Insurance is a highly regulated industry with the prices of policies fixed by regulation. If a small business goes to a hundred insurance brokers and asks for a quote for a particular type of insurance from a specific insurer, the price quote will come back the same a hundred times.
Traditionally, insurance policies sold to small business owners are typically sold by the same agents who handle the owner’s’ personal policies. Small businesses will often pay more than needed for insurance. Different insurance companies can charge widely different prices for similar policies. A broker that does not have a deep knowledge of a particular industry may request quotes from companies that are more expensive. Given that there are thousands of insurance providers and a local insurance broker may only reach out to 3 or 4 companies for quotes, the probability of getting the lowest rate is low.
Several insurance brokers are now starting to apply technology to the process of searching for the lowest rates. Embroker, a new broker focused on the business insurance market, is using technology to assist clients in finding lower rates and to facilitate a better insurance experience.
I had the chance to speak with Matt Miller, the CEO and co-founder of Embroker. For the last year, Embroker has been building a platform for small and mid-sized businesses to manage their coverage. Currently, the platform is in closed beta with 100 businesses. The following Q&A is reconstructed from my notes and is not a verbatim transcript.
How is the market for business insurance different than the consumer market?
In the consumer market, there are insurers like Geico that exclusively sell directly to consumers and insurance that is exclusively available through certain local agents who sell products from only one insurer, like State Farm agents. Unlike the consumer market, insurers in the business market tend not to restrict access to their policies. Business insurance brokers can generally work with any insurer they would like.
Most businesses with employees are required to have workers compensation insurance. What mistakes do you see businesses make that end up costing them money?
A common mistake is to misclassify workers. One of the primary factors which determines how much a company pays for workers compensation is what jobs their employees are performing.
A window washer who works hundreds of feet in the air outside of skyscrapers has a much higher risk of a serious injury than a person that does an administrative job inside an office. While a window washer is not likely to be misclassified as an office manager, there are many job classifications which sound very similar but actually are not. Misclassifications are common.
At Embroker, we discovered that we had misclassified workers, which led us to paying higher premiums. We have inside sales professionals; they work from our office and do not visit client locations. They had been misclassified as sales reps who spent time working outside of the office. The difference in premiums was close to 50 %. Misclassifications happen in all sorts of businesses. For example, in the restaurant industry, waiters often get misclassified as bartenders.
Do small business owners generally understand the coverage they are buying?
When we talked to small business owners, we found that they often assumed they had coverage which their policies did not include. For example, restaurants often assume that their property and casualty insurance covers damage caused by malfunctioning drainage. This is not always true, particularly in places where there is a significant risk of flooding like San Francisco. At Embroker, we have developed tools which explain coverage in plain language.
I see you built a tool that enables small businesses to collect proof of insurance coverage from their business partners and vendors. Why is this important?
Embroker clients can provide us the email of their vendors and the type of coverage they would like to confirm. We then collect the documents confirming coverage. This can be important for two different reasons. Many companies have contracts that require that their subcontractors have insurance coverage. We enable companies to document this with a minimal amount of effort. However, there is also an important business reason to make sure your vendors have coverage. What if they do something that leads to lawsuits? For example, if a restaurant buys tainted tomatoes from a vendor and their customers get sick, the vendor should pay the resulting damages.
About Matt Miller:
Matt Miller is the founder and chief executive officer of Embroker, the first modern way to buy and manage business insurance.
Prior to founding Embroker, he was a principal at the private equity firm Hellman & Friedman, where he led investments in the insurance and software space. While at H&F, he served on the board of directors of Renaissance Learning, HUB International, and Applied Systems. Prior to joining Hellman & Friedman, Mr. Miller worked at Bain Capital in Boston and Hong Kong and at Bain & Company in New York.
Mr. Miller graduated summa cum laude from Duke University, and earned an MBA from the Stanford Graduate School of Business, where he was an Arjay Miller Scholar and co-president of the Private Equity club.