Finding the Right Pieces to Rebuild Insurance


The insurance industry has been "Amazoned," as customers increasingly demand the sort of easy interaction that the company provides. But the initial pressure is just a taste of what is to come, as the industry goes through the sort of "disaggregation" that Amazon has forced on the world of retailing. The change will alter the basis for competition for many companies and, thus, the skills that will be needed to thrive.

Just look at Sears, J.C. Penney or any number of other retailers to see the dangers that can arise for incumbents when digital technology breaks an industry down into its basic components and allows the nimblest to reassemble the parts in more efficient or appealing ways. Amazon used technology to separate the testing and buying parts of shopping. Instead of going into a store, finding something you like and buying it there, you can complete the purchase at the best price you find on your smartphone. Amazon also pulled the warehousing function out of stores' back rooms and centralized it. Less capable retailers couldn't withstand the loss of sales and of the warehousing piece of their business model.

There are, of course, opportunities, too. Best Buy's Geek Squad managed to take a service function previously fulfilled by the manufacturers or by separate businesses and incorporate that capability into store/showrooms. Allstate, through its purchase of SquareTrade, is stripping warranty business away from manufacturers and retailers. Tesla's use of centralized showrooms is duplicating Amazon's move on warehousing and could take away a major function of car dealerships, while eliminating the cost of financing billions of dollars of cars sitting on lots.

In insurance, you can see the disaggregation coming based on where the innovators are placing their bets—McKinsey reports that, despite early expectations of some sort of killer app, only about 10% of insurtechs are trying to disrupt the industry business model, while two-thirds are working to perfect some piece of the value chain.  

Snapsheet tackles the claims process. Pypestream provides customer engagement. Carpe Data and Groundspeed go after big issues in data and analytics. Platforms like Bolt let customers pick and choose products from an array of insurers, so they can search for the best of breed in each line and not be limited once they choose a principal insurer. RiskGenius makes it easy to take the policy review process for customers and their agents down to comparisons of individual clauses, so they can find the best coverage and build the policies they want.

As this specialization continues, the generalists will have trouble keeping up. Sure, the biggest incumbents will have the resources to compete, at least for a while, but how many companies will be able to match, say, the claims process designed by an insurtech with tens of millions of dollars of backing and access to the kind of programming talent that gravitates to software startups? 

Increasingly, the build vs. buy decision will go away and be replaced by a need to partner with insurtechs that have optimized parts of the insurance process. The switch to partnerships may force major changes to IT systems, so they can work with others' software and not function just as a closed system, based only on what's done in-house. The change will also require a workforce able to get past the not-invented-here bias at many incumbents and to collaborate with partners. 

Leadership will be required. What CIO got promoted by saying, "Nope, I don't think my people can build what you want, at least not as well as that insurtech"? The CEO will likely need to intervene to make sure decisions are made based on fact, not emotion. 

The good news is that, once a company adapts to disaggregation, it can reassemble the pieces of the industry in new and creative ways. Look at Best Buy, which some had on a death watch because of the "showrooming" phenomenon but has reinvented itself in the new world of retailing. Or look at Amazon itself: It began by just selling books but honed its business model and is now eating every market in sight.


Paul Carroll

Paul Carroll

Profile picture for user PaulCarroll

Paul Carroll

Paul Carroll is the editor-in-chief of Insurance Thought Leadership.

He is also co-author of A Brief History of a Perfect Future: Inventing the Future We Can Proudly Leave Our Kids by 2050 and Billion Dollar Lessons: What You Can Learn From the Most Inexcusable Business Failures of the Last 25 Years and the author of a best-seller on IBM, published in 1993.

Carroll spent 17 years at the Wall Street Journal as an editor and reporter; he was nominated twice for the Pulitzer Prize. He later was a finalist for a National Magazine Award.