Tag Archives: aggregator

How to Be Disruptive in Emerging Markets

Much has been discussed as to the coming disruption of the insurance industry in emerging markets. While I believe that it is happening, I also believe that, contrary to the common held view of many of my peers, building a disruptive insurance platform in emerging markets is going to be a marathon and not a sprint. I do not claim to have all of the answers. In fact, we are not even close to having most of the answers, but we have learned a few things along the way.

While many are quick to predict the demise of the traditional broker, I believe that the evolution of disruption within the insurance market will be one of natural selection. There are many highly profitable brokers in these markets that have a deep understanding of their customer, regulatory issues, market trends and simple common sense. Most are family-owned, with a new generation of family members anxious to take the helm. And while most of these brokers are not tech-savvy and certainly do not have regional or global aspirations, the ones of interest are forward-thinking and anxious to take on a new challenge as they clearly see how the winds of change are blowing.

I see these brokers as natural partners, and by acquiring key brokers in each market the aspiring disrupter will gain immediate market share, revenues, EBITDA, customer and databases, infrastructure (yes, customers still like to talk on the phone), licenses and management talent. With those beachheads in place, you will be able to take the next step, which is to apply technology to the existing base. This can start with the basics; consolidating databases, cross-selling, upselling, retention, dashboard analytics moving ever further up the food chain to digital marketing, big data and someday the mysterious artificial intelligence.

All of this creates short-term value, as you will see immediate increases in CAGR, EBITDA, retention rates and other key metrics, but that doesn’t change the perception of insurance for the consumer. In simple terms, these changes are not disruptive and at the end of the day are boring for customers.

See also: An Eruption in Disruptive InsurTech?  

So what will be the secret sauce? The carriers are an integral part of the ultimate disruption process, as they will work with the broker and consumer to develop the transformational products that the new consumer is going to require. This will be a key part of the challenge, as this will require a radically new approach to product development and, of course, dissemination. Products will include temporary auto insurance, school insurance for books, computers and other needs, home office insurance (do you know how many new consumers work out of their home) and unique vacation insurance. These products will drive real value for shareholders, while at the same time we are ultimately improving the lives of our customers.

I am convinced that one of the key secret ingredients for creating disruption within the emerging market insurance industry will revolve around product bundling and the great feeling you get when you believe that you just received a gift. It is also about being part of a contest and, yes, winning a prize.

By partnering with leading manufacturers of cosmetics, sporting goods, automotive, school supplies, and fashion apparel, the aspiring disrupter can bundle these products with the underlying insurance product that their customer is buying and enjoys buying. In the most basic form, when our customer buys travel insurance they will receive free sun care products. If they buy school insurance, they receive free school supplies. It is a win-win for the product supplier, the customer and the insurer.

If you think this is fluff, just ask the new consumers who are watching every penny in their budget.

But that is not enough, as we want a long-term relationship with our customer. So in addition to all of the above we are sponsoring online contests. To promote scholastic achievement and safe driving, we will soon have one for the zaniest insurance videos, i.e. my homework was actually eaten by an iguana or my car was crushed by an elephant. All of this is meant to build a very real bond with the consumer, improving their lives along the way.

The evolution of disruption in emerging markets has been interesting to observe, as the “the rage of the day” began more than two years ago with the aggregator model. Numerous well-funded ventures launched online insurance websites in Brazil, Argentina, Colombia, Thailand and many other markets with a few common traits. The ventures were not disruptive, they had no existing customer base and they had no real strategy for interacting with the new consumer. The majority of these online insurance portals were “aggregators,” providing real-time or in some cases faster-time quotes from multiple insurance providers. The sites were often difficult to navigate and crowded and typically lacked originality. Soon, the novelty began to wear off as investors realized that “Build it and they will come” was not going to happen.

Disruption became the flavor of the day, but most investors and operators didn’t really grasp or even care what the term meant. The overriding concern was “getting traffic to the site,” and, while digital marketing strategies were developed and bandied about, the fallback position quickly became traditional media. In one case, the dominant online insurance broker in Brazil was told by its investors that it would not receive the next tranche of capital unless it dramatically increased spending on TV, print and radio advertising. Yes, the media of the past had become today’s agent for disruption.

While spending millions of dollars on traditional media for insurance is still a fact of life in many mature markets, it can hardly be called disruptive or for that matter even efficient.

The next phase of evolution came in the form of “digital marketing” and mobile apps. As smart phones typically outnumber the average population in most emerging market countries (in Brazil, there are an estimated 280 million smartphones for a population of 200 million people), the logic stands that this is the best way to reach the consumer. But dig a little deeper and ask yourself a very simple question: How important is insurance in your day-to-day life? For all of us who are selling, packaging or creating insurance products, insurance is the center of the universe, but for the average consumer insurance rates a two or a three on a scale of one to 10, if that.

See also: Pokémon Go Highlights Disruptive Technology 

While the “next wave” was unfolding, other issues became noticeable. Many of the “disrupters” were country-centric, with no real plan or strategy for regional or global expansion, which seemed odd. After all, if you are planning to disrupt insurance in Chile, wouldn’t you want to consider disrupting insurance globally, or at least in somewhat similar countries in Latin America?

Some products, such as auto insurance, were seen as commodities that were as sexy to the consumer as a trip to the dentist, so the market screamed like banshees for new products; pet insurance, travel insurance, smartphone insurance, hotel insurance, sport insurance, bike insurance….the list goes on.

We are increasingly living in an age of data overload, and we need to be very discerning as to the relationship we develop with the customer. We also need to be discerning about local markets. In China, online insurance companies popped up overnight, and many of them reached wild valuations by just selling a single product, like travel insurance. But, in Brazil, the market is much more mature, and travel insurance is about as new as samba.

With a robust online presence, massive investments in traditional media, digital marketing, mobile apps and new products, things were sure to get disruptive, right? Wrong, as consumers were still using traditional brokers, and insurance was still not on their top 10 list.

So what next? Could it be the vaunted but yet indefinable artificial intelligence?

Within the span of two short years, we have moved from science fiction to science fact. What if, through AI, we could predict when our customer would have their next child, next house, car, divorce, marriage and even death?

This would be real disruption, as we would be able to predict consumer behavior and in doing so create a “cradle to grave” lifecycle of products, sales, conversion and retention.

The problem, of course, is that AI is still in its infancy, as there are very few 2001 Space Odyssey HAL computers in the world today. Even if we had mastered this technology, there is still a larger question of how to use it and deploy it. This question will inevitably be answered, but for now we still face the fundamental challenge of taking a very boring product and transforming it into something consumers actually get excited about. We also need to ask ourselves how we would scale across multiple countries in a relatively short time.

That brings us to the end of our story, or, rather, the beginning. Disruption is coming to the insurance industry, and it will find fertile ground in the fast-growing emerging markets and the new consumer. The savvy insurance disrupter will gain massive amounts of data that will have value for a wide spectrum of partners.

What the U.K. Can Teach on Aggregators

In the last 10 years or so, the single biggest development we have seen in U.K. personal auto insurance distribution is the phenomenal rise of aggregators – known otherwise as “price comparison websites.” Top aggregators in the U.K. marketplace such as Confused.com, Moneysupermarket.com and Comparethemarket.com have grown, leveraging the high usage of Internet among U.K. households. According to the latest industry reports, aggregators accounted for around 56% of the new motor insurance policies sales in the U.K. in 2013.

The overall potential of aggregator share in the U.K. personal auto new business is capped at around 60%, which means aggregator growth is fast approaching stagnation. Though this is evidenced by the flattening growth we are seeing in recent years when compared with earlier periods (when market share rocketed from 25% in 2007 to 45% in 2009), aggregators are here to stay – purely because U.K. customers still see cheaper cost as the major preference in choosing auto insurance.

For insurers and brokers who operate in markets with a heavy aggregator presence, the options are pretty clear and simple — either to partner with aggregators or to compete with them. There are pros and cons in both these approaches.

The advantages brought about by aggregators to customers are too obvious – exposure to a larger variety of auto insurance products, competitively priced quotes and, most importantly, an efficient purchasing process. For insurers and brokers specifically, aggregators provide medium- and small-sized players (who don’t have the scale to compete with the biggies) the opportunity to generate business by advertising their products at a low marketing cost.  Also, through their online platforms, aggregators collect large quantities of customer data around customer website visits and browsing patterns. These can be gainfully used by the insurers/brokers to build a better picture of their customers’ profile and risks as well as put in necessary checks for improving fraud control.

See Also: Driver Safety Ratings Add Sophistication

Key risks are:

  • Too much emphasis on providing the most competitively priced quote based on a minimal set of questions results in quotes incorrectly priced and a below-par underwriting performance for the insurer
  • Consumers get the ability to make purchase decisions based on what-if scenarios (like inputting lower mileage or switching then main driver to see the resultant reduction in premiums), possibly inducing them to provide incorrect information and purchasing unsuitable cover
  • Reduced due diligence at the underwriting stage associated with online policy acceptance can result in increased risk of fraudulent claims – including instances of intentional fraud such as use of stolen credit card information, dead letter box addresses and identity fraud.

Some large insurers in the U.K. have withdrawn from partnerships with aggregators to compete directly in this space. Aviva, for example, offers a quotes comparison facility on its website, while DLG encourages its customers to go online to its site to avoid paying aggregators’ commissions.

A few major factors that influence large insurers and brokers to move away from aggregators are:

  • Having a product listed consistently lower in an aggregator’s rankings is perceived by insurers as hurting their brand
  • Insurers/brokers rely on opportunities to reward customer loyalty and retention at every possible point (through cross-selling/upselling discounts, etc.) to maximize their revenues, while aggregators thrive on customer churn, leading to a possible conflict in business models and weaker customer relationships

Still, none can deny that aggregators are a fixture in the personal auto insurance business for the foreseeable future. Some larger insurers that offer auto insurance online directly to customers also agree that it’s possible to build effective partnerships with aggregators. Some ways of ensuring success through aggregator channels for insurers and brokers are:

  • Collaborate more closely with aggregators to sell on brand rather than just on price – insurers/brokers will primarily own customer relationships and have profit-sharing agreements in place that provide incentives for aggregators to cross sell more of an insurer’s products apart from auto
  • Build systems to ensure that the wealth of data from aggregators is well-utilized for smarter and more frequent pricing of auto quotes (for example, daily rather than monthly or quarterly)
  • Design and segment customized auto policies specifically for aggregators, with underwriting models reflecting the questions set
  • Ensure that the aggregator online platform is updated on a periodical basis and that all components reflect the preferences of the insurers, brokers, customers etc.
InsurTech

Key to Understanding InsurTech

Digital transformation has become a major challenge for insurance companies all over the world. In Italy, this transformation is exemplified by the adoption of vehicle telematics. According to the latest data from IVASS (Istituto per la Vigilanza sulle Assicurazioni, or the Italian Insurance Supervisory Authority), black boxes became an integral part of 16% of new policies and auto renewals during the third quarter of 2015.

The insurance sector is seeing the same dynamics that have already been experienced in many other sectors, including financial services—with start-ups and other tech firms innovating one or more steps of the value chain that traditionally belonged to financial institutions. InsurTech has seen investments of almost $2.65 billion during 2015, compared with $740 million in 2014. Similar to FinTech in 2015, it’s now InsurTech’s turn to define what elements will be included in the observance perimeter, a main point of debate among analysts.

See Also: Where Are the InsurTech Start-Ups?

In my opinion, all players within the insurance sector will have to become InsurTech-centered in the coming years. It’s unthinkable for an insurance company not to question how to evolve its own model by thinking about which modules within the value chain should be transformed or reinvented via technology and data usage. Realizing this digital transformation can be achieved by building the solutions in-house, by creating partnerships with other players (both start-ups and incumbents) or through acquisitions.

Based on this view that all the players in the insurance arena will be InsurTech—meaning organizations where technology will prevail are the key enabler for the achievement of strategic goals—the way to analyze this phenomenon is via a cross-section view of the customer journey and the insurance value chain. This mental framework, which I regularly use to classify every InsurTech initiative, whether it’s a start-up, a solution provided by established providers or a direct initiative by an insurance company, is based on the following macro-activities:

  1. Awareness: Activities that generate awareness in the client (whether person or firm) regarding the need to be insured and other marketing aspects of the specific brand/offer;
  2. Choice: Decisions about an insurance value proposition, which, in turn, are divided into two main groups:
    1. Aggregators, who are characterized by the comparison of a large number of different solutions
    2. Underwriters, who are innovating how to construct the offer for the specific client, regardless of the act to compare different offers;
  3. Sales/Purchase: Focuses on innovative ways in which the act of selling can be improved, including the collection of premiums;
  4. Use of the Insurance Product: Clarifies three distinct steps of the insurance value chain: policy handling, service delivery—acquiring an ever-growing significance within the insurance value proposition—and claims management;
  5. Recommendation: This part of the customer journey has become a key element in the customer’s experience with a product in many sectors;
  6. The Internet of Things (IoT): Includes all the hardware and software solutions representing the enablers of the connected insurance (the motor insurance telematics is the most consolidated use case);
  7. Peer-to-Peer (P2P): Initiatives that, in the last few years, have started to bring peer-to-peer logic to the insurance environment, in a manner similar to the old mutual insurance.

Based on my interpretations of the evolution of the InsurTech phenomenon, I say:

On one hand, there is a tendency toward ecosystems where each value proposition becomes the integration of multiple modules belonging to different players.

On the other hand, the lines between the classical roles of distributor, supplier (even coming from other sectors), insurer and reinsurer are getting blurred.

The balance of power (and, consequently, the profit pool) among various actors is bound to be challenged, and each one of them may choose to either collaborate or compete, depending on context and timing.

How to Bring Distribution Into Sync

We’ve been taking a look at how a confluence of forces are having an impact on insurance distribution and how insurance companies need to respond by following a 2D strategy.

In my first two blogs, we detailed the four fundamental drivers of the changes. In my first blog post, “Bringing Insurance Distribution Back Into Sync Part 1: What Happened to Insurance Distribution?”  we talked about how new expectations are being set by other industries and technology.  Last time, in “Unending Waves of Change in Digital Expectations and Distribution Issues ,” I discussed the other three of the four fundamental drivers: that new products are needed to meet new needs and risks distributed in new channels; that channel options are expanding; and that the lines are blurring between insurance and other industries.

Today, we’ll dive deeper into the components of the 2D strategy, which calls for:

  • Optimizing the front-end with a digital platform that orchestrates customer engagement across multiple channels
  • Creating an optimized back-end that effectively manages the growing array and complexity of multiple distribution channels beyond the traditional agent channel.

Optimize the Front End

The digital revolution is being powered by an array of technologies and the changing expectations of customers across all demographic groups. As customers gain market power, they are increasingly comfortable with technology, have a stronger voice and are willing to use it to make their expectations and needs known. In this new world, all technology should be viewed as customer-touching, because it directly or indirectly influences the customer experience.

As a result, many insurers are rapidly investing in digital initiatives and technologies, but too often they do so in a tactical, fragmented and reactionary approach. In today’s world, insurers must look to orchestrate the customer experience through any channel and technology that consumers choose to use. Whether they choose agents, websites, mobile apps, portals, compare sites, aggregators or retail firms, consumers want a consistent and compelling experience that gives them confidence in the insurer.

This demands a platform that enables personalization of portal and mobile solutions based on the unique customer journeys and personas defined by each insurer. To fulfill their unique and multi-channel distribution and customer experience needs, the platform must be integrated with other core insurance solutions as well as an extensive partner ecosystem that integrates content, channels and technology.

Optimize the Back End

In a fast-paced competitive market, distribution channels and effective management of those channels is increasingly critical. Designing, developing, maintaining and managing productive channel relationships is crucial to achieve sustainable competitive advantage.

Effective distribution management should cover a broad array of capabilities to drive operational effectiveness (including distribution registration and licensing); compensation plan design and configuration; compensation payments and reconciliation; and performance management reporting and analytics. Channel management and productivity are critical in contributing to overall growth and profitability. The ability to improve channel productivity, reduce sales cycles and increase cross-sell and up-sell opportunities is increasingly important for long-term success.

To stay competitive and keep distribution channels engaged, insurers are increasingly putting a priority on servicing these channels. From providing access to their production and compensation reports to providing new leads and licensing compliance and education, these all offer opportunities for channel service excellence to retain and grow the channels. Enter the growing need for effective distribution management and systems that improve carriers’ capabilities to manage multiple channels and multiple factors.

Conclusion

An insurer can have the best insurance products, pricing and advertising to build its market presence, but if it doesn’t have a distribution ecosystem underpinned by a connected, digital front-end and a robust distribution management system on the back-end to optimize and maximize these channels, its customer growth and retention potential will remain limited. If it is difficult to effectively manage or, better yet, optimize compliance, compensation and performance of distribution channels, insurers could end up losing business to competitors that can.

Customers expect and demand multiple, coordinated channel options to learn about, shop for, buy and use products and services, and insurance is no exception. Just as long-established retailers will remodel every few years, the place you meet your customers can’t remain untouched without your organization and its products losing their sense of value. Building an integrated digital distribution framework within a foundation of modern distribution management capabilities will provide new efficiencies, new opportunities and additional fuel for growth.

Google Applies Pressure to Innovate

This article was first published at re/code.

It’s a common thread in nearly every industry: Innovation occurs when consumers’ growing needs and expectations converge with intense competition. It’s no surprise, then, that insurance — not exactly known for being on the forefront of technology — is one of the last remaining industries to innovate and fully embrace data, analytics and customer communication technologies.

Insurance is a complex purchase business with a convoluted ecosystem and ever-changing regulatory requirements that has kept the industry in a well-protected bubble from external competition for decades. Now in 2015, the announcement of Google Compare for auto insurance pushes the industry to innovate from a technology standpoint, but most importantly from a structural standpoint, by changing the way insurance companies interact with their customers. The reasons below outline why Google has the greatest chance to succeed where others have not.

A Lesson From Other Industries

Google has previously disrupted numerous industries to great success — think health, travel and navigation — mostly because of its dominance in search. Many of Google’s consumer-facing businesses have followed as logical next steps in the Google search process. For example, do you want to use Google to search for the best insurance company, or would you prefer to find the best insurance company with the cheapest policy? Do you want to use Google to find the route for your road trip, or would you prefer to have Google find you the best route? Google’s constant innovation stems from a simple but effective idea: Eliminate an unnecessary extra step (or steps) in the process, and give the consumer what they desire most — ease and simplicity.

There are some who believe that the tech giant may not be doing anything noticeably different from other aggregators in the auto insurance space. However, if its accomplishments in other industries tell us anything, Google will find a way to engage the consumer better than incumbent insurers do. Rather than writing its own business and determining individual risks, Google has teamed up with carriers of all sizes to reach customers efficiently, allowing them to quickly search, get rates and compare policies “pound for pound.” Already, this platform has helped shift the insurance industry’s emphasis on the customer by allowing peer-to-peer ratings and allowing consumers to openly disclose any negative or positive experiences, which will breed superior customer service and experience.

Millennials Trust Google

It is highly unlikely that Google will ever become a full insurance company with its own agents and underwriters, but Google brings a brand name that elicits trust and familiarity. This is especially true of Millennials, who are set to overtake Baby Boomers as the largest consumer demographic, at 75.3 million in 2015. When Strategy Meets Action reported in early 2014 that two-thirds of insurance customers would consider purchasing products from organizations other than an insurer — including 23% from online service providers like Google — it created tension in the insurance industry. These findings are largely a reflection of consumer discontent with insurance companies and their seeming lack of transparency.

Millennials do not trust insurance companies, but they do trust Google with just about every engagement they have with the Internet. And consumers trust other consumers: Google Compare’s user feedback platform brings transparency to consumers and requires the insurance industry to reevaluate how to effectively engage customers in a tech-driven environment. Pushed by Google’s unique insight into Millennials, traditional insurance companies must acquaint themselves with their new consumers, who are often considered impatient, demanding and savvy about social media.

Establishing a Preferred Consumer Platform

An eye-opening Celent study recently found that less than 10% of North American consumers actually choose financial service products based on better results. Instead, a vast majority places higher importance on ease (26%) and convenience (26%). Based on these findings, Google is using a business model that embodies the preferred consumer experience, a notion that is being reinforced by initial pilot results in California.

According to Stephanie Cuthbertson, group product manager of Google Compare, millions of people have used Google to find quotes since its launch in March, and more than half received a quote cheaper than their existing policy. Other new entrants, like Overstock, have reported issues with completion of purchase because consumers will browse offerings but still hesitate to complete their purchase online in a single visit to a website. Google’s platform is attempting to avoid this issue by announcing agency support through its partnership with Insurance Technologies, allowing consumers peace of mind by speaking to an agent before purchasing a policy — but maintaining the online price quote throughout the buying experience.

Potential for Future Growth

While Google Compare is beginning with auto insurance, work with CoverHound gives a glimpse into where it may be looking to expand. CoverHound’s platform specializes in homeowners’ and renters’ insurance, the latter of which is growing exponentially with the Millennial generation, who prefer to rent rather than buy. According to a recent TransUnion study, seven out of 10 Millennials prefer to conduct research online with their laptop, computer or mobile device when searching for a new home or apartment to rent.

Google Compare has also already shown momentum by recently announcing its expansion of services to Texas, Illinois and Pennsylvania, while adding a ratings system for each company it works with — much like the insurance version of TripAdvisor or Expedia.

The Bottom Line

Nearly every industry undergoes disruption when consumer expectations shift and businesses are forced to adapt and keep up. For decades, insurance didn’t have the kind of pressure from outside entrants that it is currently facing. Whether Google fails or succeeds early on makes little difference: Its entrance is a wake-up call. The more tech companies enter the space, the more traditional insurance must struggle to play catch-up.

These new entrants are helping to not only force innovation from a technology standpoint but also to bring an innovation culture to the industry so insurers can stay ahead of consumers demands around buying and customer service. Agents and insurance carriers have a level of expertise that is unmatched by the Googles of the world, but it will be wasted if insurers can’t figure out a way to integrate that expertise in a modern way and connect to consumers through different social channels.

The writing is on the wall, and how traditional insurance reacts will ultimately decide its relevance in the industry of the future.