About the author
Shaheer is an alumnus of Oxbow Partners.Contact
January 23, 2021 Shaheer Hafeez
Avantia is a UK digital MGA that sells primarily non-standard home insurance via price comparison websites and its D2C brand, HomeProtect. We believe its AI and data capabilities are cutting edge.
Avantia’s proprietary machine learning platform, Cortex, is central to its proposition. Whilst many companies now use machine learning in their rating processes, it is generally used only to build rating schemes, which are then abstracted into rating models. Cortex, on the other hand, uses collections of machine learning models in ‘live’ pricing and underwriting processes. This increases the granularity and accuracy of its decision-making compared to competitors.
Dan Huddart, Avantia’s CTO, explained that rigorous separation of risk and retail pricing is a key feature of Cortex, meaning that pricing can be optimised for each of its customers whilst retaining absolute transparency and control. The fact that Cortex is separate from Avantia’s ‘vanilla’ policy admin and claims systems means that the team can focus on value-adding activities rather than having to spend time updating cumbersome core systems.
Cortex has recently expanded its reach to power the company’s digital marketing, allowing it to choose who to target and how to message them, delivering a 40% increase in digital ROI.
The company grew strongly in 2019: new business volumes grew by 26% year on year and retention rates improved by 1.5%. According to Dan, the positive performance continued in 2020 with Covid having no negative impact on new business or retention.
Future growth will be enabled by Cortex, which will be extended to cover more and more of the customer journey. Claims is next, where automated decision-making will address critical questions such as determining coverage, whether to cash settle claims, and which supply chain to use. This also unlocks large pools of granular data to improve their risk assessment from buying journey to supply chain data.
Avantia is, in our opinion, the gold standard for end-to-end digital and data capabilities in retail insurance. Currently private equity-owned, we believe that the business makes an attractive target for both private equity to fuel a further round of growth, or trade as a replatforming opportunity (similar to Traveler’s acquisition of Simply Business).
But technology alone does not explain Avantia’s performance. Its workforce (including management) are drawn from both insurance and other industries (its CEO, Mark Eastham, has a retail background). Employees have broad backgrounds including neuroscience and nuclear physics, and over 50% of the workforce is hands-on technical. The operating model is agile – typical of technology-led businesses but not insurers – meaning that Mark’s role is largely orchestrating and unblocking, rather than directing.
The Avantia model provides three key takeaways for (re)insurers:
1. Data is king: Insurers must put data at the centre of their businesses and use objective insights to drive strategy and actions. This is a multi-year transformation for both technology and culture.
2. Operating model is queen: Data alone is of limited use if the business is not set up to function end-to-end. Traditional insurers are often siloed, meaning that data does aggregate in certain parts of the business but is not aggregated to make business-wide decisions.
3. Partners are accelerators: Insurers often have the tendency to build all their capabilities in house. This is increasingly not necessary given the number of technology providers in the market – many of whom are on Magellan™, Oxbow Partners’ insurance technology navigator. Insurers should establish how they plan to outperform the market and find accelerators for ‘hygiene’ areas.
The business will be impacted by the forthcoming FCA Pricing Fairness review, but with limited reliance on a back book for cross-subsiding and such advanced pricing sophistication Avantia are well placed to seize opportunities from the change. Visit our blog to read more of our coverage on the pricing review, with deeper analysis available to our Market Intelligence subscribers.
To find out more about Avantia, please contact our team.