require high investments into their infrastructure, the level of personnel and material costs remain very high and the corporate structures are outdated, bureaucratic and slow.¹⁰ As a result meeting the expectations of todays’ customers becomes very difficult.

According to a study of Bain & Company in 2012, the Net Promoter Score (NPS), a value for measuring the customer’s loyalty of insurance customers in Germany, is minus 8 %.¹¹ That means that the amount of critical customers is higher than the satisfied ones, resulting in a quote of 40 % of customers who are willing to switch their insurer. Besides the points already mentioned, other reasons for these negative results were for instance that their products were not sufficiently individualized, not flexible enough, and not transparent enough to understand, which risks were insured and which were not.¹²

This market development opens up enormous potential for new market entrants with new business models and new corporate structures. If the infrastructure is built up from the beginning with modern processes and a high degree of digitalization and automatization, a technological leadership can be achieved simultaneous to a cost leadership. In addition, it has the possibility to develop new and more contemporary business models outside of the traditional structures and ways of thinking.

1.2 Scope of work

This work contains an entire business plan of the start-up-company Bee-sure AG including the financial forecast for the first five years and the further plans for development.

2 Company Description

Founder and member of the management board will be Dr. Max Mustermann, Erik Somssich and Meronim Jorina. Supervisory board members will be Peter Mustermann and Michael Mustermann. The company's headquarter is planned to be in Cologne, Germany and the legal form will be an insurance corporation (AG). After founding, the company will apply for a property & casualty (P&C) insurance license in Germany at the Federal Financial Supervisory Authority (BaFin). Currently the founders hold 100 % of the company’s shares. Additional participations of business angels and other investors by a capital increase is planned.

Bee-sure AG will be an entirely new type of insurance company in Germany. By combining high technology with efficiency and transparency Bee-sure will be the first fully digitalized insurance company, meaning completely without paperwork. By this way an insurance experience is created that is very fast both in the process of applying and the process of claims handling. In addition, the products will be more individual and flexible but still very affordable.

Almost every insurance product in Germany is based on similar product categories and pre-defined tariff structures. Usually a basic product is offered and the customer can choose between one to three extra packages.¹³ But todays’ customers do not always fit into these categories and demand better tailor-made individual options. In addition, their lives and consequently their needs change more often.¹⁴ For this reason Bee-sure will offer tariffless products. Such models exist already since the 1990s, but were not feasible for most of the insurers due to the lack of their systems’ performances.¹⁵ Today’s technology enables companies to offer customers a combination of different components, depending on their individual current needs.¹⁶

At the beginning Bee-sure is planning to offer p&c products in three core categories: living, liability and disability. In the future additional categories such as home owning, legal protection and innovative so-called situational insurance products are planned. Situational insurances are products with short durations that can be selected or terminated flexibly. Examples are travel insurances, ski insurances or marriage insurances. Founding an additional life insurance company and entering especially in the categories of term life and occupational disability, can be an option at a later stage.

A significant cost factor of insurance products in Germany are, aside from the administration costs, the distribution costs. Due to high commissions for agents and brokers, about 50 % of the total costs of p&c products and 60 % of the total costs of life insurance products are costs concerning the sales forces.¹⁷ Distribution of Bee- sure will take place online only. Consequently no costs for commissions occur leading to a much lower total cost ratio of the products.

Another innovation is the calculation and the usage of the premiums paid. Traditional insurance companies earn money by paying out less money for claims than they receive from insurance premiums.¹⁸ Bee-sure takes only a fixed fee out of the premiums to settle the operating costs. The rest of the premiums are used completely in order to pay costs for reinsurance and to pay out all customers’ claims. If, at the end of the year, surpluses have arisen from this strategy, these are paid back to all customers that did not have a claim during this period. If the amount of the customers’ claims exceeds the capital available, the difference is paid by the reinsurance company. That means that Bee-sure is not in conflict with the customers and gains no profit by denying any claims. On the contrary, this has the effect that justified claims can be paid out very quickly and without any hassle. Since 83 % of the customers that are unsatisfied with their recent claims handling plan to switch their insurer, this leads to a significant competitive advantage.¹⁹ In addition, the customers’ willingness to attempt insurance fraud decreases with the understanding of damaging the community and not the insurance company by such action.²⁰

3 Vision & Mission

3.1 Vision

“Revolutionizing the insurance market with individual, flexible and completely digital insurance products at a low price!”

3.2 Mission

The company’s mission is setting new standards in the insurance market. This includes a fully automatic process from application to claims processing, transparent, individual and flexible products, and a low cost structure by eliminating the expenses of maintaining a sales force. In addition, the company puts the customer in the center of all activities by making its profits independent of claims payments and refunding excess premium-amounts.

4 Product & Service Description

4.1 Products

At the beginning Bee-sure will offer p&c products in three core categories: living, liability and disability. In the future additional categories such as Home owning, legal protection and innovative so called situational insurance products are planned.

Situational insurances are products with short durations that can be selected or terminated flexibly. In contrast to traditional insurance companies, Bee-sure will not use the common division names (e.g. Haftpflichtversicherung, Hausratversicherung etc.) with their typical fixed tariffs and their non-transparent scope of insurance coverage. The customer just chooses an insurance segment with a general scope. Additional components enable a transparent customization in a modular fashion.

Choosing more than one product gives a discount of 5 % (for two products) or 10 % (for three products) on the total premium.

4.1.1 Living

Living insures the total value of personal property (such as furniture, clothing, electronics etc.) within the policyholder’s home, and 10 % of total value in enclosed rooms outside of the policyholder’s home. Valuable objects (jewelry, art, cash, sports gear and cameras) are limited to€ 1000. Insured perils include fire & smoke, burglary and vandalism, wind, hail and lightning, and pipe water damages.

Additional components that can be included are:

- Valuable objects above € 1000
- (E-) Bicycle theft outside
- Natural disasters (high water levels, flooding, weight of snow)
- Theft of vehicles
- Emergency aid if home is uninhabitable
- Coverage for roomate’s property (can be selected on & off flexibly)
- Damages & losses from subletting (AirBnB) (can be selected on & off flexibly)
- Full coverage in hotel rooms or similar residencies? (can be selected on & off flexibly)

4.1.2 Liability

Liability protects the policyholder from financial risks of claims for damages. Insured are all claims from personal injury and property damages, that are caused by the insured person as a private person and without intention. It covers both legal costs and any legal payouts for which the insured would be responsible if found legally liable up to € 10m. Included up to € 5000 are complimentary damages, damages to borrowed or rented objects, rental property damages, and coverage of bad debt loss.

Additional components includable are:

- Whole family insurance
- Key loss (private and vocational)
- Damages to insured family members
- Tort damages by disabled children
- Animal holder's liability
- Liability by cyber-risks
- Liability for the use of drones

4.1.3 Disability

Disability protects the policyholder from the financial risks of disability due to accidents. According to the percentage of disability, a specific one-time payment or monthly pension is paid.

Additional components includable are:

- Medical and legal telephone assistance
- Immediate payment in case of an accident
- Recovery money including assistance service “rehabilitation manager”
- Payment in case of accidental death
- Daily hospital benefits

4.1.4 Situational insurance products

Situational insurance products are products that can be included only for a certain period and/or in a specific situation.²¹ This concept is already known in the segment of travel health insurances. Additional examples are the financial protection of upcoming events (e.g. wedding insurance) or sport vacations (e.g. accident insurance or equipment insurance on skiing holidays). The offerings can be strongly influenced by analyzing the user data (see 6.3).

4.2 Service offerings

Bee-sure will offer their customers additional services, which are related to the core products, but have nothing to do with insurance. This opens up the possibility of providing a comprehensive customer experience with an “everything-from-one-hand” solution. This approach is already established in other industries such as the retail­or telecommunication-markets.²² An example is cooperations of automotive companies with telecommunication companies in order to provide WiFi in cars.²³

This diversification of services offers several opportunities: First of all it can generate additional revenues in the form of commissions and customer mediation. Secondly it can open up additional growth by offering new products which result from this partnership. Thirdly, the partnerships can have preventive effects and can consequently minimize cases of losses. A typical example in this respect is the cooperation of a health insurance company with a fitness studio. And additionally it can lead to an intensification of contact with the customers. With respect to the last point, it must be mentioned that the utilization of services occurs completely within the insurance app. This leads, in contrast to the common insurance-customer- relationship where the customer only contacts his/her insurer in the case of a loss, to a regular and steady contact. From the customer’s perspective, these additional offers can enhance the value of the insurance products and increase their loyalty.

4.2.1 Living service offerings

Especially in the area of living, several cooperation’s are conceivable. In this context, special benefits in terms of prevention and convenience can be realized.

- Security checks: Special discounts on security checks regarding one’s own housing with focus on identifying potential risks such as fire hazards, providing advice on burglary prevention, or recommending intelligent burglary protection or fire alarm / firefighting systems.
- Discounts on intelligent safety systems: Since a cost-benefit calculation is very difficult for individuals, investments in intelligent safety systems are still neglected. But due to today’s technological possibilities with intelligent sensors, risks can be discovered early on and damages consequently, avoided. Using correlation and analysis of bigger data sets, non-technical risks can be predicted as well.²⁴ According to a study, 70 % of the insurance customers are interested in automatic safety systems and apartment sensors.²⁵
- Discounts on intelligent smart home solutions: Networking and controlling of all household appliances and energy management with the smartphone. In addition, various other house-related risks can be prevented by remote monitoring or intelligent living systems that for example can close windows automatically (see fig. 1).²⁶
- Discounts on furniture, living accessories or experts in home styling
- Arranging services for house and garden maintenance
- Arranging services for electrical or sanitary installation, key service etc. (e.g. in the event of key loss, insurers contact key service for free just by clicking a button in the app.)
- Many of these services also bear the potential of additional insurance offers

Figure 1: Smart home solutions

Abbildung in dieser Leseprobe nicht enthalten

Source: Wagner, F., Geschäftsmodelle, 2017, p. 17 (freely translated)

These additional services can transform a common living insurance policy into a partnership for life, and the customer’s insurance app to a home control & security center. Especially the so-called generation y (population group born between 1980 and 1999²⁷ ) is receptive to these new possibilities. According to a study, 63 % of the interviewed persons in this age group find it useful, if the system, in the case of fire or burglary, automatically calls the police or fire department. 55 % would appreciate an automatic closing of the water valves in case of a flood.²⁸

[...]

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¹ Cf. GDV Gesamtverband der Deutschen Versicherungswirtschaft e.v., Branchendaten, o.J.a

² Cf. GDV Gesamtverband der Deutschen Versicherungswirtschaft e.v., Statistik, 2016c

³ Cf. GDV Gesamtverband der Deutschen Versicherungswirtschaft e.v., GfK-Befragung, 2016a

⁴ Cf. Bain & Company, Versicherungen, 2013, p. 7

⁵ Cf. GDV Gesamtverband der Deutschen Versicherungswirtschaft e.v., GfK-Befragung, 2016a

⁶ Cf. Braune, M. & Dröse, M., Themendossier Nr. 04/2017, 2017, p. 20

⁷ Cf. Accenture, Der digitale Versicherer, 2014, p. 5

⁸ Cf. YouGovPsychonomics AG, studie: Kundenmonitor Assekuranz, 2010

⁹ Cf. Bain & Company, Versicherungen, 2013, p. 17

¹⁰ Cf. Oliver Wyman & Policen Direkt, Zukunft von Insurtech in Deutschland, 2016, p. 8

¹¹ Cf. Bain & Company, Was Versicherungskunden wirklich wollen, 2012, p. 8

¹² Cf. Bain & Company, Was Versicherungskunden wirklich wollen, 2012, p. 22

¹³ Cf. Versicherungsforen Leipzig GmbH, Studie: Geschäftsmodelle 4.0, 2015, p. 78

¹⁴ Cf. Versicherungsforen Leipzig GmbH, Studie: Geschäftsmodelle 4.0, 2015, p. 17

¹⁵ Cf. Versicherungsforen Leipzig GmbH, Studie: Geschäftsmodelle 4.0, 2015, p. 78

¹⁶ Cf. Versicherungsforen Leipzig GmbH, Studie: Geschäftsmodelle 4.0, 2015, p. 79

¹⁷ Cf. Oliver Wyman, Studie zur deutschen Versicherungsbranche, 2013, p. 5

¹⁸ Cf. Schradin, H. R. & Malik, A., Betriebswirtschaftslehre der Versicherung, 2008, p. 39f

¹⁹ Cf. Accenture, Der digitale Versicherer, 2014, p. 2

²⁰ Cf. Fetchenhauer, D., Tricksen, mogeln, schönfärben, 2016, p. 38

²¹ Cf. Oliver Wyman & Policen Direkt, Zukunft von Insurtech in Deutschland, 2016, p. 16f

²² Cf. Versicherungsforen Leipzig GmbH, Studie: Geschäftsmodelle 4.0, 2015, p. 19

²³ Cf. Versicherungsforen Leipzig GmbH, Studie: Geschäftsmodelle 4.0, 2015, p. 20

²⁴ Cf. Versicherungsforen Leipzig GmbH, Studie: Geschäftsmodelle 4.0, 2015, p. 84

²⁵ Cf. Accenture, Der digitale Versicherer, 2014, p. 14

²⁶ Cf. Haluschak, B., Leben im Smart Home, 2015

²⁷ Cf. Elért, F., Empirische Studie zum Thema Digitales Risikomanagement, 2017, p. 11

²⁸ Cf. Eiert, F., Empirische Studie zum Thema Digitales Risikomanagement, 2017, p. XIII