How APIs Can Inspire The Complete Reinvention of an Old Business

First, I want to start off by saying that ProgrammableWeb doesn't often report on partnerships or integrations (when one company announces it’s going to consume the API of another company). I think of it as "inside baseball” (behind the scenes business stuff) and judging by the traffic that we get to such stories, they’re largely a waste of time. Hardly anyone is interested. But every now and then, we come across a partnership or an Integration case-study that so exemplifies the power of APIs that we can’t resist the temptation to report on the news in that context. 

The partnership news in this case is a relatively typical API integration story. LoftSmart is a company whose online site takes the friction out student apartment rentals (sort of like the way Apple took the friction out of acquiring music). This week, the company announced that it’s essentially going to resell a rental insurance product offered by  

“Big whoop” you say. So what?

When the news first arrived in my inbox, I nearly did a knee-jerk delete. But there is more to this story. Like many young adults and college students, I rented a string of apartments and townhouses during my 20’s. If you’re like me, then you know how this went. You filled out a paper application, then the landlord checked your credit and references, and if you passed muster, you were asked to lay down a hefty security deposit that ranged anywhere from one to three times the monthly rental cost. 

If you’re the landlord, you’re just trying to cover yourself in the event that the renter vacates the apartment in need of new repairs. But if you’re the renter, the security deposit for that perfect place might be too prohibitive since you don’t have that kind of cash on hand. In situations like this, both the landlord and the renter lose. As a result, who knows how many potentially great landlord-renter matches have fallen through over the decades? Surely in the millions if not hundreds of millions.

But once companies like LoftSmart, AirBnB, VRBO, and others optimized the short and long term rental process by taking it online, it also made it possible to completely reinvent the idea of the security deposit and to do it with an API. Let’s face it. The security deposit is a form of insurance.  So, why not outsource it to actuaries; you know, the people who are experts at putting a dollar value on risk? 

Enter Jetty.

Before the workflow of renting a place went online, there was no timely scalable way for a landlord to bring an insurer into the process. Had someone even tried the idea, it would have failed miserably for all kinds of reasons (the landlord acting as an agent for the insurer, insurers trying to do deals with millions of landlords, etc.). 

But thanks to the way the responsibilities across the online version of that workflow can be easily  divvied up across several stakeholders (the renters, the landlords, the insurers, the banks, etc.) using APIs, an insurer like Jetty could easily plug an actual insurance service into the part of the workflow that once involved a security deposit. 

The result? According to Jetty, instead of the renter having to outlay a huge security deposit — for example, $900 — the renter need only pay 17.5% of that amount ($162).  One key difference is that it’s not a deposit. The renter doesn’t get that money back. Essentially, the renter is subsidizing an insurance instrument, the beneficiary of which is the landlord. Come the end of the lease, if there’s damage, the landlord is covered for that damage by Jetty. Just as important, renters aren’t necessarily locked into the non-refundable insurance option. The landlord can present Jetty’s insurance route as one of two options, the other being the traditional security deposit route instead. 

Although it’s not mentioned on the blog post that discusses the integration between LoftSmart and Jetty, one can imagine the sort of data that Jetty gets to collect. For example, if multiple landlords make a claim against the same renter over a period of time, the information could come in handy for that renter’s next rental application. After all, that’s what insurance companies specialize in: assessing risk. Like a driver with a bad driving history, a renter with a bad renting history might merit a higher premium. Likewise, if a landlord appears to be taking advantage of the system by making what appears to be many frivolous claims. It’s not just the wisdom of the crowd. It’s the wisdom of the transactions. 

Now, the question for you (in your industry) is whether or not you see a similar opportunity to modularize some existing workflow, and then re-invent a small part of it using APIs such that its a win-win for all stakeholders. When you’ve discovered that opportunity, chances could be that you’ve discovered a winning business proposition; all thanks to APIs. 

Be sure to read the next Insurance article: Daily API RoundUp: i18next, Launch BI, OpenUV, Urban Jungle