I hesitate to make predictions about 2021. Those for 2020 didn’t work out so well for any of us, right? And 2021 is already off to a rocky start, with the pandemic still killing thousands a day (just in the U.S.), with the ever-so-promising vaccines being rolled out ham-handedly and with political dysfunction in Washington, DC, reaching fever pitch.
But I’ll still hazard a guess and say that one of the biggest, if not the biggest, themes of 2021 in insurance will be ecosystems. We may be well into the year before we see the effects. The pandemic — and perhaps the nutty politics in the U.S. — won’t release its grip for a good while yet. But ecosystems should produce key changes in two areas: how we touch customers and how we organize internal processes.
A friend wrote a book years ago that included a line that has stuck with me: “Nobody is as smart as everybody.” That ethic explains a lot of the power of ecosystems: Nobody individually is as powerful as everybody working together.
We’ve already published quite a bit on ecosystems, including the two articles at the top of the six I highlight below, and will publish much more, but I’ll summarize here what I see as the two biggest opportunities.
The first relates to sales. Traditionally, insurers have sold products through expert sales forces. But that has typically meant that a customer has to walk into that Allstate office in a strip mall and speak to an agent or that that Allstate agent sponsors a local kids soccer team, becomes known in the community and gradually meets and grooms prospects. But digitization — accelerated greatly because the pandemic has forced us all to deal with each other remotely — allows for serving customers in a more natural way, by meeting them in their moment of need.
Digitization allows for bundling car insurance with the purchase of a car, or home insurance with the purchase of a home. A home buyer is already dealing with a mortgage broker or banker, who can digitally provide options for insurance at the moment when someone is actually motivated to buy it. You don’t have to fill out any more forms — the bank has already done a colonoscopy on your finances and can auto-fill whatever the insurer needs on you or on the home. You don’t have to drive to an office, and the agent doesn’t have to spend weekends schmoozing soccer moms and dads.
Life insurance, usually such a tough sell, can become a routine part of interactions with financial advisers, even being initiated by the growing assortment of robo-advisers. Shipping insurance can be bundled with shipping contracts. And so on.
Plenty of effort will be required for an insurer to bring banks, car dealers, financial advisers, etc. into their ecosystems. Lots of coordination will be required, too, to make sure that everyone’s IT systems play nice with each other. Regulators will also have their say, to make sure no one is tilting the playing field unfairly, especially if customers are somehow being put at a disadvantage.
But it’s inevitable that digitization will push the initial contact with customers well beyond the walls of individual insurers and their agents and will require building an ecosystem. Some years ago, when a colleague and I wrote a book based on a massive research project into what can be learned from corporate failures (called “Billion Dollar Lessons,” if you must know), we decided that the only successful synergy strategy for sales was, “Do you want fries with that?” Well, I think there will soon be a whole lot of folks in non-insurance fields asking, “Do you want some insurance with that?”
The second opportunity for ecosystems is even more fundamental, because it allows for rethinking the whole organizing principle of major parts of a business and, eventually, the entire business.
Historically, big insurers have been closed systems. They have their sales force, their underwriting teams, their actuaries, their claims organization, etc., all down the line, all operating within one set of walls. But what if an organization were more like a piece of software and could be organized as an open ecosystem, so the organization didn’t have to do everything itself and could incorporate a continual stream of innovations, whether from inside or outside the organization?
That ecosystem sort of approach is how apps work on your phone. There’s some core piece that a team has written, but the team incorporates bits of software, called “objects,” that handle the rest. Why write your own calculator when someone has already done one? Why write all that code that expresses your app on the phone’s screen when someone has already written code you can rent?
The key is what’s called the application programming interface (API) — you and the others in the ecosystem have to specify exactly how your piece will accept data and will export data. (The coordination piece is so key that Plaid, a startup that lets apps connect to users’ bank accounts, has an agreement to be acquired for $5.3 billion by Visa.) Once you’ve specified the API, you can do anything you want as long as you don’t change it. You can improve your piece. You can decide, say, to swap out the calculator you were using and swap in a better one. Whatever.
Now imagine being able to apply that sort of model to an organization. What if your business were so modular that, finding out that your adjusters were best-in-class, you could sell their services to others, connecting easily and instantly through an API? What if the reverse were true, and you wanted to draw on some other company’s adjuster module?
Something that fundamental is unlikely to happen soon, if only because companies see a skill like underwriting as a core competitive advantage and won’t want to share. But I suspect we’ll start to see more processes conceived as modular, to great effect.
Jamie Yoder, an old colleague of mine who is now president of Snapsheet, which provides claims automation services, offered an interesting way of thinking about ecosystems. He said the claim has to be “the captain of the process.” In other words, rather than thinking about a traditional flow, in terms of how information comes in, how it gets passed from person to person, how approvals are done and how payment is made, you use artificial intelligence to give authority to the claim. It “knows” what needs to be done and can send out queries, whether to information systems or to humans (the client involved in a car accident, an adjuster, whomever), to move things along much faster and more efficiently than happens with today’s games of phone tag and all those files sitting in in-boxes until a case reaches the top of a to-do list.
The key is the APIs: That claim needs the information in exactly the form it can handle. So there will need to be a lot of initial coordination, requiring considerable human intervention early on. But once all parties agree, for instance, on how the details on a crash and on insurance coverage will be presented and agree on how authorizations for payment will be exported, then the process becomes an ecosystem. Any piece can be swapped out if a better option comes along, with no disruption to the other pieces, creating the opportunity for what Jamie calls a “flywheel” of innovation. (If you want more, Jamie and his fellow panelists at the International Insurance Society’s annual meeting said a lot of other smart things about modularity and innovation in a Six Things I wrote on Dec. 14.)
As I say, reconceiving even processes based on a modular, API sort of view of the world will take time. But I do think we’ll see considerable progress this year, and I expect to hear a lot of the insurance version of, “Do you want fries with that?”
Here’s hoping we get through these next several rough months and can make some real progress on ecosystems in 2021.
Happy New Year!
P.S. Here are the six articles I’d like to highlight from over the holidays:
Today, insurers succeed by offering products. In the future, insurers will win by providing access to risk prevention and assistance services.
Insurers should emulate Uber, which has an ecosystem of 2,200 microservices. Here are three ways ecosystems provide a competitive edge.
The question for insurers is how they want to address a growing desire by small businesses to purchase online.
Telematics solutions let customers leverage their driving data’s potential to enable discounts and operational savings.
Bots help combat productivity drains that deplete resources and allow employees to focus their time on higher-priority tasks.
Coupled with tech advances that improve risk assessment, behavioral science could be the silver bullet in a period of strain from the pandemic.