Times are a-changing. Social media has been influencing many areas of the business world, and is now gaining ground in the insurance market.
The insurance industry, typically old-fashioned in its practice, is heading for an unprecedented overhaul as the emerging influence of social media takes hold.
Helping to drive the revolution is financial services expert, Steven Mendel.
The former head of wealth management for Close Brothers Group, Mr Mendel is the chief executive and co-founder of Bought By Many.
A unique new service, Bought by Many helps communities use their collective power to buy insurance on better terms than they could get as individuals. Examples of Bought By Many insurance buying groups include: parents of children who play rugby; plumbers starting their own business; horse riding insurance for children, and residents of Yeovil, Sommerset — Bought By Many recently secured up to 12.5 per cent off Legal & General’s “Extra or Essentials” home insurance for people living in postcodes, BA20 and BA21. Mr Mendel, 45, says: “The insurance industry is completely overdue a major overhaul.
“It has never had any innovation, with two notable exceptions: about 20 years ago, you were able to buy your insurance not just from brokers but from companies such as Direct Line; and 10 years ago, aggregates came along and took on the direct businesses, with the growth of confused.com and moneysupermarket.com, but actually that hasn’t done very much for what consumers buy or for the prices.
“It hasn’t done anything in terms of what consumers buy. The product is exactly the same. For instance, your car insurance or contents insurance is exactly the same as what it would have been 25 years ago. It is unchanged.” He adds: “There are very few businesses implementing change in financial businesses, period, and especially when it comes to insurance.”
Mr Mendel, who has held several high-profile positions including director at Barclays Wealth and financial services director at Christie’s, says that when he left corporate life and asked an insurer for a new health policy to cover him and his family, he was quoted four times the cost that a corporate would pay.
“Insurance industry deals with individuals as a one-off but they can be much more competitive with corporates.
“Working in wealth management was all about how you deliver to consumers — the right things they should be doing with their savings. So although I haven’t spent the past 25 years in mainstream insurance, part of our offerings have always been insurance offerings, ie: art insurance for Christies. It is an industry I know very well.
“Frustratingly, as a business leader in that space, there was very little I was able to do to change what we offered on behalf of our business that was different to what we had offered ten years previously.”
“At Bought By Many, we want to give groups of individuals a voice, enabling them to come together within a group so that when we negotiate with insurers on their behalf, we are getting them a much better deal than they would get on their own.”
Group buying is clearly a growing market, with more and more sites sprouting up. These include Groupon, Incahoot and Living Social.
Launched in September, Bought By Many relies on collective demand and critical mass. Around 100 people per group are needed, depending on the policy. It has witnessed a considerable increase in customer numbers, partly due to its viral efforts. The site makes it easy for users to use social media and invite friends to join via Facebook, Linkedin, Twitter and the like.
“The theory is: the more people that join the group, the cheaper it is for everybody. The first person to join the group gets the same benefit as the 500th.”
Mr Mendel co-founded Bought By Many in 2012 with Guy Farley, to, as he puts it, “shift the balance of power in insurance.” He previously qualified as an actuary at Aon and has held roles at Close Brothers Group as head of wealth management; at Christie’s as financial services director; at Barclay’s Wealth, and at McKinsey.
The site struck its first “deal” at the end of last year, securing personal accident insurance for rugby-playing children. Others have followed — the site’s fastest-growing group is travel insurance for those with diabetes, which, set up in December 2012, now has over 250 members.
There are plans to roll out several more such as a travel insurance group for over 65s.
So, how has the concept been received by the insurance industry? “Slightly shockingly, they love it,” says Mr Mendel.
“This is because they get to target niches and communities, which they like. This is important because there was a piece of legislation that came along recently called “Solvency II” which determines how much capital insurers have to hold for every single policy that they sell. And that amount of capital decreases the more diversified the booker business has, so insurers are looking at their booker business and seeking to target other areas but they can’t target those groups themselves. All they can do is take out advertising.
“We give them the ability to target very specific groups which is very attractive to them as they wouldn’t be able to do it on their own.
“The challenge for us is to go from encouraging early contact with insurers to making it happen in practice on the ground. Most insurers have not dealt with small businesses like ours before. It’s an organisational challenge for them.”
Mr Mendel believes his business could trigger a complete change in the insurance — and wider finance world.
“I think it’s definitely possible and I think it has some very wide-reaching opportunities so it doesn’t need to stay just in the insurance space. There are lots of other parts of financial services that could benefit from the concept of collaborative consumption and we would like to do that to a wide group, not just general insurance.”
And besides, he points out, such change has been a long time coming.
“The insurance industry has had plenty of time to innovate on its own and to change the way insurers interact with consumers but for lots of understandable reasons, has found that very hard. Lots of insurance companies are very large and have got in place lots of cheques and balances that have been necessary to ride out the credit crunch and deal with lots of issues they have had over the years. And I think that governance structures and that inbuilt the risk-averse nature has meant that the insurers have actually been incredibly conservative and stuck to their own knitting, meaning consumers have ended up with something that has not really changed for a very long time.
“It is easier for new businesses to come in and make those changes on behalf of the industry and that is exactly what we are doing.”
Mr Mendel lives in Mill Hill, north London, and is a member of Mill Hill Synagogue. He is married with three kids and has a passion for cycling, his sax, and for the charities he is involved with.