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How Tech Is Eating the Insurance World

Amazons and Apples and Googles. Oh my…

What do these companies have in common? Devout brand loyalty from the modern consumer coupled with world-leading technology. This poses a massive threat to insurance companies that value ownership of the customer above all else and are seriously lagging on tech. In a post-financial crisis world where financial brands are reflexively distrusted by modern consumers that have incredibly high digital UX standards, technology brands and emerging insurtech startups have a considerable advantage in winning future insurance business.

Amazon, Apple, Google and other tech giants don’t do anything small. It would be foolish for insurers to think that these disruptors will enter the industry to play nice and simply serve as their brokers or lead generators. They have capital in spades, massive captive audiences, piles of valuable data and are perfectly comfortable navigating complicated regulatory landscapes. Insurers like to hide behind this regulatory complexity as a reason to dismiss new market entrants, but this is simply a speed bump for those who want to make insurance a point of focus – not an insurmountable barrier to entry.

The Google Experience

Google dipped its toe in the industry in 2015 with Google Compare and then quickly withdrew in 2016. Insurers like to point to this as the shining example of how technology companies “don’t understand insurance” or how they “underestimate the complexity of the industry.” What they forget (or simply don’t mention) is Google’s core business model – advertising. What is the sixth most expensive word on Google AdWords? Insurance ($48.41 per CLICK!). Who buys that word and drives significant revenue to Google? Insurers. Google’s exit was not the result of execution failure or naivete; it was a consequence of rocking the boat with some of their highest-value advertising customers. The rest of the companies listed above, among countless other tech giants and well-funded startups, do not have that same conflict. Insurers are not immune to disruption from them.

Shifting Consumer Behavior

The modern consumer is a digital native and does not want to speak to people on the phone or fill out piles of paperwork. Consumers want to be offered insurance when it’s top of mind – how they want it, when they want it, from brands they trust, instantly.

One of the biggest problems we see with tech-insurance partnerships is insurers’ insistence on controlling the underwriting and sales process, which creates massive friction with technology companies that offer far superior digital experiences. Consumers don’t want to leave Amazon to start a separate purchasing process on an insurer’s website, and Amazon doesn’t want them to leave its site, either. This is something that is easily solved through API-driven technology systems and programmatic underwriting – words that often give insurers heart palpitations.

See also: What if Amazon Entered Insurance?  

Consumers don’t want to shop around for insurance on quote comparison sites. They don’t want to engage with insurance companies more than necessary or share troves of personal data through an insurance app. They want to purchase insurance when they need it, pay for what they use and never think about it again. Insurance incumbents have responded by building their own apps, offering discounts for more shared data and doubling down on advertisement spending.

Insurance in the Background

Insurance is an important feature, but not always the star product. It’s sold well to the modern consumer either purely digitally or as part of a broader offering – typically at the point of purchase for a non-insurance product or service. That’s an unpleasant thought for insurers that take a tremendous amount of pride in their history, processes and brands. However, letting pride and status quo dictate your business strategy is a good way to get your business killed.

Why not offer homeowners insurance in 15 seconds (not minutes) through fully digital workflow like Kin does? Why not combine cyber protection software and cyber insurance like Paladin Cyber does, so risk is reduced even further in the event of a cyber incident? Why not offer white-labeled SMB insurance to the millions of third-party retailers currently selling on Amazon? Or episodic renter’s coverage directly through Airbnb at the point of booking?

Here are a few reasons why insurers aren’t being more innovative:

  • insurers’ technology simply can’t support seamless distribution through digital platforms
  • insurers/agents/brokers insist on owning the customer
  • insurers don’t want to alienate their traditional distribution network of brokers and agents
  • insurers want full underwriting control through traditional, and often analog, methods
  • insurers don’t want to share data with tech companies but expect tech companies to open their proprietary analytics models to insurers.

This simply will not work.

The Everything Store

Apple already disrupted the warranty space by owning the whole AppleCare stack for themselves. Google has the conflicts discussed earlier. Facebook has the same. As a result, I believe Amazon is the most likely tech giant to make a big splash in the insurance industry as they continue to build their “Everything Store.”

We already see what they’re doing in healthcare, their investment in Acko in India, and rumors about an imminent play in banking. They recently acquired Ring, which has obvious insurance applications, for a reported $1 billion. The writing is on the wall. While I’m not entirely convinced that consumers will search Amazon.com for auto or home insurance, having millions of third-party seller merchants, adding 300,000 in the U.S. in 2017 alone, is a good starting point as far as addressable commercial insurance markets are concerned.

See also: 11 Ways Amazon Could Transform Care  

I am a huge admirer of what Jeff Bezos has built at Amazon, and I’m modeling Boost after what they did in the data storage and hosting space with AWS. It would be foolish for anyone to underestimate the impact a company like Amazon can have on any industry – no matter how old, established or huge the insurance incumbents’ businesses may be. Just ask Barnes & Noble, Walmart, media companies or any grocery store right now.

Evolution of Indian Motor Insurance

The Indian general insurance sector is growing at a healthy 17% a year. Motor insurance is the biggest chunk, accounting for 49% of the gross direct premiums earned (FY16), at $6.5 billion. The Motor Vehicles Act, from 1988, mandates that every vehicle should be compulsorily insured for third-party risks. With the expected growth in automobile sales (6% CAGR in the past 5 years), motor insurance sales are also expected to grow. These numbers are set to rise owing to the changing consumer profile, as well.

The legal mandate demanding the purchase of a third-party liability insurance policy compelled Indians to opt for motor insurance. It was a box that was needed to be ticked off, nothing more. However, the mandate did acquaint people with the philosophy of motor insurance. They started looking at the financial benefits associated with the policy, and the insurers capitalized on this window. Innovative offers and alluring discounts encouraged vehicle owners to look at motor insurance in a holistic manner.

Recent developments opened the gates wide, by allowing 49% foreign direct investment (FDI). The investment increased capital inflow, leveled the playing field and fostered better market penetration. Insurers now concentrate on offering innovative products, providing better administrative services and ensuring hassle-free claims.

Numbers Game

The Indian general insurance market grew from $2.6 billion to $13.4 billion in a span of 14 years, from 2002 to 2016, according to several reports by IBEF, and is poised to keep expanding.

See also: Motor Insurance: Get Back to Value!  

Warming Up to Digital Platforms

Traditional as well as up-and-coming insurance providers warmed up to going digital and created websites. Their offline activities also continued, but their online activities were future-oriented. Even though the insurers did not go all out with their digital activities, they certainly created an online presence, as it gave the following advantages to insurers as well as the insured:

  • Cost Factor

Operational costs reduced with the digital move. Customers benefitted from it in the form of pocket-friendly policies. Standardization helped insurers to service the customers efficiently and effectively.

  • Ditching the Agent

As motor insurance could be purchased online with a few clicks, the role of the traditional agent was curtailed. Simple forms demanded to-the-point information, and prospective customers filled the forms themselves, thus reducing the chances of wrong information and mitigating fraudulent activities. The service seeker and service provider spoke with each other directly, without any middleman.

  • Convenience

India was getting used to purchasing things online. From buying vegetables to searching for prospective life partners, people found a convenient alternate in the form of websites and apps. People researched about the features, fortified their motor insurance policy with add-ons and purchased or renewed their policies online, at their convenience. Features like cashless garage services made it easy for the insured to get a vehicle repaired conveniently.

  • Smooth After-Sales Service

New touchpoints enabled customers to address their grievances through social media. Insurers also considered it as a priority and started engaging with customers through platforms like Facebook and Twitter. Claim-related queries were addressed through social media platforms; everyone could see if a query was pending or was resolved.

Riding the Technology Wave

Over the years, technology has played a crucial role in making the Indian motor insurance sector efficient. Insurers offered several add-ons to the comprehensive motor insurance policy along with the basic third-party liability policy. Strong comprehensive policies came into the picture, and the insurer as well as the insured benefitted. There was a reduction in administrative costs without compromising the cost-efficiency. It became easier for the insurer to ask for necessary details and for the insured to provide them with Know Your Customer (KYC) norms. Customer acquisition as well as customer servicing costs went down, and the insurance sector’s reach widened.

The insurers were able to offer policies online, and customers could make an informed decision by researching and getting in touch with the 24/7-available customer service executive. Web aggregators made it easier for customers to compare policies online and then go for their preferred option. Mobile apps emerged and allowed the customer to contact the company instantaneously, and vice versa. Technological advancements made the industry transparent and accessible, and, soon, they will make insurance desirable.

Road Ahead for Indian Motor Insurance

It is high time that motor insurance premiums are not solely based on the vehicle’s model and its basic locking system. Data will make it possible to determine premiums based on the driver’s age, gender, driving record, location and several such factors. Technology will provide data related to average car speed and the manner of driving. All this will determine the premium, almost in a customized manner.

See also: The Sharing Economy and Auto Insurance  

Product, service, distribution, underwriting, costing, strategic partnerships and other aspects of the business will be determined keeping technology and data at the core; that is what we believe in at Acko. These new approaches will be used to engage with the customers, reduce risk and achieve cost efficiency. India is welcoming a Digital Life, and motor insurance providers are leveraging technology to cater to the requirements of the digital-first generation.

Why Not to Buy a Startup

The startups are the talk of the town today. Fintech, insurtech, retailtech, regtech, autotech, edtech are the new vocabulary for enterprises. Innovation is on the priority list of most executives globally. Many are getting worried about the risks, disruption and impact of startups.

With more than $80 billion of investment funding already injected into the startup ecosystem in the last three years, it would be foolish for companies to overlook startups. There are more than 4,000 startups globally active at the moment across various categories that are challenging incumbents across industries.

A good number of companies across financial services, insurance, retail, travel and healthcare segments are already exploring partnership with startups. But many executives are confused about how to deal with startups.

Buying a startup not the right answer for innovation

There are still questions on how effectively companies can leverage and integrate startups into their ecosystem. A few companies are exploring selective startups for purchase while many others are keeping their options open.

While buying a startup may sound like a good move, it does not guarantee success. Companies can buy a startup — but not the innovation.

Companies must innovate internally first. While startups can help to bridge the innovation gaps to some extent, they cannot solve the basic innovation challenges. There is a need to build innovation culture.

See also: Startups Take a Seat at the Table  

Many large organizations today struggle with innovation. If a startup coming from nowhere can innovate, drives passion within teams and delivers incredible value, what is stopping the large companies to excel?

The problem is with the traditional, tactical approaches. Many executives, used to stringent financial measurements, measure innovation with a similar yardstick. The results are obvious. When innovation initiatives fail to deliver quick results, executives back away.

It is time for executives to revisit their approach on innovation.

Get the basics right before fixing the organization

Innovation demands commitment, agility, perseverance, collaborative culture, hard work and passionate teams. Innovation is mostly achieved as a result of failures and continuous learnings. There is no company in the world that has delivered disruptive innovation without witnessing failure. 90% startups fail, proving that innovation is not easy.

Today’s dilemma is that executives hate failure. The quarter-on-quarter pressure, macro-economic conditions and competitiveness in business hinders them from committing 100% to innovation. Organizational complexities, silos, bureaucracy and rigid culture add more pain in delivering innovation.

Startups are no longer a bubble, but an ongoing challengers

Many see the growth of startups as a bubble that may bust soon. But startups are not going away, so companies must exercise caution and develop a symbiotic relationship with startup ecosystems.

The best strategy is to partner for co-existence. While many startups operate on the periphery of business, they will move into the core part of business across industries. We are already seeing many examples in banking and insurance, where startups are getting licenses to manage end-to-end business. London-based startup Monzo, Berlin-based Number26 (N26), Atom and Tandem in the U.K. and Klarna in Sweden signal the backing of banking regulators for startups globally. Similarly, Lemonade in New York, Oscar in New York, Zhong An in China and Acko in India are examples of insurtech startups licensed for business.

Soon, companies will find startups snatching portion of their business. The only way to respond is to become a startup. Companies must start thinking like startups and act and deliver value like startups.

Without building an innovation culture, this is not going to happen.

Innovate or pay the price: Choice is yours

Startups will continue to be a challenge for companies of all sizes. Companies must innovate continuously and develop tailored strategies to manage the growing influence of startups. While partnership with startups or even a purchase of a startup can fast-track innovation efforts, these are not sufficient to transform a company or ignite its culture.

Companies must simplify complexities and structure and invest in people to develop an innovation-centric culture.

See also: Innovation: ‘Where Do We Start?’  

Innovation is not a commodity that can be purchased using financial muscle. Innovation will never be up for sale and cannot be purchased or mimicked. It has to be built from the ground up.