Industry Specific Software Business Plan
Insurance Solutions LLC (ISL) will become the premier provider of Web-based property and contents valuation software to consumers, insurance companies and their affiliated organizations/partners, mortgage and small business lenders and their customers. ISL offers two products:
IV Software. Our Web-based “Insurance Valuer” (IV) software will provide insurers with the ability to far more accurately assess risks they are insuring, allowing them to price those risks accordingly and provide enhanced services and solutions to their customers. In addition, our mortgage and small business lending clients will be able to ensure that the collateral they are using to secure their loans is properly valued and insured to minimize their financial risk should the collateral property be damaged, lost or stolen. For direct-to-consumer sales, the IV software offers an accurate and independent valuation of property, and links to insurance agencies and replacement property websites for immediate response.
Documents Plus. Provides consumers with electronic storage and retrieval of vital insurance, legal and financial documents and other information, accessible online from anywhere in the world. Our solutions will provide consumers with the peace of mind that the value of their property and contents insurance are fully covered and that their vital insurance, legal and financial documents and information is up-to-date and is safely stored and fully accessible. The IV software has been sold to, and successfully implemented by, a number of the major insurance providers in the Australian market, providing the ISL the ability to showcase proven operations and capabilities.
The Management Team
ISL’s management has proven entrepreneurial and management skills to succeed with a rare combination of consulting and direct operational experience within the insurance and broader financial services marketplace. ISL is a privately-held Limited Liability Corporation (LLC), jointly owned by its three chief officers and an advisor, Michael Bartlett, the founder of ISL’s Australian affiliate, International Cost Research (ICR). The three managing partners are president and Chief Executive Officer (CEO), Hugh Lloyd-Thomas, Chief Operating Officer (COO) Mark Purowitz, and Chief Information and Technical Officer (CIO) Mark Metcalf. A minority stock is reserved for a fifth investor who can provide us with the additional $92,500 needed for start-up costs.
Potential customers with whom we have spoken are disappointed in our competitors’ products and have, without exception, shown significant interest in our solutions. Industry estimates, significant research, and interest on the part of potential customers have led to our projections of reaching a strong net profit in the first year. These are conservative projections, and reflect our products’ ability to assist the insurance industry to increase their premium revenues by approximately $4.7 billion per year.
1.1 Keys to Success
The keys to our success will be our unique and complementary online data-retrieval systems, which fill a substantial void in the insurance market today. We will utilize our state of the art technology to:
- Closely meet the needs of each customer;
- Clearly differentiate our solutions from competitors;
- Offer superior service.
ISL will create high product visibility and consumer awareness of our solutions by a consistent and carefully targeted marketing strategy. We will establish a brand identity and leverage good client relationships to enhance credibility and encourage growth.
- Successfully and profitably market our property and contents valuation software and additional solutions to insurance companies and consumers.
- Solutions marketed to insurance company clients to achieve $3.0 million in sales by Year 3.
- Web-based consumer solutions to achieve $1.5 million in sales also by Year 3.
- Provide insurers the ability to far more accurately assess risks, allowing them to price those risks accordingly and provide enhanced services and solutions to their customers.
- Give mortgage and small business lending clients the means to ensure that the collateral they are using to secure their loans is properly insured, to minimize their risk of loss should the collateral property be damaged, lost or stolen.
- Deliver peace of mind to consumers, with the assurance that the value of their property and contents insurance is fully covered and that their vital insurance, legal and financial documents and information are up-to-date, safely stored and fully accessible.
ISL will become the premier provider of Web-based property and contents valuation software and additional information solutions. Our products utilize an online data-retrieval system to offer up-to-date risk assessment cost data to insurers, property valuation to mortgage and lender groups, and secure insurance and valuation documents storage to consumers.
ISL is a privately-owned Limited Liability Corporation, currently located in the “Executive Suite” facilities at 50 Washington Avenue in South Norwalk, Connecticut. These facilities are centrally located, with easy access and travel to our potential major clients, partners and affiliates.
2.1 Start-up Summary
As outlined in the following table, our start-up costs come to $292,250. These requirements include expenses for the cost of data, IV software models and licensing fees, and first month’s salaries. Additional large start-up items include marketing and branding consulting services and costs for the initially outsourced server hosting. Information systems will eventually be brought in-house, dependent upon future development needs and cost analysis. Other usual start-up costs include legal, stationary, and expenses associated with opening our first office. We are in the process of confirming the sourcing of $200,000 from the company founders and key executives. Based on ongoing discussions, there is also a potential for the sharing of expenses with partner and affiliate organizations.
We require additional funds of $92,250 to sustain our cash reserves during the critical first year. We are seeking investment in that amount in exchange for a non-managing interest in the business. Based on market research and data from our Australian affiliate, we project that the company will be profitable in its first year. By the end of the third year, investors will be bought out by the founding partners.
2.2 Company Ownership
ISL is a privately-held Limited Liability Corporation (LLC), jointly owned by its three chief officers and an advisor, Michael Bartlett, the founder of ISL’s Australian affiliate, International Cost Research (ICR). The three managing partners are president and Chief Executive Officer (CEO), Hugh Lloyd-Thomas, Chief Operating Officer (COO) Mark Purowitz, and Chief Information and Technical Officer (CIO) Mark Metcalf. Additional minority stock has been set aside for outside directors which will include insurance industry, legal, marketing and retail resources and expertise.
Products and Services
Insurance Valuer (IV) Software
ISL’s Web-based “Insurance Valuer” (IV) software lets our customers determine insurance coverage needs for both property and contents insurance far more accurately than our competitors’ paper-based valuation methods. By offering the data retrieval system online, we can keep our risk assessment costs and valuation estimates up-to-date and accurate without costly distribution of printed materials. IV is designed to be used by insurance companies, mortgage providers, small business lenders, consumers and ancillary industries associated with the property and casualty insurance industry.
The IV software is an easily implementable tool that will significantly increase our corporate customers’ premium income revenues, while enhancing their ability to improve customer service and retention. For direct-to-consumer sales, we will initially focus on consumers in high-risk areas: Southern California’s wildfire districts, Florida’s hurricane zones, and areas prone to flooding.
This software is currently unique in the insurance assessment industry, and allows us a short window of time (2-4 years) to become the “first-mover,” gaining a brand identity and customer loyalty before competitors can reverse-engineer our products.
Additional Links and Updates
Through our links to contents and services providers, insurance companies will be able to provide their customers with rapid replacement of their lost / stolen / damaged property and/or contents at significantly reduced cost, further enhancing customer service, loyalty and retention.
The direct-to-consumer version of IV will include additional, individually-selected information, reminders and updates to alert them to market and/or regulatory changes that may impact their insurance, financial and legal affairs.
Documents Plus is a Web-based system for direct sale to consumers. It allows for secure electronic storage and retrieval of important documents and information to support consumers’ insurance and security document needs. As a portable, access-anywhere database, Documents Plus allows consumers to download or print their digital images for insurance value verification, insurance policies and documentation, legal and security documents (wills, mortgage documents, investment securities and statements), and more, with the peace of mind that a secure, encrypted, and certified system allows.
Despite warnings from the insurance industry, many customers continue to store important documents and proof of ownership or policies in unsecured locations. If their house burns down, their documents burn. If their jewelry is stolen, they have no recent pictures to assist police in locating it. Documents Plus will be sold direct to consumers and through affiliated insurance companies as a secure storage for all of their document access needs. No need to go all the way to the bank to open a safe-deposit box; simply open your Documents Plus online account when you establish your insurance account, and upload pictures and documents from any convenient location.
Market Analysis Summary
Since 1972, Home Owner Multi Peril Premiums have grown at a compound annual growth rate (CAGR) of 10% per annum. Home Owner Multi Peril Premiums (HOMPP) are estimated to have reached $43.7 Billion dollars in 2003. However, there is currently a chronic level of under-insurance in both property and home contents insurance in the U.S. home market. This problem is bad for consumers, who are usually unaware that they are not fully covered; it is bad for insurers, who lose out on the additional premiums they could recoup for full coverage; and it is bad for lenders, whose collateral may be at risk.
A survey of over 5 million policies determined that between 70% and 80% of homeowners are under-insured and the increase needed to provide adequate coverage is 35%. Additional research has shown that a 17% increase in premiums would be required to realign those policies with the required level of coverage. Furthermore, in an additional survey, 94% of respondents indicated they would be willing to pay additional premiums in order to be properly insured.
ISL’s success will be further supported by the growing pressure on insurance companies to assist consumers in accurately estimating the replacement cost of their homes and other valuables. A number of recent legislative efforts have addressed this concern, and ISL is well-positioned to take advantage of this weakness in the insurance industry. The following article in reference to the California wildfires illustrates dramatically the significant need in the marketplace for ISL’s solutions and services.
- HEADLINE: Wildfire victims say insurance companies misled them on coverage
- BYLINE: By ELLIOT SPAGAT, Associated Press Writer
- DATELINE: SAN DIEGO
Many Southern California homeowners who thought they were fully insured against natural disasters have discovered after last year’s wildfires that their policies left them in the lurch – in some cases hundreds of thousands of dollars short of what they need to rebuild.
Dozens of homeowners told California Insurance Commissioner John Garamendi during public forums over the last week that insurers wrote policies based on their calculations of a home’s “replacement cost,” only to learn that the insurers’ estimates were grossly inadequate.
Consider Don Halte, 64, who said the replacement cost listed on his Farmers Insurance policy was $200,000 below the actual cost of rebuilding his home in Crest, a mountain community east of San Diego, which was destroyed last October. “I thought replacement meant replacement,” he said to applause from an audience of about 300 people Monday night at Shadow Mountain Community Church in El Cajon, a San Diego suburb. “A gentleman here has a dictionary. Maybe I should look at it.”
The communities east of San Diego were among the worst hit by the October wildfires, which destroyed more than 3,600 homes across Southern California. Lynda Martin, 46, said she called State Farm Insurance only two weeks before her home burned in Alpine, also east of San Diego. She asked if her coverage was adequate, noting that the assessed value of her home had more than doubled since she bought the policy about eight years earlier.
Martin said she was told that she had “excellent coverage” and was discouraged from buying more. As it turns out, she says it will cost $485,000 to replace her home, well above her policy’s listed replacement cost of $209,950. After three forums in San Diego County and one in San Bernardino County, Garamendi said he was launching a special team to investigate complaints, promising a “complete, thorough audit.” If investigators uncover patterns of wrongdoing, insurers could be barred from doing business in California or be ordered to pay heavy fines, he said.
“I’m giving (the insurance companies) bad marks,” said Garamendi, who only two months ago praised the industry for its response to the fires. “I’ve gone through four of these hearings and these problems are serious, they’re pervasive, and the biggest insurance companies in this nation are not properly handling claims. … Clearly, they have disobeyed the law.” Some homeowners told Garamendi they have been assigned five or more adjusters, creating long delays as each one got up to speed. Others criticized insurers for haggling over itemized lists of personal belongings lost in the fires.
But most complaints concerned allegations that insurers misled homeowners into believing they were fully covered. Four law firms recently teamed up to sue carriers on behalf of wildfire victims who say they were wrongfully left unprotected. Garamendi said insurance companies may have “low-balled” the estimated cost of replacing homes in an effort to sell more policies.
Insurance company officials who attended the forums declined to discuss individual cases but denied widespread wrongdoing. A State Farm spokesman, Bill Sirola, said it made no sense to low-ball the replacement cost because the company would effectively be denying a chance to collect higher premiums.
4.2 Market Segmentation
As stated above, our basic target market segments are consumers, insurers, mortgage and small business lenders, and ancillary industries associated with the casualty and property insurance industry.
The market segmentation plan for insurance companies reflects industry standard definitions for Large, Medium and Small insurers based on analysis by AM Best & Company, National Association of Insurance Commissioners (NAIC), and the Insurance Information Institute (III), the major information collation and reporting organizations for the insurance industry. In the 1997 U.S. Census, there were 20,903 property and casualty insurance carriers, doing $299 Billion worth of business within the United States. In the last seven years, the industry has seen significant growth.
The individual policy holder segment includes individuals with internet access and home owner policies / insured properties currently underwritten in the United States. Our estimates are based on NAIC and III statistics, which estimate that there are currently 77 million homeowner insurance policies in force in the United States. According to a recent Nielsen//NetRatings survey, nearly 75% of U.S. households have Internet access at home. Our initial potential consumer market is nearly 58 million households, with high growth.
4.3 Target Market Segment Strategy
All of our prospective customers share the need for reliable, accurate, and current information about property valuation and risk assessment. Our extensive market research reveals that existing insurance industry sources for property replacement and construction data cannot update their information regularly enough, nor keep a broad-enough range of data available, to accurately assess insurance coverage needs. Additionally, consumers have been all but ignored in the current policy origination and underwriting process.
Our strategy is to focus on large insurers that carry the significant percentage of the home property and contents market. Based on Insurance Information Institute statistics, the top 10 insurers account for 60% to 65% of the total premium dollars collected each year. These insurers, due to their large policy numbers and resulting larger premium base will benefit in greater dollar terms in premium increase through the utilization of the Insurance Valuer Software. These insurers also attract the majority of consumers to their websites and account for a significant percentage of Web-driven enquires.
The medium and small sized insurer segments have yet to adopt aggressive Web-based distribution strategies and rely on agent-driven referrals for business. However, as they have been a neglected segment of the market, we will aggressively pursue opportunities to allow us to increase market and consumer “top of mind” awareness. Our largest potential market segment, and the most neglected by current industry groups, is the end-user – the insurance consumer. The general populace needs to know the value of insurance, the dangers of under-insurance, and the best ways to accurately assess their property’s value. In addition, they often need secure storage of their insurance documents and proof of ownership for important items. Our software solutions will meet their needs.
4.4 Service Business Analysis
As previously outlined, there are currently no web-based valuation applications available in the North American market today, while there is a chronic level of under-insurance in both building and home contents insurance in the U.S. home market. ISL will be the first Web-based organization to provide solutions and services to the insurance market and deliver them in an integrated and far more customer focused fashion.
After reviewing the current marketplace, customer needs, and the competitive situation, we identified significant market opportunity which is driven by a number of factors:
- Consumers have not been made aware of the under-insurance risk that they face and have been significantly underserviced by the existing solutions, services and providers.
- Ancillary service providers within the insurance process e.g., general agencies and independent agents are not able to access customer focused solutions.
- Small business and mortgage lenders have been similarly ignored by the current market providers.
Additionally, our research has shown a significant degree of customer dissatisfaction and resentment toward our most likely competition in terms of pricing, service and provision of additional products and services.
The insurance industry currently gets data from in-house review and from a few large research agencies. Depending on the size of the business, the data may be more or less current and comprehensive. Franchise insurance agents often store such data centrally with online data retrieval for individual agents. This kind of data provision has paved the way for our products, but cannot compete with our prices, customer service, or additional solutions.
4.4.1 Competition and Buying Patterns
The market for building material and construction cost information utilized in the insurance industry underwriting and claims management processes is dominated by Marshall & Swift/Boeck (MSB). MSB has a number of product offerings including paper, telephone and PC based products. They also provide customized consultancy products and Web-based access to the underlying product (s) and information. However, MSB does not provide web-based access for consumers to determine their insurance needs.
In addition, unlike the IV software, the MSB costing database is not based on a Dynamic Elemental Modeling process (DEM) which uses real time building cost information, but rather on a factoring approach, which inherently is not as accurate as the DEM approach.
MSB does not provide its insurance industry clients with contents value calculation capabilities, a service that will allow ISL to immediately differentiate our solutions from our competitors. MSB’s efforts have largely focused on the claims and underwriting process and have ignored the consumer facing opportunities and services. Only a few new features are added on an ad-hoc basis, and development of their existing solutions has been significantly constrained. Additionally, MSB has not broadened their scope to include services to small business lenders, mortgage lenders or additional service and/or solution providers.
As previously mentioned, the provision of an alternative source for information and/or services would be welcomed by the industry. MSB is perceived in the marketplace as utilizing its dominant position to its sole advantage and to the significant disadvantage of its customers.
We will take advantage of our position as a new and innovative player in the marketplace. The IV software has been developed to be “data agnostic”. Existing MSB customers, even if they are locked into longer term contracts, can still use the IV software while maintaining their current MSB contractual relationships.
Insurance industry executives are by nature conservative, and tend to put a great deal of weight on the vendor’s reputation, rather than just on the particular merits of the product or service being offered. While this tends to favor more established companies, it can work to the advantage of a newer company that carefully crafts a very specific and favorable image for itself.
Other financial services organizations, including small business and mortgage lenders, are less conservative in their approach and appear to be more willing to move to new and more innovative solutions. However, they can also be restricted by constrained decision-making processes and time-frames. However, buyers are increasingly expecting additional and integrated solutions. As more innovative solutions are offered, buyers are taking advantage of them.
In addition to providing added value and integrated solutions, we will be able to take advantage of our existing customer base and implementations in Australia. Reference to existing customers will speed the evaluation and analysis process demonstrating the capabilities of our solutions in a live environment. This will allow us to mitigate any concerns that US customers may have that our solutions are not fully developed and/or operational.
As previously mentioned, additional points of differentiation for ISL in the marketplace which will allow us to positively influence buying behavior will include the distribution and technical partnerships with existing industry leading automated application, decisioning and policy management providers and consultants.