The launch of Sonnet Insurance. A game changer?

8 May 10, 2016 at 3:54 pm by

Economical Insurance has now launched its direct digital brand, Sonnet. I was privileged to attend a meeting with the senior executive team at Economical to preview Sonnet’s product offering. Based on what I was shown, this new product offering could well be poised to win a significant number of consumers. In fact, given its heavy reliance on data analytics, the launch of Sonnet could be a game changer.

iStock_000059061138_SmallEconomical’s entrée into the direct channel will give the company access to a segment of the population that it believes it has been unable to service through the traditional, brokerage channel. The consumers who will be attracted to Sonnet are consumers who are tech-savvy, have relatively straightforward insurance needs and who do not seek, or see, the value of dealing with an independent insurance broker. To the extent this is a growing demographic, the launch of Sonnet should be a wake-up call to brokers to get in the digital game or watch their market share erode further.

For the time being, Sonnet will offer personal property coverage only. Personal automobile coverage will be offered at a later date. As noted, Economical Insurance is entering the direct channel under a new brand, Sonnet. The company’s other brands (i.e. Economical, Perth, Waterloo and Missisquoi) will continue to service the broker channel exclusively. In terms of both coverage and pricing, the insurance products available through Sonnet will not be the same as those offered through the Economical’s broker channel brands. With that said, the company has pledged that the technological and analytic insights gained through the launch of Sonnet will be applied across the company’s other brands.

The idea of an insurance conglomerate offering products through the broker and direct channels is not new. Intact, Allstate and Co-operators have for years operated in both channels through separately branded, sister companies. CAA recently joined the club of multi-channel insurers when it began appointing brokers to distribute CAA’s insurance products. As well, Aviva Canada recently purchased the direct writer, RBC Insurance.

What sets Sonnet apart from the other multi-channel players is its heavy reliance on data analytics.

According to Karen Gavan, Economical’s President & CEO, the idea behind Sonnet is to offer a consumer-focused, digital platform for the purchase of insurance. The expectation is that Sonnet will represent a reimagining of personal lines insurance – a product that many consumers currently view as a ‘grudge purchase’. In line with this, Michael Shostak, Economical’s Chief Marketing Officer, sees Sonnet as a way of demystifying the product and of taking out the complexity of personal lines insurance.

Sonnet will offer consumers the ability to easily and quickly obtain a quote on-line and then, if so desired, bind coverage. According to Chris Van Kooten, Economical’s Chief Underwriting Officer, the key to the simplicity of the interface from the consumer’s perspective is the investment the company has made in a data hub. As a consumer enters information online about her/his property, the hub analyses data from various external databases. The consumer is then asked to verify a few, key underwriting data points that the hub has drawn from its sources. The consumer may also be asked a few questions about the property that the hub is unable to answer. These questions will make sense in the context of the property being underwritten. For example, if the hub has data which show the property is in a new subdivision, the consumer will not be asked about upgrades to the roof, wiring, heating and plumbing. As soon as the consumer has verified a few key points and answered a small number of questions, Sonnet will offer product and pricing options. Once coverage is bound, the consumer will be able to monitor and to make changes to coverage and payment options.

As noted by Michael Shostak, Economical is not expecting consumers to compare Sonnet to other insurance companies. The design team was given the task of developing an interface for Sonnet that consumers will compare favourably with the offerings of other digital brands such as Google. In terms of ease of use, this set the bar high.

Only time will tell how successful Sonnet will be in penetrating, and ultimately expanding, the direct channel. As more and more consumers become comfortable with digital technology and expect to be able to handle their insurance requirements digitally, my sense is that brokers and insurers who do not find a way to serve this growing demographic will run a very clear risk of being left behind.

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8 Comments » for The launch of Sonnet Insurance. A game changer?
  1. Trent says:

    Very interesting concept they have going on here. Tried the website myself. I think it will take them several more years to really get this right. It is very innovative that they can bind coverage with such few questions.

    From my experience the only questions they asked were regarding the occupancy of my home. Based on my address, they were able to accurately predict the number of stories in my home, the year built and even the exact number of bathrooms in my home. After that they presented various coverage options and packages that offer minimal customization and after that it gives you the option to purchase.

    I was surprised that they don’t ask some very basic eligibility questions such as prior losses, and cancellations. I suppose they could obtain prior losses from CGI, but company cancellations are not consistently reported to any central database when it comes to personal property policies. The may potentially ask more questions if you make the decision to buy, but I didn’t get that far as I was just experimenting.

    Another observation I found was that the rates they were giving me were very uncompetitive, and the lowest deductible offered was $1000. Most personal insurers offer $500. The high rate could also be due to the fact I gave a fake name and it probably couldn’t pull any credit info to give me a competitive premium. Although I also suspect that they’re likely inflating the dwelling coverage by a significant margin to protect themselves. They do offer guaranteed replacement cost but they don’t tell you anywhere on the website what they estimate the rebuild cost of your home to be. In addition, they don’t ask a single question about the interior or exterior finishes of your home.

    It will be interesting to see how much growth they see from this channel and how profitable their book of business will be. Their lack of questioning during the purchasing process is highly appealing, but are their analytics going to be good enough to recognize and decline undesirable risks?

  2. mike says:

    Thompson News in it’s May 30 issue says “Brokers maintain major personal lines stake”. It goes on to say “if an insurer decides to start a direct arm then they are competing with brokers (but) the trend over the last several decades has been that brokers have been preferred by consumers. This trend is unlikely to change even though more insurers are offering direct insurance. So, Economical WHO are you being loyal to – the sales people who have talked you into Sonnet? This won’t last long IMO!

  3. Stanley says:

    Direct insurance is a bad idea. Too many people end up under insured seeking cheap rates and aren’t aware. Interesting this article doesn’t talk at all about their claims process. Who will be handling their claims? Economical adjusters?

  4. Ryan says:

    I would look up Economical Insurances’ track record for claims before I ever consider using Sonnet. They are one of the worst reviewed insurance carriers you’ll find, and since this is their baby, I’d be very worried about how they do business here.

    I’m going to give it a few years and see what it looks like then. Maybe it will all be great, but unless they have a massive shift in customer service under this brand name, I doubt it.

  5. rat says:

    i have heard that they have spent 8 million in development and advertising costs and to date have about 1800 policy holders.

  6. As an independent insurance broker Sonnet is offensive, because they expect us to submit a 5 page application, home evaluation & reams of questionnaires on anything from oil tanks, wood stoves, business in the home, water and NONE of that is required by the online buyer, who gets few questions, no exclusions and 40% off. This make the independent broker and mainstream insurers who support them appear to be information and premium gouging lunatics!

  7. Jordan D. Manzer says:

    As an independent insurance broker specializing in commercial lines, I do not view these “direct” writers as a threat and I question the long-term viability of this model. As any good broker knows, its about the evaluation of risk exposures to consistently write profitable & loyal business, something an “analytics” system will never be able to do despite what the experts think. If you have a claim, will a representative come to your house to go over your coverage or advocate on your behalf in a claim? Of course not, they work for the company, not for you! I wish consumers well if they go with an option like this to save a few dollars on their premiums.

  8. Marten Henderson says:

    I’m a retired Independent Insurance Agent living in Alberta. An ad appeared on a site I visited so I clicked on it to see what it was about. It didn’t take very long for me to question whether this was a company that was serious about the insurance business or a group of uninformed millenial aged techies with a ‘neat idea’ they’d dreamed up in an out-of-the-way coffee house specializing in chive tea. This won’t last!

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