February 18, 2020
Market Boundaries Are Blurring
by Denise Garth
The lesson for insurers about market boundaries is that the industry isn’t simply being reshaped, it is being “unshaped.”
The year is 1959. Neuroscientist and psychologist Bela Julesz tests the ability of the brain to perceive images in 3D. With circular dots and a double image, subjects could begin to see a circle floating above a printed background. Fast forward 20 years, and two of Julesz’s students use a computer to accomplish the same feat in just a single image. By 1991, Magic Eye pictures used repeat patterns to control the depth of perception. A complete 3D image could be hidden inside a 2D pattern. The only way someone could see the image was to relax the eye, blur the pattern and let the brain do the rest. What looked out of focus, blurry and flat, was transformed into an image of stark clarity that leapt off the paper.
Is this a magic formula for considering today’s insurance? A jumble of patterns exist. Focus is difficult to maintain. Thousands of details and past assumptions threaten to distort what insurance executives need to decipher. But…if we relax just a bit and allow the blurriness to exist for a few moments, a certain clarity arises. Not only does the picture become clear, it jumps off the page in 3D. As market boundaries blur and evaporate, new answers to insurance technology, processes and business models are coming to life.
Which boundaries are reshaping the industry?
Four years ago, Majesco published its first Future Trends report that examined the converging “tectonic plates” of people, technology and market boundary changes that are redefining the world, industries and businesses — including insurance. Recently, we released the latest report, Future Trends: Looking Back and Leaping Forward, where we once again discussed shifting market boundaries under six trending categories:
- Blurring Boundaries (between industries)
- New Competition
- New Products
- Competition for Talent
From the start, we recognized that insurers were going to begin competing in a new paradigm beyond their brand, product, price and distribution. This new paradigm required insurers to compete also on the customer experience and to move from vertical market boundaries to porous market boundaries, or ecosystems.
Ecosystems are fluid, porous and operate across and within verticals and multiple channels. The first platform companies like Amazon, Google, Apple, Netflix and Uber disrupted multiple industry verticals and demonstrated why market boundaries limit revenue generation, customer value and market valuations. By bursting the boundaries, they lost predictability, but they gained market reach.
The boundary lesson for insurers is that the industry isn’t simply being reshaped, it is being “unshaped.”
It’s no wonder, then, that many insurers are finding themselves and their strategies adrift — no longer safely anchored to traditional assumptions. Insurers now have to wrap their heads around a new image that will allow them to escape 2D frameworks and find answers in new dimensions.
See also: Insurtech 2020: Trends That Offer Growth
Can we find clarity among the blurriness of market boundaries?
With traditional market and product assumptions (and constraints) evaporating before our eyes, clarity has to be found in a whole new definition of insurance products and services. From ecosystems to technologies, some picture has to emerge that will allow our brains to think “outside the page.”
In words, this image might be, “Escape linear thinking. Embrace the idea of plug and play, partners, networks and ecosystems.”
What is affecting our boundaries and how can we use an ecosystem approach to take advantage of these boundary shifts? We can find out by considering four of the boundary-breaking areas — Insurtech, Channels, Blurring Boundaries and New Products.
If you have been keeping an eye on insurtech, then you’ll know how volatile and substantial investment has been. Based on Venture Scanner data, insurtech investment in 2015 was $1.78 billion as compared with $3.37 billion in 2018 (89% growth) and just over $5 billion through Q3 2019.
Even more interesting are the top funding areas. From the recent Venture Scanner report, Q3 2019 showed the largest influx of funding was in the Insurance Infrastructure/Backend category, with $1.12 billion.
This is a major flip given that channels/front-end were originally the top priority. This flip in focus recognizes the criticality of next-gen technology platforms for insurers that provide flexibility, agility, speed and scale. What does this mean for insurers that are looking for clarity?
First, insurers can take advantage of insurtech investments without making direct investments in insurtech. This is the one of the major takeaways. Insurtech capabilities are now ready as plug-and-play, ecosystem-based, cloud-available services such as Majesco’s Digital1st Insurance,
Today’s customers have introduced new time requirements and pressures into the insurance equation because they are looking for solutions that meet their needs on their terms (when and how they need it), and with speed. There is the time to quote, time to underwrite and time to purchase, which are all opportunities to lose or to gain the sale.
In this new era of insurance, nearly every insurance process is rapidly becoming frictionless, including buying. If distribution channels are easy to use with products that are easy to understand, then insurance has the opportunity to grow through a friction-free, multi-channel distribution system.
The industry is now exploding with new concepts in distribution, including new distribution channel options from marketplaces like Bold Penguin and digital MGAs like Slice Labs. We have also seen the shift from portals to digital experience platforms like Majesco Digital1st Insurance, which has allowed companies like Burns & Wilcox, a major wholesaler, to bring innovative specialty insurance solutions to brokers and agents. Ecosystems can rewrite channel strategy and open the windows to allow for unprecedented levels of channel partnership.
Blurring Boundaries (between industries)
Embedded insurance is an example of boundaries becoming invisible. There is a “hidden channel,” connecting insurance with another ecosystem, such as rental properties, auto manufacturers or even baby gift registries – and embedding the opportunity to purchase within the existing process.
To capture the opportunity, insurers must create an ecosystem of partnerships with a range of digital capabilities and channels to reach new and existing customers. How do insurers recognize the opportunities that exist within the flow of the current of buyer needs, events and lifestyles, to fit the product to the flow of life instead of trying to sell “upstream”?
Majesco Consumer and SMB research has found that customers are very interested in innovative channels like embedding insurance. The answer boils down to alignment. Clear strategies will align the right channels, technologies and partnerships, considering the synergies of partner organizations and the expectations of today’s and tomorrow’s customers. In many cases, insurers will need to quickly build relationships and cross industry verticals. In most cases, strategic clarity will be found through rapid test-and-learn cycles.
Over the last four years, we have seen a growing proliferation of new products and value-added services. These products use new data sources, offer new customer experiences, leverage new technologies and, most importantly, are focused on meeting a new set of risk needs and expectations, particularly for millennials and Gen Z.
The most important change, driven by startups and greenfields, is the unbundling of “one-size-fits-all” insurance into products based on specific needs at specific times. Unbundling, coupled with the growth in the sharing and gig economy has powered the development of micro-insurance or on-demand products across all insurance segments and lines of business.
See also: Future of Insurance Is Clear (but Hard)
Initially, unbundling was best accomplished by a range of small and agile insurance or MGA startups. As traditional insurers and reinsurers have begun to re-envision their responses to blurring industry and market boundaries, they have begun forming clear approaches to on-demand product development. Fast forward to today, and we are now seeing the emergence of on-demand voluntary benefits, life insurance, rideshare, cyber and so much more.
These four boundary-breaking trends are proving that insurers of all sizes can now find an alternate picture within a blurring universe — clear answers rising above the background of tradition and disruption.