Authored by Phil Schmoyer
Insurance technology (InsurTech) is often regarded as external companies disrupting the insurance industry (e.g., Lemonade, MetroMile, ClearCover, Kin, etc.). The real landscape of InsurTech is driven by traditional insurance companies directly creating, investing in or partnering with technology companies. This environment makes new InsurTech companies ripe for collaboration with insurers to provide enhanced customer experience, new insurance offerings, increased analytics and streamlined processes.
Younger generations are demanding easier, more accessible and better ways to conduct business. Many incumbent insurance organizations, products and distribution channels have not changed as quickly as the consumer base. In fact, older generations are adopting this agile mentality as well demonstrated by some of the InsurTech companies’ average age of policyholder being in the 40’s.
In today’s digital world, the pace at which we and the upcoming consumer generations are exposed to technology is unprecedented. While we all grow accustomed to near instant gratification when we have a demand for a product or service; consider it the Amazon-effect. This results in a desire, or a demand, that insurance organizations meet its new customers on the channels which they frequent the most and that they deliver real-time results. This has shifted (i.e., threatened) the traditional insurance distribution channels and brought on a host of new entrants to the insurance distribution networks; most of which are focused exclusively on enhanced customer experience and the use of data in efficient decision making. The platforms of which these entrants are operating and the agility in their core operations, gives an edge to the new entrants/disrupters.
While the technology and customer-first mindset is a true upside provided by the disruptors entering the market place, these organizations have yet to fully deploy any revolutionary product that works on all risks, or in all regulatory jurisdictions. While there are new products focusing on the sharing economy, with many predicting these new products will continue to expand as robotics and autonomous transport becomes more prevalent, the fact remains that the legacy products are what is being sold. This, coupled with the idea that experience can be changed with the right partner (i.e., collaborating), the sheer reach already maintained by incumbent insurers and brand awareness of their security/value proposition is too instrumental that a slight edge in given to incumbents in this category.
Disruptors Incumbents Customer X Distribution Technology 1
The insurance contracting process has changed drastically over the last year for both incumbents and new entrants. While disrupters have spent billions of investment dollars finding a more digital and engaging way to interact with customers, incumbents have invested in streamlining its existing operations and better utilizing data/knowledge to deploy new technological advancements (i.e., automated underwriting, robotic process automation, etc.). These factors have led to vastly different distribution/contracting processes for insurance products. The disruptors tout themselves as being able to provide customers a quote in seconds, and being able to complete the entire process with a few thumb movements while waiting for an Uber to pick them up. On the other hand, incumbents have taken years of data collection and experience in underwriting/claims adjudication to provide better pricing and predictive models/decision trees in order to fully automate business processes and enable its employees to focus more effort on value-added offerings.
No matter which way people look at it, buying insurance is a tiring process and it seems people don’t know what coverage or caliber of a company they are getting until they have a loss, and at that point it’s too late. What has been seen over the last few years is a lot of personal preference, or comfort, which goes into the decision on how or why people are buying insurance. During an innovation workshop, senior leaders from a major incumbent indicated “Millennials want to buy things quick and easy when it’s only to fit a need. But when you’re buying a significant amount of life insurance to manage your wealth or cover their family in their absence, even they will want to speak to an agent and make sure they understand everything will be taken care of for them.” This further reinforced the notion that personal preference makes this too close to call, and since the industry created the rules, a tie seems like the best outcome here.
Disruptors Incumbents Customer X Distribution X X Technology 1 2
Technological advancements and improved customer experience are some of the key driving forces around this transformation. As such, it comes to no surprise that the new entrants to the marketplace typically have the most state of the art technology to flex and scale based on business and customer demand. On the flip side of this, the incumbents have seen its business(es) grow throughout the years through organic and M&A growth. This expansion, all supported by legacy systems, provides incumbents with a tremendous challenge, and therefore opportunity. Many times these legacy systems are built on old, outdated technology stacks which causes support, integration and enhancement issues throughout the life of the application. These systems house vast amounts of data and support business processes which makes quick, agile, iterative enhancements extremely difficult to plan and deploy. Alternatively, simply sun setting these systems for large enterprises is difficult due to the key role they play in day-to-day operations. Therefore it should come as no surprise that the edge on technology goes to the disruptors.
Disruptors Incumbents Customer X Distribution X X Technology X 2 2
Both disruptors and incumbents have ups and downs to its respective value proposition within the insurance marketplace. While choosing a real “winner” is what everyone is hoping to learn, this is unattainable since the future of the industry lies with collaboration.
It’s often spoken that following in the footsteps of leading, innovative and disruptive organizations is the best course of action. However, disrupting an entire industry is hard, especially a well-regulated one. There are no shortage of great ideas coming from the world of new entrants and incumbents alike. The true secret sauce will be in finding a delicate balance of where incumbents have weaknesses that new entrants can help improve, and where new entrants need the incumbents to prove a concept and/or develop critical mass for long term success. The industry has already seen these collaborations happening throughout the industry and the creation of venture capital/innovation investment funds at large carriers (e.g., XL Innovate, Nationwide Ventures, etc.). Furthermore, expect the need for collaboration to increase as carriers deploy technology to better manage newly emerging products (e.g., pay-per-use, on-demand insurance, etc.) and where new entrants need data and policyholders to evaluate its business model and garner regulatory approval for new products/operations.
In the end, collaboration always wins. We look forward to being part of this innovative journey.
For more information on this topic, or to learn how Baker Tilly’s InsurTech specialists can help, contact our team.