Mark Scafaro is CEO and Co-Founder of Afficiency, providing life insurance products via API to digital distributors. Mark was interviewed by Michael Fiedel, a Managing Director at InsurTech Ohio and Co-Founder at PolicyFly, Inc.
Mark, what are some of the strengths in acting as an intermediary between carriers and distribution partners?
“The biggest strength is we get to be experts in both those fields and exchange our expertise between carriers and distributors. To really make insurance work, we want insurance to be easy for the end consumer but also make it easy for distributors to sell. That's an ecosystem where you need the carriers, risk takers and distributors to work seamlessly together. By being the bridge between those two, and by bringing that expertise from one to the other, we're strengthening that whole value chain.
We bring the technology that integrates access to digital life insurance products. We make it digital and more consumable, and enable it to be more easily integrated into distribution channels. Most importantly, the technology is flexible enough to integrate it across a variety of different distribution channels. Tuning in on the distribution side, we listen to their needs and hear what their customers want, and we are able to tailor products based on their challenges and opportunities. We can help guide them on which products are realistic to sell digitally versus overly complicated, and explain what can be done and how we make that happen. We can bring you to the right risk takers to build those products, so we help bring the connectivity between those two very important elements of the value chain.”
How important is it in the insurance industry, particularly for those trying to build technology, to approach it with an API-first strategy expecting it to work with existing technology rather than replacing it?
“It's important because what the API does is it gives a lot of flexibility. On the distributor side, by exposing our products via API, we give tremendous flexibility. We allow the distribution system to design their own sales process, user experience, way of selling it, packaging of the product, etc. We're basically going to those different distribution systems saying, ‘Look, you have a way to sell. We're going to make it easy for you to take a product and put it into that system.’ Whether you're an agent or a different type of distributor, we're exposing the same product but giving them the freedom to package it and deliver it in the way that works for their ecosystem. That's why API first is very important.
On the other side of the equation, there is some re-engineering that is needed. We don't just go into a life insurance company and say, ‘We're going to take your product and put an API on it and expose it’ because those products are not designed to be consumed instantly and digitally. We also do work on the carrier side on redesigning their products. It's not a fact that we go in and immediately say ‘add an API’. That will not work unless the product is designed to be digital and synchronistic where everything can be done instantly, like an instant underwriting decision or instant signature. If the underlying product's not set up for that, it's not going to work in our ecosystem. So, API works on the distribution side just from its flexibility, and on the raw product side, it requires us to do a bit of re-engineering of the product.”
How does this API-based approach allow Afficiency to create diverse use cases? What are some of those use cases?
“I'll give you an example. Every time we design a product, we're not just in the business of taking products off the shelf. We are in the business of working with our risk-taking partners, reinsurers and carriers to design a product. When we design a product, we design it to be as flexible as possible to satisfy as many use cases as possible. That's in the design, and the pricing is in the underwriting. With API, we can now add a layer of flexibility. A use case I'll give you is we build an income protection product. It's basically saying to the end user, ‘how much income a month do you need protected? If you were to die, how much does your family need a month of income protection?’
That's how the product works, and we build it that way. But, the flexibility we have is we can repurpose it for different use cases. For example, we can use it with a distributor who has mortgage customers. Whether the discussion with the end user is, ‘Hey, you just got a mortgage, you got this mortgage payment, here's a solution: a product that can put life insurance on that monthly mortgage payment.’ If something happens, that mortgage payment is still going to be made. That's the very same product that can be used for another distributor that's, let’s say, in the banking world or even in a work site case where consumers need to know the fate of their paycheck if something were to happen to them. We can repurpose the same product as an insurance product to protect your paycheck, so if something happens to you, your monthly paycheck keeps going to your family. That's an example where it's one product that was designed as income protection, but because of our APIs, the way it's delivered can be delivered into very distinctly different use cases.”
Where do you see us heading from a life insurance perspective into the future? How do you see the industry changing over the next 10 years?
“We are very much on the frontier of the digitization/data side, and we've seen this evolve in instant underwriting. For many decades, the underwriting process was a process. You fill out an underwriting app, go to underwriters, they pull information and make a decision. We're on the forefront of doing all that instantly. If I go back six years ago, the difference in pricing between what they used to call simplified underwriting was big. Over the last few years, that difference has gotten smaller and smaller, where now we're pretty close to the full underwriting price.
The reason is that we're bringing more data in, but there's better understanding of the data and more tools that instantly makes underwriting decisions better. To answer your question, that's what is happening now, and in the next 10 years, I think we're going to fully be there. What that means is that's a change in the dynamic. Now, you can have life insurance that is underwritten instantly. How does that change things? I think in several ways. One way being that there's going to be more embedded life insurance where someone's transacting elsewhere, like a mortgage, but because we can do things instantly, life insurance can be packaged into that. As this opens up that opportunity, many people will say life insurance is sold and not bought.
And I believe that. For this embedded movement, it has to be a very compelling value prop, but it’s going to open up more opportunities for agents, especially for more complex products. Right now, the more complex life insurance products are mainly tailored toward the more affluent. With changing the dynamic where this can all be done very instantly and cost effectively, I think a lot of those wealth products are going to become more available digitally and to a wider demographic.”