Scout InsurTech Interview with Joerg Proeve

Joerg Proeve is the Founder and Modernization Leader at Breezy Risk Advisors, bringing decades of insurance-industry experience and a strong background in operating model transformation and strategic advisory. Joerg was interviewed by Michael Fiedel, Co-Founder at Scout InsurTech and Co-Founder at PolicyFly, Inc.

Joerg, using a tangible example such as hurricane risk in Florida, how do you define the insurance gap and why does it persist across personal and small-commercial insurance?

We conventionally define insurance gap as the difference between economic loss and insured loss, but I have learned to define it much more broadly. To me, the real gap is the mismatch between what an insurance contract actually covers and what customers, whether homeowners or small-business owners, believe it covers.

When I advise carriers on this issue, I walk them through what I've witnessed repeatedly: Let’s take a Florida homeowner as an example. He buys a typical HO3 policy; he shops primarily on price. He may flip through the policy document, but as an insurance layperson, terms like a hurricane deductible do not truly register with him. Exclusions buried in the policy usually go unnoticed. Even the bold notice that flood is excluded and must be purchased separately often does not sink in until it is too late.

Years can pass with no claims. Keep in mind that only about five percent of homeowners submit a claim each year. Now, when a major hurricane eventually hits, the realities of the policy become painfully clear. Strong winds have destroyed the roof, causing $20,000 in damage. Unfortunately, they fall below the hurricane deductible, meaning the homeowner pays, the insurer doesn't. The storm also damages the patio and other outdoor structures. Again, these damages are excluded. Flood damage is also not covered by the policy. All in, the homeowner might face $50,000 in losses, but receives nothing from the insurer. The contract is correct, the carrier has not done anything wrong. The customer feels deceived.

Small businesses face the same issue. During the COVID lockdown, many restaurants were forced to close, and carriers faced thousands of business interruption claims. Yet their business-owner policies did not cover pandemic-related losses. Many restaurant owners had never closely read their policies and felt blindsided.

For both consumers and small-business owners, insurance is simply too difficult to understand. Contracts contain legal language, exceptions and percentages. Customers shop on price because it is the easiest thing to compare, and agents often reinforce that focus. No one in the chain is incentivized to push for clarity. Actuarial necessity adds another challenge: insurers must price for profitability and solvency. A fully comprehensive, no-deductible policy is possible but would be unaffordable, especially in high-risk states.

In summary, the insurance gap persists because the product is complex, the incentives are misaligned, and the customer’s expectations rarely match the reality of coverage.

What are the product-design and regulatory factors that make insurance coverage so convoluted, and what would meaningful simplification actually look like?

At its core, insurance is an actuarial product. We model risks we can reliably quantify and exclude risks we cannot. That is why perils like war, terrorism, or nuclear incidents are excluded from property insurance. These events are nearly impossible to model.

As new risks emerge, the complexity grows. Instead of rewriting policies from scratch, insurers add new endorsements on top of existing forms. After the 2020 pandemic, many general liability policies added pandemic exclusions. After high-profile ransomware incidents such as the Colonial Pipeline attack in 2021, carriers added ransomware exclusions or sublimits. Over time, a general liability policy accumulates 30 or more endorsements. A legal expert can interpret those endorsements, but a small-business owner typically cannot.

Regulation also discourages simplification. In the United States, insurers must file rates and forms across 50 jurisdictions, each with its own rules. Having led operating model transformations, I can tell you this isn't just complex; it's a strategic constraint that most executives underestimate. The time required to navigate 50 different approval processes slows innovation and makes it nearly impossible to launch new products quickly.

Carriers hesitate to refile long-standing forms because doing so may require publishing loss ratios that reveal profitable products. Competitors can exploit that information, and regulators may push for rate reductions. There is no real incentive for a carrier to proactively file a form change.

Litigation pressures make the language even longer and more cautious. Each lawsuit leads to additional clarifications or exclusions. Policy documents grow longer and more complex with each litigation cycle.

Despite these challenges, there are encouraging examples of innovation. Parametric insurance, such as the 'emergency cash' model I architected and launched at Parachute Insurance, starts from a customer-centric premise. If hurricane-level wind speeds are recorded in your neighborhood, the policy pays automatically. No adjuster involved and no exclusion debate. It relies on a simple trigger.

Bundling coverage is another improvement. The business owner policy pioneered this approach decades ago, bundling property and liability into one simple contract. Companies like Next organize coverage around business needs instead of traditional insurance categories. A contractor who used to buy several separate policies for tools across storage, transit, and job sites can now get one single package.

Some startups are simplifying policy language. Lemonade pioneered the use of clearer text, color, and images to help renters understand their coverage, a design approach that's now being adopted by more traditional carriers. These innovations show promise, but scaling them remains a challenge I discuss often with executives.

Where does communication most often break down across the MGA to wholesaler to retailer to policyholder chain, and how could those touch points be redesigned to narrow the insurance gap?

I've diagnosed this breakdown pattern across dozens of distribution models. A typical insurance product moves from the MGA to a wholesaler, then to a retail agent, and finally to the customer. With four parties involved, there are four opportunities for information to be diluted. This happens often.

While serving as COO at a cyber-insurance startup, I watched this communication breakdown destroy our differentiation. For example, we included valuable proactive services, such as phishing simulations and employee training, as part of our offering. When wholesalers converted this into spreadsheets for comparison, those services simply vanished.

Retail agents, comparing policies line-by-line, missed these differentiators entirely. Customers never heard about our value-add services and defaulted to choosing the lowest price.

Claims introduce another communication challenge. Only about five percent of policyholders submit a claim in any given year, so most customers never evaluate carriers based on claims service. Yet claim-handling quality is one of the most meaningful indicators of value. An exceptional claims leader at a carrier I worked for taught me something that changed how I think about distribution. He said that our best customers were the ones who had experienced a claim. They saw our support and experienced our empathy firsthand. Unfortunately, since claims are infrequent, the buying process defaults to the simplest comparison point, which is premium.

To improve communication, insurers should lead with claims examples that show what coverage does in real situations. Short video clips explaining claims processes, policies, and included services would also help. Customers already consume information in short video formats. Insurers should meet them where they are.

What would an ideal mitigation-aligned insurance model look like, one where policyholders are incentivized to reduce risk and insurers deliver value before a loss ever occurs?

Insurance today is largely reactive. You buy a policy, have no interaction for a year, renew, and only engage again if something goes wrong. I envision the future to be much more proactive. The relationship should be based on ongoing engagement focused on reducing risk.

Insurers have deep expertise in understanding what drives risk. With the rise of real-time data, sensors, and connected devices, we as an industry should help policyholders reduce risk in meaningful ways.

Telematics is one clear example. In trucking, carriers use dashcams and monitoring technology to participate in daily risk management. Property carriers now offer meaningful discounts for tools, such as automatic water shutoff valves, because preventing the $30,000 water damage is far better than paying it.

Cyber insurance is perhaps the clearest model of all. Without ongoing training, security controls, and vigilance, businesses remain highly vulnerable. Mitigation is not a one-time activity. It is continuous. Insurers can guide and incentivize that process.

We should offer meaningful discounts for good risk behavior. We can also partner with service providers, such as roofing companies or wildfire mitigation services, to make preventative steps easier for customers. These aren't theoretical concepts. Many small initiatives like this already exist, and I've implemented variations of this model across multiple organizations. 

Insurers are well-positioned to expand these efforts and make mitigation a core part of their value proposition. The ones that move early on mitigation-aligned models will own the future.

Scout InsurTech Thanks Our Partners