According to the company, more than 80% of their customers received money back
Innovating the old time gig of insurance seems to be on the investor short list of late, with Germany’s Friendsurance announcing on Thursday that they have brought in $15 million in new Series B funding. The investor behind the new round is Hong Kong’s Li Ka-Shing’s Horizons Ventures, who comes back to the company after having taken part in the April 2014 funding.
Based in Berlin, Friendsurance is working to reshape how customers interact with their insurance. The parent company Alecto GmbH that operates the Friendsurance brand was co-founded in 2010 by Managing Directors Dr. Sebastian Herfurth and Tim Kunde, along with Managing Director Janis Meyer-Plath, who serves as head of marketing and sales.
Currently only working in Germany, Friendsurance claims to have a customer base in the six digit range. Having started operations in 2011, they say that they succeeded in adding 75,000 new members over 2015. As a part of their announcement, the company says that they are looking to bring their service to Australia at some point later this year.
Previous investors include VantageFund, e.ventures, German Startups Group, and the European Regional Development Fund. This is the first time that the company has released the figure of investment, with all previous rounds having been undisclosed.
Insurtech revolution: Making insurance a community effort
In contrast to the modern day insurance structure as we know it with large companies holding the policies of large swaths of people, Friendsurance is looking to make insurance a community effort.
The concept works on a P2P basis with what they call a claims-free bonus. Customers are segmented into small groups based on types of insurance that they need. This can cover needs like property, personal liability, home content, and legal expense insurances. These people pool their premiums together with roughly 60% of the money going towards covering the insurance costs, and 40% to the cashback “kitty.”
If no claims are made by members of the group, then they can receive most of that 40% back. If claims are submitted, then only part of the money is returned since the kitty was used to cover part of the claims cost.
The company says that small claims can be covered by the pooled cash, while external insurance providers are incorporated to cover any claims that go beyond the group’s resources.
Through this method, the company says that they can help reduce many of the costs that go into providing insurance coverage through standard providers that have to deal with massive administrative issues and fraud from false claims, while giving their customers full coverage.
Excluding some of the more extreme cases of obvious fraud, they provide an incentive for customers to avoid making unnecessary claims that would otherwise shoot up premiums.
Ready to battle large insurance companies?
At first glance, the concept of a P2P insurance model can be a scary proposition. Customers want to feel that if they have to make a claim, that they are dealing with well established and resourced companies that will be there for them in their hour of need.
Unfortunately, standard insurance companies are notoriously difficult to deal with and getting a claimed covered can take an inordinate amount of time, due in large part to fraud.
Friendsurance appears to have built an infrastructure over the past six years that is strong enough to gain significant user trust. By having the standard companies in the background as insurance, they are able to handle most of the smaller claims internally, saving costs for all.
The small group model makes more sense for the users based on the cashback feature. Unfortunately, life happens and sometimes we have no choice but to make claims. Given a large enough group of people, statistically there will be some number of folks who make use of their insurance benefits.
However when cut down into smaller groups, it becomes a feasible proposition for the members to actually get back some of their cash. According to the company, more than 80% of their customers received money back, with those in the property insurance groups receiving a third of their total fees.
Located in the tech hub of Berlin, the city has exploded in recent years as the local government has made an expanded effort to attract the startup community. Traditionally one of the European economic powerhouse’s less affluent cities, Berlin has looked to startups as a means of building up the local economy. While still a young scene, the city is attracting serious talent that will be exciting to watch develop.
Entrepreneurs have set their sights on disrupting the insurance industry, with new companies like Lemonade and Next Insurance each raising $13 million seed rounds to take it on. Despite the challenges in convincing people to leave their comfort zones and try P2P models, there is good reason to believe that they could succeed based simply on the experience of their leadership.
If they are able to show success, then we could see more of these initiatives popping up in the U.S. and possibly the UK markets that have embraced the infamous “shareconomy” as well.