As CEO of Honcho, Gavin Sewell is helping to steer a new insurance distribution model that could drive much-needed value into the market for both consumers and providers.
Gavin Sewell, who goes (for obvious reasons) by the title of Head Honcho, knows exactly the number of consumers signed up to his new platform: 13,300, according to his daily report. Not enormous, but not bad considering it entered one of the most fiercely contested general insurance markets just six months ago and with minimal marketing spend.
Of those users, he tells me, 8,700 had run, between them, 17,000 reverse auctions in which insurers bid for their business; 1,600 liked what they saw and clicked through to the vendor’s website, and – according to the panel of currently 14 insurers signed up to the Honcho marketplace – a high proportion of them converted to sales. They reckon the conversion rate is 13 times better, in fact, than they get from the platforms that have come to dominate digital motor insurance: the price comparison websites (PCWs), while the cost of acquisition for each of those drivers is considerably lower. Honcho charges insurers just £1 to access the same customer enquiring about the
same risk over a 28-day period. There is no commission and every participant gets to see exactly what the others are offering at what price.
And, for Honcho, which positions itself as a consumer champion brand, it’s all about transparency.
“Price comparison sites dominate the market and, of course, offer convenience. They do not offer a lot of competitive advantage for the consumer,” says Sewell, CEO of the Durham-based startup that closed its second fundraise on Crowdcube in February at £1.2million. In the same month, it came runner-up in the New and Noteworthy category of the annual Pulse Awards run by consultancy 11:FS, and went beyond its initial target market of drivers up to the age of 25 for the first time by adding three new insurance providers specialising in niche motor products.
Its game plan is to double-down on growing motor insurance traffic over the platform during the next 12 months through a combination of business-to-consumer and business-to-business channels. The ink is still wet on the first of those marketplace partnerships. But the concept was never limited to motor.
“From an insurer’s perspective, Honcho allows them to go after a consumer with a product that responds to their requirements in an environment in which they can see how others are responding to that risk and then flex those products during the auction process – that is utterly new and generates data insurers have never seen before,” says Sewell.
“It’s not all about the bottomline price. What we say to the consumer is ‘what do you want from the product and we will help you gather those various moving parts. We will tell you whether the policy responds to your needs or not ‘. That’s the consumer competition angle. From the perspective of the insurer, we want to move away from a quote imperative and be much more data-driven – that data, in terms of how a market is pricing a product, is very valuable to an insurer.
“There is good reason why we convert better to sales,” he adds. “Firstly, we discourage price research. One of the things that younger drivers in particular use PCWs for is researching the likely cost of insurance before they buy a car to see if they can afford the running costs: they have no intention of buying the policy, but it generates vast amounts of quote traffic. We require the customer to create an account with us, including a known registration plate for the car – and they are unlikely to do that unless they are going to go on to buy insurance.”
Once fed all the relevant information – which includes using optical character recognition to scan drivers’ licences – the free app runs three auction rounds within 30 seconds to come up with policies and prices best matched to the policyholder. Compared to PCWs, users are presented with a much shorter list of potential insurers to choose from because ‘bidders’ are unlikely to pay to enter the auction if they can’t match the price and policy needs. With a shorter list, the consumer isn’t overwhelmed by choice and the click-through rate is higher.
Software as a service
While general insurers are super-sensitive to value being sucked out of the distribution chain in what’s shaping up to be a negative growth environment in the UK the Financial Conduct Authority consumer watchdog has already laid bare its concerns over how pricing behaviours are working against consumers. Its final report, following a sharply worded letter to insurance chiefs in 2018 and interim findings published last autumn, is expected soon. PCWs might have made pricing more opaque, but by throwing the same aggregator mechanism into reverse, Honcho hopes to demonstrate that insurtech can help the market regulate itself and work effectively for all participants. The magic bullet is data.
Currently backed by Maven Investment Partners, multiple venture capitalists (VC), angel investors and the crowd, Sewell is preparing for another, this time pure VC investment round with a minimum £3million target for Q1 2021 – around the same time as Honcho is forecast to begin to turn a unit profit. Meanwhile, some of the newly-raised cash will go into growing the Honcho technology team that built the proprietary auction software and third-party connectivity that underpins the Honcho user experience (UX). It will also take the front-end development, which won such praise from 11:FS, in-house.
“Honcho is, in effect, pulling together some of the convenience of price comparison sites with the price efficiency you see in the capital markets’ electronic exchanges. But the insurance industry is poorly standardised by comparison,” says Sewell. “There is a whole lot of plumbing between PCWs, insurers and brokers.”
The ‘plumbers’ looking after all this pipework are the specialist insurance software houses. Honcho is partnered with three – CDL, SSP and Quote the Market – to, in his words, ‘leverage what is already there for our marketplace model’.
“An insurer using any of those systems can access Honcho,” says Sewell. “And, if they are not operating on one of those or, for whatever reason, do not want to use it, we have our own application programming interfaces (APIs) – or we’ll build what they want with our in-house team.”
That puts Honcho squarely in the software as a service market, further strengthening its B2B proposition, which falls into three categories: – affiliate, affinity and white label partnerships. That unlocks a whole host of possible marketplace tie-ups, with everyone from digital-led banks to large corporates offering value-add to users and corresponding market data for auction participants.
New van, learner and motorcycle product lines will be added this year as Honcho increases its motor insurance panel to more than 40 and improves the UX still further with feedback from its near 700 investors who have been involved in the app’s product design and testing.
It’s already specced out a home and contents insurance customer journey. Mortgages, lending and health insurance are all on a more distant horizon. But, for now, Sewell says, they’ll keep their eyes firmly on the road.