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The term “InsurTech” is applied both to vendors and insurance companies regarded as being disruptive in some manner or degree. In the latter category we’ve seen several pure distribution plays, and also some that either started as a carrier—e.g., Lemonade—or evolved from agent/broker to carrier status—e.g., Metromile, NextInsurance. The recent launch of Bamboo Insurance (Woodside, Calif.), presents another model, that of program administrator as modern, digital insurance company. Bamboo launched in mid-June with the announcement that it had struck an underwriting agreement with XL Catlin (Stamford, Conn./Hamilton, Bermuda). The company is led by industry veteran John Chu, a strong advocate of modern technology at The Hartford in the 2000s who has gone on to hold leadership positions in other industries. Chu sees Bamboo as “InsurTech-focused” rather than being an InsurTech itself. The company offers Home Owners HO-3 and Fire, and Dwelling insurance, using advanced technology to drive processes characterized by transparency and advocacy, and correcting what Chu characterizes as a historical relationship with agents and policyholders bordering on the adversarial. Seeing Chu’s re-emergence in the insurance industry in a disruptive capacity as an exciting development, and liking what we saw in what has been revealed about Bamboo so far, Insurance Innovation Reporter took advantage of the news to reconnect with him.
Insurance Innovation Reporter: Tell me a little about the origins of Bamboo, starting with the opportunity you saw in the market.
JC: All big insurance companies have legacy environments, and it’s very hard to transition from 50 to 70 years of tradition to doing business in a new way. It’s been true of other industries, including where companies have gone some distance in adopting new technology. For example, Walmart was a dynamic, well-rounded operating company, but then Amazon appeared and took advantage of technology at a more basic level. It was able to do that because it was unburdened by legacy technology and culture. All the big insurance companies have made significant investments in new technology, but legacy impedes their progress. Our approach was to reimagine the insurance business, and that if you build from scratch, you can leapfrog into a generational difference—much like Tesla did without the legacy operational structure of incumbent car companies.
We have sought to avoid the legacy-related cost burden that has dogged insurers. We think of ourselves not as an InsurTech, precisely, but as InsurTech-focused. Our approach was to build technology that is cloud-based, interoperable and scalable in a much more economical fashion. The greater integration afforded by architecture featuring RESTful APIs allows you to adapt at a much faster rate. In a legacy world, for many capabilities that companies are trying to build, 80 percent of the cost is simply in the data conversion. We started with the mindset avoiding that conversion and building in such a way that you won’t be as burdened when you do have to convert.
IIR: Why did you choose the program manager model as opposed to a carrier?
JC: We thought of building a carrier and building out a balance sheet, but in today’s world we can be carrier-like without having to build out a balance sheet. Think of yourself as a carrier without a balance sheet, and you’ve created a very different financial model in terms of how to go to market. In the past, you’d have to raise $100 million and get AM Best to rate you. Having tremendous amounts of capital is not necessarily the advantage it used to be. Big book value is not necessarily a great thing—it’s about capital efficiency.
IIR: So, you’re neither a carrier nor an agent/broker, but you are seeking to provide a reimagined process for the consumer?
JC: Yes, customer experience is one of our hallmarks. We’ve gone through a multitude of customer use cases to create a very different customer experience. We see that as one of the most important areas where InsurTechs are trying to attack traditional insurance to make it faster, cheaper and better. We’re taking advantage of trends, secular and new, and creating ourselves differently. At our heart, we’re an insurance company—but reimagined using all the different capabilities available today. There can be a lot of friction, especially in claims, when customers do not understand their coverage. In our advocacy model, to help the customer understand what will and will not be covered. That transparency will help close gaps in coverage and trust.
We’re the broker of record so we own the customer relationship. Basically, you need to have willing partners work with you to make sure you’re partnering in terms of specific types of risk you want to go after. If you go back 15 years, MGAs was four-letter word. They had underwriting authority, and carriers were losing shirts. If you think like a carrier in an MGA relationship, the first thing you have to think of is, “How do I make money for my reinsurers?” In thinking about some InsurTech approaches to industry disruption, you have to ask how long the reinsurers will sign up for that. That’s where the InsurTech industry will fail: because reinsurers will be left holding the bag.
IIR: What’s different in the building of the company with regard to its business strategy?
JC: We built Bamboo with a “capital lite” model, thinking of ourselves as a product marketplace with the ability to be de novo or greenfield. You need scale in auto insurance, but property is a little different. We’re very focused in specific area of the market. I firmly believe, if you want to be universal player, there will be lines you have to subsidize. We’d rather be niche and meet our targeted profitability. That’s a very different approach than many of our MGA InsurTech competitors. As we build ourselves and broaden our product portfolio—unlike a carrier which would acquire—and we can build up expertise so that we’re never subsidizing any lines. We have reinsurance relationships across spectrum of risk so we cobble together a product portfolio and minimize subsidization.
This goes back to the foundational piece of building a business with a more interoperable platform and the agility that affords. Legacy carriers can’t maneuver that way. When you develop different programs and can seamlessly deliver them, you have higher concept of profitability because you can place risk in the right buckets. This flows from being able to develop the right use cases, and it’s reinforced by the ability to develop better customer relationships. From a carrier’s perspective, your ability to have broader profitability across a broader set of risks is greater, so your capital partners will be more excited to do business with you. And if you have products that span a greater dimension of the universe, you’ll have better uptake and conversion with agents. With the technology and consumer orientation for platform, you tend to keep them longer. You’re converting better, making better losses and retaining better, much different profit model. And all this comes with a thoughtful technology platform with regard to its impact on operating costs.
IIR: Can you give us some detail about your technology investments?
JC: We licensed BriteCore’s policy billing and claims systems. It’s a mid-market, cloud-based solution using AWS, all on open source platform, with RESTful APIs. We’ve applied a consumer portal over the top, including our website with very intricate chatbot-like technology to deliver customer experience. We’re building out a host of algorithms and tools to develop for today’s standard of customer interaction, for example applying machine learning AI in underwriting. Twenty years ago I built some of the first straight-through processing in terms of automated underwriting. This is the same concept but turbocharged in terms of the analytics behind it. And it allows us to do a host of things in terms of creating different experiences, leverage our operating platform.
One of the things we reimagined as an insurance company is to outsource all fixed costs: outsourcing, HR, Legal, compliance, finance. We have a very different cost structure as an organization. We have a small team with decades of insurance experience. By outsourcing everything that is not core, we can focus on our service model and on leveraging data & technology in our products.
IIR: Tell us about your plans for growth.
JC: We launched in California with homeowners and we full anticipate expanding to about half a dozen products in the state of California over the next 18 months. From there we have aspirations to grow geographically. But we want to maintain out discipline of growing at right pace, and getting returns we laid out with investors and partners.