The Biggest Cloud Software Trend You Haven’t Heard Of (Yet)

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Today, I want to tell you about an emerging cloud software trend you likely haven’t heard of yet, but has immense profit potential (in fact, my subscribers and I are already capitalizing on it!). But first, let’s talk about a far less intriguing subject: insurance.

The Problem with Car Insurance

On a whim, I recently reviewed our car insurance.

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Something didn’t feel right, so I went online and got a quote from another provider. It turns out they could cover our two cars with essentially the same coverage – for half the price.

I was floored. How the heck could this be? Isn’t car insurance a relatively standardized, commodity-type product?

No!

Turns out different carriers have great products for certain demographics in certain states, and horrible ones for others. We were with the wrong car insurance carrier for our profile.

Without getting into the weeds of the situation, the basic deal is that insurance is a competitive and heavily regulated industry. Rules vary by state. There are different actuarial standards, statutory requirements, types and levels of coverage, bundles and discounts available depending on where you live.

Other factors, such as age, model of car, etc., play a role too.

Because there are so many variables insurance carriers build and target products for certain types of consumers in different markets. If you’re not in the target group for a given insurance provider for a given insurance product, you’re likely getting a raw deal.

All this variability makes shopping and comparing insurance products a pain in the neck for consumers. I can tell you from recent experience.

There are hundreds of insurance carriers to choose from, making apples-to-apples comparisons on pricing and coverage options challenging. This leads many consumers to just stick with what they have, even if it means burning cash every month.

On the insurance provider side of the equation it’s not all high fives and keg stands either. Despite huge advances in online marketing technologies it’s still very challenging for individual carriers to efficiently target advertising dollars only at those consumers who match their products’ perfect risk profile.

This leads to huge sums of inefficiently spent money. Industry data shows insurance providers are spending $123 billion a year on non-health insurance sales, marketing and distribution activities. Around $115 billion of this goes to agent commissions, while the remaining $8 billion goes toward advertising.

That’s a huge market, ripe for disruption.

A Better Way to Shop for Insurance

Whenever there is a big misalignment in a huge market there is an opportunity for a technology platform that bridges the gap, reduces friction, and generally makes life easier and less expensive for everyone involved.

In the insurance industry, as in the travel industry, the solution is an online shopping marketplace—a platform that lets consumers compare products and have the confidence to click “buy,” even without speaking with an agent.

I use the travel industry as an example because most of us are familiar with it and the major players, including Expedia (EXPE) and Booking Holdings (BKNG). A similar trend in provider aggregator/comparison websites has happened in the lending industry, where LendingTree (TREE) is one of the major players.

The trend is moving in this direction for all types of insurance. But there’s still a lot of room to move insurance purchases online. Around 70% of consumers shop for insurance online now, but 80% of policies are still closed offline through insurance agents.

I expect the number of people shopping for insurance online will continue to go up, while the percentage of policies closed through agents will come down. People are buying cars, renting houses, banking and getting advice from doctors online. We’re all going to be buying insurance online soon too.

How to Invest in the Biggest Cloud Software Trend

A cloud-based marketplace that matches insurance buyers with sellers and provides the tools to click buy is a simple concept. But it’s not that easy to implement, which is why there’s so much potential.

I’ve identified a handful of companies that have a head start in developing the tools and integrations to provide a seamless consumer experience for insurance shopping that’s similar to booking online travel.

They’re all included in Cabot Small-Cap Confidential. And they’re doing great as this cloud software trend is gaining momentum.

I know you probably just want their names. But these stocks are still rated buy so I can’t divulge them, unless you’re a subscriber. To get started, click here now.

When you do, you’ll learn about the small-cap stock that just blew past earnings estimates and inspired me to write this to subscribers:

“We got into [unnamed company] because I’m a fan of investing in the intersection of emerging trends and cloud software. The transition of shopping for insurance on the phone to online is one such trend.

“These guys just crushed it in Q3. Revenue was up over 60% and beat by more than 14%. The company delivered its first quarterly profit, also destroying expectations. Forward guidance jumped too. In short, virtually all metrics were awesome.”

I think online insurance shopping is in the early innings of a long-term trend. Truth is, it’s just one of many cloud software trends we’re following and profiting from in Cabot Small-Cap Confidential. We’d love to have you join us.

Tyler Laundon

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Tyler Laundon is chief analyst of Cabot Small-Cap Confidential. The circulation of Small-Cap Confidential is strictly limited because the undiscovered stocks with sky-high-potential that Tyler recommends are often low-priced and thinly traded. Don’t share these recommendations!

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