‘Junk fees’ crackdown a ‘win-win’ for insurtechs, expert says

American insurtechs should view a crackdown on “junk fees” as an opportunity to show value, establish trust and affirm a customer-centric approach, according to Darcy Rittinger, chief risk officer, Cover Genius.

The crackdown on junk fees "is as an opportunity for insurtechs to really be at the forefront and seeing what we’re already all doing, which is creating these really customer-centric experiences and products that are delivering value that meet the regulations in any event,” she said in an interview with InsuranceNewsNet.

She added that insurtechs should pay attention to junk fee legislation in the pipeline not only because it’s required by law and will affect many of their distribution partners, but also because “it’s just good for business.”

While Rittinger noted that insurtechs sometimes have to make an extra effort to engender consumer trust, stronger protection laws can actually help them achieve that and shouldn’t be seen as “red tape.”

“Regulations like these actually help us explain what we’ve been doing already to our consumers and have the added backstop of security that we actually do, as a regulated entity, have to comply with these laws. So, overall for us — and I think insurtechs should be viewing this this way — it’s a win-win for us,” she said.

Stronger consumer protection laws

Over the last year, legislators and regulators have ramped up consumer protection laws to crack down on “junk fees.” The Biden administration last year introduced the Junk Fee Prevention Act, which aims to “limit and eliminate excessive, hidden and unnecessary fees imposed on consumers.” If enacted, it would apply to specific businesses, including ticketing services like Ticketmaster and short-term rental companies like Airbnb, among others.

Rittinger explained that this could particularly impact embedded insurtechs that offer coverage through distribution partners. It can also apply to regulated and licensed insurance providers, which are “technically financial firms that are selling financial products.”

“In other words, if someone’s purchasing that Taylor Swift ticket and they want to ensure that they are covered in the event their mother’s been sick or something like that, and they’re not sure that they’re going to be able to go to the concert, that the coverage that they’re purchasing within that flow is actually delivering on the needs that they have,” she said.

Increasing transparency

To avoid being classified as having “junk fees,” insurers need to ensure customers actually understand their coverage and that policies provide value for their needs, Rittinger said.

She noted that the legislation seeks to cut down on “bait-and-switch or sleazy sales tactics.” However, she added that insurance companies should not want to offer a consumer an insurance product with inadequate coverage in the first place.

“It’s pretty clear that the intention behind this is making sure that customers understand what they’re purchasing. So, they understand what the coverage and the benefits are on these products, but they also understand what’s not covered by these products, which is equally important when someone’s making a financial choice,” she said.

The digital divide

The unique challenge insurtechs face with this legislation is that it can be more difficult for them to communicate the value of an insurance product online than in-person, Rittinger said.

“If you’re not actually providing value during that process, a consumer could feel like they’re just being gouged for additional fees within that transactional flow,” she noted.

At the same time, insurtechs have to ensure they actually meet the needs of a specific client segment. As an example, Rittinger compared the travel insurance needs of a senior couple with health issues booking a trip to Egypt versus a college student booking a trip to Mexico for spring break.

She emphasized that “it’s not just about the price sensitivities of the cohorts — it’s about the needs.”

“The spirit of these rules is putting the customer at the center — making sure that we’re not just trying to get as much revenue as we can out of the customer, but rather that we’re offering products that provide clear value to the customer segment that is within that addressable market for that product,” Rittinger said.

Driving better outcomes

Rittinger believes stronger consumer protection laws, such as the crackdown on junk fees, will drive “real, true customer centricity and personalization of insurance products” — which could be a good thing for American insurtechs.

In fact, she said Cover Genius does not view such regulations as a hindrance but as a reaffirmation that consumer trust should be at the heart of all they do.

“This is where I see that these regulations and insurtechs kind of work hand-in-hand. Insurtechs like ours are already working towards that personal customization of these products, such that we know definitively that they’re providing value and good consumer outcomes on the back end,” she said.

Cover Genius, founded in 2014, is a global insurtech provider offering tech-powered insurance solutions and software. It has over 600 employees around the world and reported 107% year-on-year growth in 2023.

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