Bitesize InsurTech: Hokodo
September 21, 2018 Chris Sandilands
Hokodo allows online platforms to sell commercial insurance products.
The business was founded in late 2017 by Louis Carbonnier, former founder and CEO of the Euler Hermes Digital Agency (see Bitesize article) and Richard Thornton, former Group COO at Aspen. The company announced on Wednesday that its products will be underwritten by the Channel Syndicate, a unit of SCOR Global P&C, allowing it to launch in H2 2018. An equity investment (by a venture fund) is soon to be announced.
Hokodo’s first product is invoice insurance, a pay-per-use variant of trade credit insurance and its first partner is Centrifuge – an “open, decentralized operating system to connect the global financial supply chain”.
By delivering its proposition via an API – a digital ‘plug socket’ – Hokodo makes it easy to integrate its products into the customer journeys of its partner web platforms. This has two connected advantages. First, SMEs are offered invoice insurance at a relevant moment, increasing the chance of conversion. Second, the automated distribution process is scalable and low-cost, allowing Hokodo to deliver insurance to the long tail of SMEs that do not currently have access to the product.
In a report released by the ABI in February 2018, it was estimated that there are c.13,000 credit insurance policies in the UK. This means that the vast majority of the UK’s 5 million businesses run uninsured and are likely to find some invoices go unpaid. To cite a topical example, it is estimated that 30,000 British businesses are owed around £1bn by Carillion, whilst insurers will only pay out £31m in claims. Richard Thornton – a former economist – notes that the credit insurance gap is highly detrimental to the economy: about 30% of insolvencies in the UK are caused by the non-payment or late payment of receivables.
Hokodo has a pipeline of around 10 distributors across the UK and Europe that will follow the first pilot. Louis says he views B2B marketplaces and online accountancy services as the “future intermediaries of financial services.” He adds: “It’s the first time in the history of capitalism that you have entities giving access to millions of corporates. And it’s no surprise that the likes of Xero and Amazon are now turning their sights towards financial services.”
Cargo insurance will be Hokodo’s second product. This is another underinsured area where SMEs often incorrectly assume that their shipper or haulier will compensate them if the goods they are sending are lost or damaged in transit. This could be sold at the point of sale on a B2B marketplace such as Amazon Business or on a shipping platform such as FedEx.
The Oxbow Partners View
In our report for the Lloyd’s Market Association on the impact of InsurTech on the Lloyd’s market (published September 2018), we have devoted an entire section to changes in SME distribution. We agree with Hokodo’s thesis that insurance could become embedded in digital intermediary platforms and we think that this channel shift could be rapid as it does not require a conscious shift by the SME. In other words, they do not actively select an online broker over their offline broker but simply find that they are buying a lot more of their insurance online and that their offline broker becomes redundant.
The impact of this could be dramatic for SME insurers and brokers. There will be fewer digital intermediaries than brokers leading to higher distribution concentration. Smaller carriers may struggle to get access to distribution, and technology laggards certainly will.
We think brokers have the most thinking to do. In June 2017 we wrote a blog post arguing that brokers need to ‘wake up and smell the Lemonade’. Our argument was – and remains –that the role of the broker is becoming increasingly unclear in the digital value chain where there is no ‘policy arrangement’ or ‘administration’ role. A rapid assessment of where to play in the value chain is required, along with – we believe – investments in digital connectivity.
Final thoughts on getting capacity
Richard had some insightful views on how Hokodo went about sourcing capacity which is useful for insurers and InsurTech founders alike:
“We dealt with it by having a team with a strong insurance background. Both of us [Louis and Richard] have worked in insurance for over 15 years in consulting and in insurers. So we knew what they’d be looking for and prepared really thoroughly to answer all the questions we expected them to ask. We also ran a very structured process. We talked to a bunch of insurers, had clear criteria for the funnel. Key selection criteria was finding an insurer who we thought would get us up and running quickly and would be good to work with once we’d started. We thought the people at SCOR and Channel were professional, focused, clear on what they needed, negotiated hard but understood our business model and why we needed delegation in certain areas.”