November 22, 2016
Insurance Disruption? Evolution Is Better
by Tony Steuer
Most high-tech firms still just sell insurance, rather than changing insurance. A new way of thinking is needed.
A significant part of the insurance industry and consumers have forgotten, for the most part, about why the industry exists. The policy holder pays into a pool through the insurance company and, if a certain event occurs, expects a claim to be paid. Very simple, right? So how has the insurance industry strayed so far from this simplest of concepts? And how have so many consumers purchased insurance products that have added so many complex layers to basic risk protection?
Yes, it is time for change in the insurance industry. Change is a part of life. And change is coming. The insurance industry needs to adapt to the current technological environment. At the same time, insurance consumers need to take advantage of all of the information available to them and increase their insurance literacy. Almost every single person in the U.S. has some form of insurance, but very few people have more than a general idea of what each of their insurance policies is and what it covers.
See also: Which to Choose: Innovation, Disruption?
There is a constant buzz in the insurance industry about “disruption.” Why disruption? Is it because the term is trendy and has happened in other industries, or is it because disruption is actually needed in the insurance industry?
Is it more appropriate to say that the insurance industry needs to evolve, similar to how the investment world has already started to evolve?
Let’s look at the words themselves for the necessary direction, which will show why so many high-tech firms have failed in the insurance space and will continue to fail:
Disrupt: to cause disorder or turmoil in; to break apart; to radically change (an industry, business strategy, etc.), as by introducing a new product or service that creates a new market.
Evolve: to develop gradually or to gradually change one’s opinions or beliefs.
(Definitions are from dictionary.com.)
High-tech firms are focused on changing insurance like they have other industries, and it’s not going to work the same because they are focused on disruption rather than evolution. The insurance industry is one of the oldest industries in the world, with the concept tracing back centuries. Insurance is also a highly regulated industry. So just as it’s really difficult for a huge oil tanker to change course, it is equally challenging for an industry with the size and history of the insurance industry to change course or be subject to disruption. A slow evolution is what makes sense for the insurance industry.
The investment industry has evolved in many ways, and the technology firms that are entering the investment world are not focused primarily on disrupting the industry; rather, they are focused on more effective ways to provide advice, manage investments and gain greater efficiency.
The investment world is already further along than the insurance industry because there is already a fiduciary standard, with a greater expectation that the investment industry act in the best interest of their clients. Partially, this is because most investment advisers are compensated through some sort of fee arrangement rather than a commission.
The insurance industry has not changed in many ways and is just starting to adapt to our mobile society, new technologies, “big data” analytics and blockchain technology, among other factors. Currently, changes have been mostly limited to basic tasks like claims processing and some distribution activities. But really, most of the high-tech firms are still just selling insurance, rather than changing insurance. What is really needed is a change in the overall thought-process, including underwriting, policy servicing and home office operations.