getsafe, a startup in our ecosystem, tells us more today on the InsurLab Germany blog about a question that many InsurTechs are asking themselves: Full insurers or underwriters?
The insurance market is one of the last major industries that has barely arrived in the 21st century. Insurtechs have stepped in to close this gap. In the process, two different models are crystallizing in the private customer business: comprehensive insurers and insurtech companies. But which model is better?
For many years, the insurance world was a protected space due to strict regulation, high capital requirements and a large number of established companies. In recent years, this picture has changed dramatically. New players, so-called insurtechs, are entering the market and challenging the "old hands" with innovative, technology-based solutions.

But what are the differences between the insurtechs? In this article, I will focus on those insurance providers that offer their own products for end customers (B2C). This is not about unique selling points of products, different target groups or different marketing channels. The focus is on the fundamental question of an insurance license. How do insurtechs deal with the regulatory challenge? I focus on two answers:

  • "We're going to get our own license" (fully insured), or
  • "We build on someone else's license" (Managing General Agent, in German most likely to be translated as Assekuradeur).

First, a brief description of the two concepts:
A full insurer is a regulated insurance company supervised by a government agency, such as the PRA in the UK or BaFin in Germany. An underwriter, on the other hand, performs most of the activities of a traditional insurer, but works with a third-party insurer to cover the risk. In other words, it is an insurance provider that, depending on how it is structured, can cover the entire value chain of an insurance policy, from sales to claims settlement, but without being liable for the customer's insurance claims. In English, this concept is also known as Managing General Agent or MGA for short.
The actors
There are prominent examples of both types of digital insurance players, although it appears that the MGA camp is slightly larger. Full insurers include Insurtechs such as Metromile, Oscar and Lemonade from the U.S., or Coya and Ottonova in Germany. Other Insurtechs, on the other hand, act as MGAs and work with established insurance companies such as Allianz (Simplesurance) and, for some years now, also directly with reinsurers such as Munich Re (Getsafe, Trov, Jetty) or RGA (Getsurance).
Let's look at the advantages and disadvantages of both concepts below:
Business model
Roughly simplified, the two business models differ as follows: The cooperating risk carrier of the MGA can co-determine contract terms and prices. The full insurer, on the other hand, has sovereignty over its insurance products, can act independently and can thus also be more innovative.
This begs the question: Why should an insurtech that wants to convince through its innovative strength make itself dependent on a risk carrier?
What at first glance appears to be a clear advantage in favor of the full insurers is somewhat more complicated on closer inspection:
In an MGA, the extent to which the insurtech retains control over the insurance product depends on the will (and ability) of the respective risk carrier. The spectrum ranges from insurtechs that use products from the risk carrier's existing portfolio and adapt them more or less profoundly, to insurtechs that develop new products and have similarly high degrees of freedom as a full insurer. Munich Re is an example of a risk carrier that gives its partners a great deal of control over the insurance product.
The fact that MGAs can leverage the resources and competencies of the risk carrier, and in some cases even collaborate with multiple insurers, allows products to be developed and launched more quickly and the product portfolio to be expanded efficiently - sometimes even across lines of business. For example, in early 2018, Getsafe had launched two insurance modules in two lines of business (liability and dental, i.e., property and health insurance) within three months.
Full insurers, on the other hand, are sometimes thwarted by complex constraints. While in theory they have complete control, in practice they struggle with regulatory requirements that can slow down product development and time to market. In addition, full-service insurers also typically partner with reinsurers to hedge high risks (e.g., Lemonade partnering with Berkshire Hathaway, Lloyds of London and others). Finally, the adage that "with great power comes great responsibility" applies in the insurance industry as well. Complex regulations thus become a potential pitfall for new insurers because they demand a lot of attention. They thus tie up the resources that would actually be necessary to further develop the core business.
Customer relationship
When it comes to customer-facing activities, the differences between the two insurance models are blurring. This is hardly surprising, given that most B2C-oriented new MGAs and full-service insurers alike place sales and customer interaction at the heart of their business model. Whether it's a lean app or a web platform, customer service or payment processing, these activities are generally fully managed by the respective company. The most notable differences can therefore be seen in two areas: claims management and co-branding.
In the case of underwriters, the risk carrier often examines and decides itself on the claims submitted and decides which will be paid and which will not. Communication and handling of the claims process, on the other hand, remain with the underwriter. Alternatively, claims management can be outsourced to a third-party administrator (TPA) - an option also chosen by some comprehensive insurers.
Co-branding is an option for insurers in which they use the risk carrier more or less clearly as a signal of trust to enhance their own brand. Particularly in the health and life lines, where financial stability is an important criterion for concluding a contract, the creditworthiness of the contract partner plays a major role. Co-branding is an effective tool here (e.g., Munich Re's S&P rating is "AA-" - a sign of particularly high creditworthiness).
Economic aspects
Simply put, a comprehensive insurer retains all of its profit (which may be smaller or larger depending on its use of reinsurance), while the MGA shares its profit with its risk carrier. However, this view falls short. It is also important to consider the cost base and capital efficiency:
Given the extensive regulatory requirements and thus also higher personnel requirements, ranging from actuaries to risk managers to compliance officers, the fixed costs of a full insurer are naturally greater. This gives the MGA model an initial advantage in terms of margin, agility and funding requirements - especially in early-stage businesses where capital is particularly expensive. Depending on the growth of the insurance portfolio, the lower fixed costs are also a high competitive advantage in later phases.
Acquiring and maintaining an insurance license requires capital at a time when the business model is far from proven. For example, the U.S. comprehensive insurer Oscar raised around $40 million before the product launch, Lemonade $26 million and Ottonova €40 million. Large parts of this capital are used to reinsure insurance risks and are thus tied up. These funds are not available to drive the actual business forward.
The conclusion is probably not surprising: Neither variant is superior to the other per se. Nevertheless, the MGA model offers two key advantages, especially for insurtechs: First, the MGA can make up for what it lacks in depth in the value chain with greater capital efficiency and agility. It can enter the market faster and already gain significant experience instead of losing valuable time in the licensing process. This is especially helpful in the early stages, as the market viability of the product has yet to be proven at this point. And secondly, an MGA is free to acquire its own insurance license at a later stage, once the brand has been established, and thus become a full insurer itself. It thus gains flexibility and initially concentrates on its core competence - not a bad move in a market full of upheavals.
For an illustrative understanding you will find under the following Link an overview graphic.
More information about getsafe.