In 1999, Netflix launched not just a new way to rent movies but a new way to buy — pay one price and swap out titles as often as you please. In the two decades since, companies have applied the same model to high-end handbags and designer clothes, among other things.
Clutch is one of a handful of companies that has taken that concept and kicked it up a notch.
This Atlanta-based startup partners with automakers and dealers to offer vehicles by subscription as an alternative to buying or leasing. The prospect is appealing: pay one monthly fee, flip vehicles as often as you like to suit your needs. Everything is included except gas.
But the model created a gray area as far as insurance was concerned. It’s a commercial venture, yes, but the vehicles aren’t driven for commercial use, nor are they being driven by employees. It required a commercial policy that responded like a personal policy — certainly not an off-the-rack program.
“Subscription is blurring this line between personal and commercial silos. What are we? Where do we fit?” said John Phelps, the company’s vice president of strategy and business development.
As other innovators have discovered, issues inevitably arise when you try to fit the company to the policy rather than the other way around.
“Where traditional carriers try to apply traditional products, it just doesn’t quite work,” said Iain Boyer, partner and head of product/underwriting management for Y-Risk, an underwriting management company.
“When you put a square peg in a round hole, sure, you can probably fit it in. But both the peg and the hole might be damaged a little bit. [With insurance] there’s a risk that if it doesn’t quite fit, there may be problems down the road.”
Building a Lasting Policy
Clutch experienced that early on with a traditional commercial fleet policy. Phelps characterized the policy as “very vanilla.”
“They looked at us like, ‘Well, if you were a plumbing company with X number of cars and eligible drivers, we would generally do pricing that looks like this.’ ”
It didn’t give them what they needed. It couldn’t accommodate the kind of features that Clutch wanted for its customers. It was also prohibitively expensive.
To get the coverage right, Clutch needed a broker committed to understanding their unique model. Phelps was introduced to Jillian Slyfield, managing director and U.S. sharing economy practice leader, Aon. Slyfield is a 2018 Power Broker®.
Together, Clutch and Aon had to tackle a problem many new products or business models face: a dearth of data.
“It’s the early days of a new industry and so we didn’t have … 10 years of experience from 100,000 drivers. But the data we had started to grow and become more statistically relevant.”
With Slyfield on board, the team leveraged data to look like an approximated personal risk — something underwriters could wrap their heads around. Slyfield reached out to Y-Risk, which specializes in the sharing and on-demand economy. Y-Risk’s strong relationship with Hamilton Specialty gave the project the momentum it needed.
“Y-Risk was ultimately the one to say, ‘I get it, I like it, let’s do it this way,’ and Hamilton was the one who said, ‘I trust Y-Risk to do this.’ All of the entities came together to create something that has never existed,” Phelps said.
“I enjoy working with people like Jillian and John and their teams, because collectively, we’re trying to solve a problem and we’re trying to do it in a cost-effective manner,” said Y-Risk’s Boyer. “So it becomes a really collaborative thing.”
Thinking everything through in advance is critical. The teams carefully considered every possible scenario, mapping out every possible circumstance that could impact the platform, the vehicles or the subscribers.
That’s how you avoid surprises, said Slyfield: “I liken it to painting a room. If you just started with a paintbrush and a can of paint it would look like a disaster when you got done. You start with tape. And it takes twice as much time to tape off the room and make sure … everything’s ready. But then painting is really easy, and it looks nice when it’s done.”
Problems arise when covering something new, “and [the insurer] discovers six months down the line that they priced it wrong, the losses are worse than they thought, the losses are coming from places they didn’t anticipate, or the price was inadequate because they applied it to the wrong exposure base,” said Boyer.
“Things don’t work as they were intended. That’s bad for everybody.”
Another pain point: Unforeseen coverage problems could affect the claims experience, added Boyer. People engaging with a platform like Clutch are typically active social media users.
“They’re not just going to brood about it. They’re going to let people know that they weren’t happy. So it’s more important than ever that we’re certain the insurance will do what it’s intended to do.”
Supporting the Future
Said Phelps, “We can’t just show up to the table and say ‘Hey, we’re new and we’re technology driven, therefore you should understand us.’ We feel a burden and a responsibility on our side to be a good partner [and that means] us working really hard to help them understand exactly what the risk is.”
Boyer said he relishes the opportunity to face fresh underwriting challenges.
“As an underwriting management company, we get back to, ‘How do you underwrite this new and emerging space? How do you think about insurance that helps your clients grow and be successful?’
“That’s what makes it interesting and exciting. [It’s] an opportunity to do what you joined the industry to do, which is underwrite risks, and think about and [identify] the right coverage — not just apply traditional products and underwrite the product. You’re underwriting the company.”
“We can’t just show up to the table and say ‘Hey, we’re new and we’re technology driven, therefore you should understand us.’ ” —John Phelps, vice president, strategy and business development, Clutch
Slyfield and Boyer know that they’re in the unique position to enable and empower new companies and support their mission of changing the way business is done.
“What I’m doing,” said Boyer, “is trying to develop the products, the structure, the methodologies and the mechanics of the insurance that enables them to grow and be successful.”
Moving forward, it will be progressive brokers, underwriters and carriers who have the clear path to run. Encouragingly, both Boyer and Phelps said insurers are very receptive to understanding new risk.
Despite the industry’s reputation as a plodding, cautious innovator, Phelps said some carriers “are moving more quickly and are more willing to entertain this conversation.”
Those carriers, he said, “have their lines in the water, so to speak. And that’s a great thing. Those are the people we end up setting our meeting with faster.” &