August 29, 2016
Who Wins? Goliath or David, Big or Fast?
Are larger, established insurers destined to be lethargic and slow off the mark, or can they become agile and innovative?
Why did we call David an underdog? He was young and smaller, whereas Goliath was older and a giant of a man, “whose height was six cubits and a span”. Goliath was an experienced warrior, a veteran soldier, whereas David was a mere shepherd. Goliath was outfitted with modern weaponry and all David had were his shepherd’s tools.
This contrast and disparity is because there were three types of warriors in ancient times: First, there were warriors who fought with slings and bows as lightly armored troops, forming bands of skirmishers. Second, there were the more heavily armored soldiers who formed the bulk of the infantry as foot soldiers, who fought in close-quarters combat with swords, axes, pikes and spears, such as Goliath. Lastly, there were warriors who fought on horseback as the cavalry.
Goliath was a foot soldier with sword and spear, David a skirmisher with a stave and sling. As the story goes, Goliath and David started their duel with some distance between them, Goliath expecting David to draw near and engage in combat. He wanted to engage David in a hand-to-hand fight where his reach and strength would make him unbeatable. David, however, decided on a different strategy, which played to his strengths as a shepherd, using a sling to defend his flock against lions and wolves. He rejected the heavy armour and focused on what he knew best — excelling at attacking from afar with great accuracy.
So here was David, the shepherd, experienced in the use of a devastating, precise weapon, up against a giant weighed down by a hundred pounds of armour and incredibly heavy weapons that are useful only in short-range combat. Goliath was a sitting duck. He didn’t realise it, but he had been outsmarted before the combat had even begun.
So how does this story relate to the insurance industry?
If you are a “large” and “established” insurance company (Goliath), the headlines regarding the disruption in insurance are provoking concern at the C-level. Much of the material equates “large” to “lethargic and slow to react”, while “established” equates to “old and legacy”. In contrast, the material positions small, new and agile companies (David) as extremely innovative and disruptive. The message is that these “disruptors,” with their new business models and digital capabilities, will make large, established companies irrelevant very soon.
Are larger, established insurers destined to be lethargic, slow off the mark, or can they become agile and innovative? It is definitely possible, if the larger, established insurers leverage their strengths and act like a new disruptor. In fact, Chunka Mui’s book, “The New Killer Apps: How Large Companies Can Out-Innovate Start-ups”, co-authored with Paul Carroll, suggests such a scenario.
See also: InsurTech Start-Ups: Friends or Foes?
So, how can established insurers disrupt these “disruptors”? Certainly not by fighting them on their chosen ground and with their weapons of choice. Insurers need to aggressively experiment and learn and accept that failures are part of the process of innovating. They need to leverage the strength of being big, with deep experience and expertise, and combine that with greater agility and innovation. It may even involve cooperative endeavours that could look more like Goliath and David working together than working as dire competitors. For now, however, we’re concerned about refashioning Goliath’s capabilities.
So what are the strengths that established insurers can use to forge ahead and disrupt them?
Your key strengths are precisely what are mentioned as your weaknesses – “legacy” – the legacy of reputation, the legacy of large customer bases and the legacy of experience and expertise. Those legacies are still highly valuable. It is the legacy mind-set, legacy business models and legacy technology that needs to be reconsidered.
Let us peel off a layer from your strengths.
The legacy of reputation
Whilst this should be a positive for most established insurers, sadly many reputations have been impacted with perceptions of not paying claims. No amount of statistics published by the industry will change the perception, because trust has been impacted. And increasingly, consumers are placing their trust in the voices of other consumers using an array of social media options.
Insurers can create a new business model with an underlying digital platform where consumers can easily rate your services openly, and anonymously, if they choose, with the assurance that they will be responded to and engaged with. They can also engage with other customers. This will go hand-in-hand with the creation of communities or interest groups. It will increase trust levels, bridge any trust deficits and help insurers build reputation. Even a slip in service is seen as acceptable if it is transparently acknowledged and acted upon. Doing that builds more trust and reputation. Do more of it and openly.
The legacy of the customer base
The customers of today are fickle and loyal to nobody. They will change service providers for the slightest of reasons. How can you get them to be loyal to you? Engaged with you? The customers of today do not engage with “brands” as much as they engage with each other, often through social media.
Can you create communities from such customers? Certainly. Communities can revolve around any commonality or interest. Insurers can build communities revolving around areas of interest or even around the insurance type. For example, you could foster a community of insured musicians, passionate about their instruments. They could be part of such communities on the popular social media platforms. Insurers could take advantage of these social media platforms or create a simple one of their own focused on the special tasks involved in caring for these expensive musical treasures. The insurer’s proactive, preventive approach will also help them to keep a low claims ratio. Community-based groups are also less likely to make fraudulent claims because they are “known” within the community.
The legacy of experience and expertise.
There is a wealth of knowledge and experience in your company, knowledge about customers, about risk, about financial modelling of events, and about the business as a whole. This is likely not being leveraged to the extent it could be. By taking that knowledge and expertise from people’s minds into a system that can leverage it opens up possibilities for the business. Insurers can automate and configure the business to rapidly adapt to change, using it to grow the business rather than hinder the business. A good example of this is the Majesco Transformation Framework, a path to modernizing without losing the essential aspects of an insurer’s foundation.
So, the end goal is to embrace your “Goliath” position while integrating and employing your “David” tools for better competitive strength. To accomplish this you need a robust platform that can support the core of the business with a digital front-end that engages the customer. Robust platforms with back office and front office components, rich in insurance content for products, processes and channels allow the traditional insurers to be big and agile. And as noted in The New Killer Apps, “Yes, small and agile beats big and slow, but big and agile beats anyone — and that combination is now possible.”