How this startup is making insurance affordable and social

This article is part of Tech in Asia’s partnership with Disrupting Japan where we publish the revised transcripts from the show’s podcast interviews with Japanese entrepreneurs. This is heavily revised from the original transcripts. For the full interview, go here.

The insurance industry is really resistant to innovation. It was largely developed in the 17th and 18th century, and it hasn’t changed a whole lot since then.

Most of the change is driven by regulations rather than entrepreneurial innovation. And I have to say that I’m pretty much OK with that for insurance. But still, there needs to be a way to innovate.

Kazuya Hata is the founder and CEO of JustInCase. The startup offers insurance over smartphones, which is the first product they’re insuring. It uses AI to analyze your usage profile and social connections to determine the premium you should be paying.

In this interview, Hata and I talk about how their product works, the next logical step for smartphone-based insurance, and his thoughts on regulation.

Kazuya Hata, founder and CEO of JustInCase

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n nWhat made you decide to start a business?n

Prior to founding JustInCase in 2016, I was working as an actuary at Milliman.

I wanted to be a mathematician when I was 18. So, I went to university where I found that everyone was a lot smarter than me. I thought I had to do something different. Since then, that has become my strategy in life, leading me to do an insurance tech business.

Moreover, from the time I founded JustInCase, it has become more common to build a startup and be funded by VCs or angels. But everybody was building startups outside Japan and not inside the country, so I thought, “Why not?” I wanted to do something that nobody was doing.

nTell us about your product.n

We’re offering basic cellphone repair insurance for as low as JPY 200 (US$1.77). We cater to both brand-new and older smartphones, but our current policy is only up to iPhone 5s.

Our app uses AI to track the user’s interaction with their smartphones to determine their risk level and the insurance premium. It monitors things like information from the smartphone’s sensors, number of steps you walked today, and the distance from your movement. We also use GPS for location information when necessary.

In terms of social connections, we’re still in the middle of processing that with the Financial Services Agency (FSA), but we don’t plan to use them initially because it’s more complex.

nDo you think there will be resistance to the idea of people being judged based on their social network?n

Yes, it’s potentially quite controversial. But we won’t be using that information only; we’re using multiple pieces of information to determine the premium. Some people might not like the concept of dynamic pricing, so we are trying our best to make it better for most people.

nHow do you go about collecting data from first-time users?n

When a first-time user signs up, they can avail of the smartphone insurance for three months at a fixed premium. After that period, we give them an unclaimed discount amount which they can use for the next period.

During the first three months, our AI determines the user’s riskiness, which will be the basis for the next three months’ discount amount.

nDo you see a time when people will be able to buy insurance for just a few days or hours?n

Yes. We are actually looking to provide on-demand insurance for injury or any of your belongings, like cameras, watches, glasses—pretty much anything that can be repaired and insured.

nYou use the concept of P2P insurance pools. How does it work?n

A pool can hold a maximum of 10 people. How it works is that you have a contract with us, JustInCase, as an individual, but you can also connect with your friends in our app by sending an invitation code. You and your friends can then share the risk and return on the insurance.

Return refers to the discount amount, while the risk pertains to when you or your friend makes a claim. So, if one person does a fraudulent claim, the other person’s discount will be gone.

This mechanism enables people to help each other.

nHow do you think this will make you profitable?n

This concept lowers the customer acquisition cost, as people introduce their friends to the product, and discourages some users to make claims. It also lowers the risk for fraud, which is always the enemy of insurance businesses.

So, maybe you won’t be encouraged to claim for just a small scar on your phone if you don’t want to give your friends trouble.

nDo you think the regulators are supporting innovation in the insurance industry now?n

I think the FSA is seriously considering the digitalization of the insurance industry.

We were applying for what they call a mini insurance license, which, to the best of my knowledge, exists only in Japan. The process for this license is smoother and less burdensome.

It took me about 12 months to finish the process because the P2P and app-only concepts are completely new. But for a simple insurance, I think the process takes only six months.

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The reason you can’t insure your camera only for the duration of your trip or your guitar only for the evening of your performance is not because actuaries could not figure out how to make the math work. It’s because there’s been no way to sell administrative policies affordably.

Now that there is, we will start to see more and more of these new targeted products coming onto the market.

Moreover, I was impressed that Japan’s FSA is actually trying to encourage innovation in insurance, and that they’ve developed streamlined processes for smaller companies and startups to introduce new products.

One of the most innovative ideas in JustInCase’s model is the small P2P insurance pools. These are the insurance pools in the traditional sense since the risk is still spread over all of JustInCase’s customers. That’s how the base rate is calculated.

However, tying the no-claims discounts to the behavior of small groups of 10 friends will certainly reduce the number of claims that are made. In fact, it might reduce them more than Hata is letting on.

The success of this whole business strategy depends on a rather delicate balance. I think a lot of people would decide not to file a US$60 claim because it would not be worth the trouble of annoying nine of your friends and causing them to pay more for insurance.

In the short run, this reduces the number of claims made. But in the long run, there is a real risk of the strategy backfiring and having people refuse to participate in these small private pools, specifically because of the additional social pressures that it will involve.

Either way, it’s going to be very interesting to see how all of this works out for the insurance industry over the next five years.

Converted from Japanese yen. US$1 = JPY 113.04.