Zego's insurer licence: the inside story
Written by Millie Paine
If you’ve been following the news, you might have noticed that Zego secured its licence to underwrite insurance in the UK - the first to ever be awarded to a UK insurtech. This is incredibly exciting news for us: it represents a huge milestone for the business, allowing us to build and sell our own products, and to be much more innovative with pricing.
In tandem with our growing network of insurer partnerships, this will accelerate Zego’s entry into new market segments with ground-breaking policies.
However, it’s been a long journey to get to this point and an immense amount of work has happened behind the scenes. It’s not something that happens every day, so if you’re wondering what this means for Zego, read on to find out how we did it and where the licence will take us next.
Broker vs insurer - what’s the difference?
Now that we hold an insurance licence, Zego has moved from operating solely as a broker to function as an insurer too. But what exactly does this shift in status mean?
The main difference between a broker and an insurer is that the latter carry their own risk. An insurance broker acts as an intermediary between customers and insurers, providing quotes to customers by submitting insurance applications on their behalf. However, the insurers are the ones who decide whether to take on the risk, underwrite the policies, and pay out in the event of a claim - brokers don’t have the authority to do so.
As a fully-fledged insurer, a company has to be confident in choosing the type of risk it is willing to take on. It needs to keep a certain amount of money in the bank, ready to pay out if someone makes a successful claim on their policy. Insurance companies also establish partnerships with reinsurers. Reinsurers effectively insure the insurers, so that the cost of claims can be shared, and the expense of a single, large payout will not land one company in jeopardy. As Zego is now officially an insurer rather than just a broker, we have to meet these conditions too.
Our new licence gives us the power to create our own insurance products by assessing a customer’s level of risk and deciding whether to insure them, rather than relying on partner insurance firms to do this for us. Although we’ll continue to work in partnership with other insurers, Zego will no longer rely on partners’ approval to launch products where there’s a need to move quickly or an opportunity to try innovative risk assessment and pricing methods, for example.
How did we get here?
When Zego first started out in 2016, our priority was to get customers insured and out on the road working as fast as possible. We knew that the best way to do this was to partner with an established insurer and to operate as a broker. This meant that we could develop the concepts for our flexible insurance products and build out our tech platform in-house, but count on an external party to take on the financial risk associated with claims. This made sense as a young company: it kept our operations streamlined so we could focus on developing great technology and growing our team, without worrying about finding the money to support an insurance licence in the very early stages of our existence.
We wanted to work towards this next stage in our journey for a number of reasons. One key advantage is that we are now able to implement changes to prices and insurance products incredibly quickly - in as little as 24 hours. The reinsurers partnering with us have a set of necessary conditions that our policies have to fulfil. If a simple change falls still within these, then we’re able to go ahead and implement it right away. This increased autonomy will have a huge impact on how quickly we can respond to customer demand for changes to policies.
The flexibility in the types of products we are able to deliver has hugely increased. We can continue to deliver the features that we know our customers love - flexible payment terms, simple policy documents, zero fees for changing details - with further personalisation based on the vast amount of data we analyse around each individual’s exposure to risk.
We’re also able to delve deeper into the opportunities afforded by new machine learning and pricing technologies. Developing a deeper understanding of risk also benefits our partners. Ultimately, this allows us to develop products that people really need, at prices which make sense - whether we’re underwriting the policies or not.
The whole process has taken around 14 months, and involved creating an underwriting committee, making updates to our technology and persuading fifteen of the most reputable reinsurers to partner with us. This was all between multiple trips to Gibraltar! We had to wait for our Series B funding round to close in order to meet the regulator’s financial requirements for taking on our own risk. It’s been a long journey, but we know the rewards will be worth it.
What does this mean for Zego’s future?
For us, this is just the beginning of our mission to build a global insurance company. Getting our licence means we are now a full-stack insurer, giving us unprecedented freedom to develop features which solve customers’ problems. It’s a bit like the challenger banks earning banking licences: there are many more features you can offer with a full current account than a prepaid card. This is a clear marker of our ambition to bring insurance into the 21st century, and take our offering above and beyond what is currently possible.
In the short-term, though, we’re going to carry on with all the things we said we were going to do after our Series B fundraise - so we’re still hiring fast! We’ll also continue to launch in more countries.
We’re also getting really serious about data. We receive around 10,000 times more data points than a traditional insurer typically does. We want to be able to use this to price policies in true proportion to someone’s risk. This will reflect the time they’re working, the miles they travel, and take into account external data sources such as weather and traffic conditions. This will make our products even more bespoke than they already are.
So, although this is a huge step forward for us, receiving our licence is just the beginning. This development will truly cement our place in the market, proving that Zego is here to stay.