Embedded insurance: apple care on two wheels

Where the future of mobility leads is uncertain. Thanks to Hepster from Rostock, however, it is at least properly insured

Embedded insurance: apple care on two wheels

Hanna Bachmann is co-founder and COO of the insurtech company Hepster, which was founded in Rostock in 2016. Photo: Hepster

What takes just two seconds and needs to be insured? Hanna Bachmann does not know herself. "No one needs this in Germany at the moment," says the co-founder of Hepster, but it could become increasingly relevant in the future. The idea of the instant insurance shows the technical possibilities of the start-up company. And the approach of being able to insure even short periods of time is the radicalism with which the Rostockers are rethinking the topic and thus making their small contribution to the traffic turnaround. Hepster makes that pesky to-do insurance part of a positive user experience. This, in turn, will ultimately also contribute to more people switching to bicycles.

But from the beginning: Before founding Hepster in 2016, Bachmann and her two co-founders, who had worked for traditional insurance groups, would have asked a simple question, "Why aren't there situational insurance products?" So for example an insurance for the sport equipment, which one locks only for the duration of the vacation. And which you can order when you remember you need it – for example, when unpacking your skis after arriving at your vacation destination.

"New business models need new insurance models"

Hanna Bachmann

Hepster is not an insurance company in the true sense of the word and does not have its own license. "We perform all the functions of an insurance company," Bachmann says. So: development of products such as e-bike insurance, marketing and sales, as well as all contractual matters and claims processing with the customers. The actual protection of the policies, however, takes place in the background via ten partner insurance companies with which Hepster cooperates.

The achievement of Bachmann and her team is to develop innovative products and build a sales platform for them. And, of course, to persuade an industry that is struggling with the topic of digitization to cooperate with them. The time it takes Hepster to find a risk carrier for a new product, for example, shows how well this has been achieved. Initially, it took a year and a half, but now it's only six weeks.

Embedded insurance: apple care on two wheels

Immediately after launch, however, the Hepster team initially made a classic founder's mistake: Fearing to miss an opportunity, they positioned their startup as broadly as possible on the topic of travel insurance. But if you want to be in on the action everywhere, you won't get a foothold anywhere. From 2020 onwards, the focus will therefore be on one topic: mobility. Because it is in this area that the founders have identified the most momentum for their products. "New business models need new insurance models," says Bachmann. And Hepster could build something for every need – faster than any corporation.

Another lesson learned in the early days: startups don't stand a chance against the huge advertising budgets of corporations. That's why the Rostock-based company has shifted from end-customer business to a B2B2C model. The start-up cooperates with over 2.000 partner companies. They in turn offer their customers the policy together with their products. Embedded insurance is the name of this model of insurance sold as an add-on, or component, of high-priced goods.

Hepster's strategic shift away from the mass market to special solutions for mobility products proved to be the right move. "We have grown partly because of these niche markets," says Bachmann. E-bike insurance is particularly popular. These now account for 50 percent of sales. And the business is growing, currently by 70 percent compared to the previous year. By the end of 2022, the Rostock-based company wants to reach the threshold of 200.Cracking 000 end customers.

The portfolio now covers almost the entire bicycle industry: Hepster insurance is available as an add-on to tracking sensors and high-end bike cockpits, as coverage when buying a used car, or together with an e-bike subscription or leased bike. And Bachmann is optimistic. The mobility turnaround as well as the unbroken popularity of two-wheelers and related IoT products would create ample room for further growth for Hepster.

"If you want to improve products, you always have to improve service," says Bachmann. All the more so when it comes to physical products that are already quite mature and where the potential for digitization is limited. She cites bicycle helmets as an example. These could be offered together with an insurance policy that ensures that the buyer receives a replacement free of charge in the event of damage. This not only makes the product more attractive, but also ensures greater customer loyalty.

"The Tiktok generation no longer goes to an insurance broker"

Hanna Bachmann

They're not specifically targeting homeowners insurance, Bachmann says. But of course the approach is aimed at this: if the insurance becomes part of the product, it saves the customer the trouble of having to check each time whether or not their household insurance also covers the theft of the smartphone. "The generation that is on the road today on Tiktok no longer goes to an insurance broker," says Bachmann, "they don't want to think about it anymore."This explains the success of the embedded insurance products.

Apple Care is a vivid – and very successful – example of how insurance is increasingly becoming part of the product. By 2020, the group estimates it will have generated $8.8 billion in revenue from its extended warranty business, which is, at its core, insurance. Hepster is still somewhat removed from this. But the Rostockers are clearly on course for growth. They have just expanded to France, where the development of the bicycle market lags behind that in Germany by four years, as Bachmann explains. But now digitalization is picking up speed there, too. A shift away from the stationary bicycle trade is becoming apparent. Paris aims to become world's leading cycling metropolis, he says. A lot of revenue potential for Rostock thus.

For 2022, Bachmann calculates a "full eight-figure turnover" and a further doubling compared to the previous year. Between 1.500 and 2.500 new B2B partners would be in the pipeline, according to Hepster COO. And it is also thinking about new fields of business. Bachmann finds the topics of mobility-as-a-service and multimodality "extremely exciting". Here, then, could also be a need for microinsurance, which is taken out in real time. For example, to secure a multimodal travel chain consisting of rental e-scooters, rail travel and a subsequent car-sharing ride to the destination. And who knows, if one day it becomes possible to beam people from A to B, there might actually be a suitable use case for Hepster's two-second insurance.

Want to know more?

Embedded insurance: apple care on two wheels

Hanna Bachmann

One can't exactly say that Hanna Bachmann and her two co-founders Christian Range and Alexander Hornung chose the easiest path: They founded Hepster far away from the usual startup hubs and insurance locations. Plus in Rostock: plenty of support for founders – and proximity to the sea, of course.

Embedded insurance: apple care on two wheels

Patrick Wirth

The traditional insurance world also has the mobility industry on its mind. Ergo and Allianz have hubs where some insurance products for autonomous cars are being developed. At Baloise, Patrick Wirth is currently building an entire "mobility ecosystem" with startups – both insurance-related and not – that are in the field.

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