Tag Archives: Blue Ocean

How Insurers Get Out of the Red Ocean

Insurance has experienced high levels of price competition. Consumers often choose the cheapest offer in such a market, where demand is limited and supply is nearly endless, especially when mainstream products are highly similar. Thus, insurers are in a Red Ocean, a term used for markets where competition is high and profit margin is low.

Moving from the Red Ocean to the Blue Ocean — a market with high demand, low competition and strong profit margins — is usually linked with product or channel innovation. This innovation would not have to be like the invention of the wheel. Reinvention of an existing product with a new understanding and vision is also valuable. Apple’s iTunes is a good example. Apple created a market by transforming traditional music sales to the digital environment and has been unrivaled for years.

Another way of moving from the Red Ocean to the Blue Ocean is by creating an emotional connection between brand and customers. Today’s consumers may make purchasing decision based on their feelings about the brand rather than the specifications of the product. Brands that build strong connections with customers could get out of the Red Ocean. Think of Starbucks; although it sells almost the same product as other coffee shops, it has a very loyal customer base.

See also: How to Create a Blue Ocean in Insurance  

Why Is Insurance a Red Ocean?

This is basically caused by the corporate insurance approach. The insured pays premium; the insurer pays claims. The relation between the parties sounds quite mechanic. It’s like a financial exchange rather than a consumption or purchase. Some may liken insurance to a boring lottery.

Companies are also not investing enough in product development, and the oligopoly (few operators) structure of reinsurance deepens the problem. Thus, giant insurance companies compete with similar products, service level and brand identities.

How Can Insurers Get Out of the Red Ocean?

It might be more effective to answer this question through an imaginary case study.

Let’s consider there was a company operating in the car insurance business where price competition is high. The company, Amisos Insurance, had been operating in this line for many years and had 5% market share. The company had aimed to get out of the price competition and gain a loyal customer group. But how?

The company had started by creating an identity to its brand. Generic rhetoric about being trustworthy, deep-rooted and powerful meant nothing to anyone, so the company decided to position itself as the “good driver’s insurance company” in line with the targeted consumer segment.

To create a marketing strategy, the company focused on answering these questions:

  • What do good drivers expect from an insurance company?
  • Why is Amisos Insurance the company of good drivers? What offer is unique for them?
  • How can Amisos Insurance reach them and convince them to be loyal?

Trying to answer these questions had helped to the company to understand what the satisfaction gap for customers was. To fill this gap, the company developed a product that has a rewarding mechanism for good drivers, who had paid premium for years but got nothing from an insurance company or had few claims.

The product pays claims in case of a car accident like existing ones do but also gives drivers 50% of their premium back if they spend a year without any claim. For example, if you paid $1,000 for car insurance but have no claims for one year, you earn 500 Amisos points. And you can spend these points to get benefits like a weekend holiday or gym membership. You feel valued.

Is it Applicable?

Of course, there is a cost of these benefits, and this cost needs to be reflected in premiums. However, this cost would not be high as thought, for three main reasons:

  • Because benefits would be bought in bulk, their cost to the company would be much lower. With a 30% corporate discount, a $500 holiday would cost only $350 to company.
  • Second, these offers would be more attractive to people who are unlikely to make car accident. So “good drivers” more likely to choose this company. Thus the quality of customer portfolio would be improved.
  • Third, customers would be more careful due to they cannot get their “good driver” benefit in case of any claim. Even, small claims may not be reported not to lose these benefits. And it helps to manage moral risk of insurance.

See also: A Game Changer for Digital Innovation  

Considering all these predictions %15 price increase would be enough to maintain existing amount of profitability in the short term. (Assuming rewarding mechanism will %25 decrease in loss frequency) In medium term company would have a unique brand identity and a loyal customer segment. So, it would be easier to increase profit margin of the product.

However a complete project management would be the main success code of the strategy. In practice following issues needs a close attention;

  • Terms of the product and rewarding mechanism should be explained to customers clearly. Being transparent is essential to avoid overpromise and to handle trust issues.
  • Customers should be informed enough about their benefit at the point of sales. Dreaming to customers about the rewards that they get after a year without claims should be the key part of the sales process.
  • With the launch of the new product, including all existing customer to the good driver product’s campaign would have great impact on the customers. Mouth to mouth marketing effect would support the new strategy.

The strategy implemented by imaginary Amisos Insurance is not the only way of getting out of the red ocean. Even, it maybe be the wrong way for the company in this case. Moving from the Red Ocean to the Blue Ocean is a journey of innovation, needs to continuous tries, failures and retries.

How to Create a Blue Ocean in Insurance

In the last few years, insurers have raced to capture the massive opportunities created by new technologies and have learned to turn the threat of insurtech startups into smart collaborations. The result has been the avoidance – so far – of any significant loss in revenue and profitability.

Nevertheless, not only does technology continue to progress rapidly, but the American and Chinese tech giants, with their global ambitions, pose new challenges to the industry. Policyholders have come to expect the same level of convenience and engagement from their insurers, and some observers even start to fear that, in their ruthless march to global domination, those giants may encroach into insurers’ territory.

Insurers have a window of opportunity to leverage their consolidated customer base, deep industry knowhow and solid balance sheets to strengthen their competitive position. Look at what happened to Google Compare, an auto insurance aggregator launched in U.S. and U.K. that has been far from successful.

To pursue long-term profitable growth, insurers should start focusing on opportunities for non-disruptive market creation, as well. Most of us, including insurers and insurtech startups, have come to equate technology with disruption, where a market is created by a new solution that displaces an existing one. Look at the KYC technologies that are replacing the need for face-to-face interactions.

In reality, as pointed out by Professors Kim and Mauborgne in “Blue Ocean Shift,” the sequel to their global best seller “Blue Ocean Strategy,” a focus on disruption is limiting and leaves half the opportunities to create growth and markets off the table. The key is to realize that we do not necessarily need to destroy an existing market to create a new one. While disruption sets out to better solve an existing problem faced by current customers, non-disruptive innovation creates “blue oceans” by targeting noncustomers of the industry or solving “brand new” problems.

See also: On-Demand Insurance: Ultimately a Bust?  

Take BIMA, which is creating a blue ocean by offering affordable microinsurance products to the “bottom of the pyramid.” BIMA, which was established in 2010 in Ghana, has rapidly gained scale and is now bringing microinsurance to 24 million customers across Asia, Latin America and Africa. More than 90% of its customers live on less than $10 per day, and three-quarters are accessing insurance for the first time.

Developing countries have economies that are generally based on farming and agriculture and require a wide range of insurance products from health and life, accidental death and disability, agricultural and property insurance, to catastrophe cover. In those countries, microinsurance already covers around 135 million people,  but that represents only around 5% of the entire market potential. Growth is expected to be between 8% and 10% a year for the next years.

Similarly, microinsurance can be marketed in developed countries to reach the underserved segments of the population who struggle to afford more comprehensive products.

However, microinsurance is not just a reduced-cost coverage for low-income customer segments in both emerging and developed economies; it is an entirely new way of selling insurance and creating demand. In fact, consumers who can afford traditional covers may not perceive the need for insurance until an event occurs or an intermediary stimulates such awareness. They are often unaware of the need or just the possibility to insure against a specific risk; insurers submit complex and cryptic contracts requiring a lengthy and cumbersome purchasing process that individuals are not able or willing to follow.

Not surprisingly, recent studies report that millennials are the most underinsured generation and are the least likely to have any health, rental, life and disability insurance. Millennials are just one of the segments of the so-called “connected generation,” an immense blue ocean opportunity also including Generation Y and the Silent Generation, Baby Boomers, and Generation X, who are shifting to mobile purchase habits. Empowered by technology, all these individuals look for authentic services that they can access across multiple platforms and screens, whenever and wherever they need. Their protection gap is estimated at more than $3.5 trillion.

The key to selling insurance to the “connected generation” is to reach them with the right proposal through engaging touchpoints on a device they swipe, tap and pinch thousands of times a day: their smartphone.

Helping insurers to unlock this blue ocean opportunity with a customer-centric mobile insurance proposition is the mission of Neosurance, the start-up that we cofounded and that created the first virtual AI-based insurance engine.

Neosurance stimulates the protection need “pushing” the right cover at the right time on customers’ smartphone, thus triggering an emotional and impulse purchase for a small-ticket item. Insurance purchase becomes a “rational impulse,” and the transaction is completed at the “point of need” rather than at the traditional “point of sale.” This is possible because the customer experience is entirely paperless and takes less than 20 seconds.

See also: The Insurance Renaissance Rolls On  

Neosurance relies on a partner-friendly “plug and play” SDK easily embeddable in any app, allowing carriers not only to target their captive audience but also to tailor their insurance proposition to the front-ends and customer journeys of their community partners. In doing so, insurers (and reinsurers) can maximize customer engagement by protecting people’s common interests and passions and build a holistic ecosystem of digital communities to create a blue ocean of uncontested demand.

In the future, as insurers learn to leverage the massive amount of data they collect and to analyze it through context, psychographic and behavioral profiling, more blue ocean opportunities will be generated. In particular, carriers will be able to upgrade their role throughout the end-to end customer journey from that of a simple “payer” to that of an active “player,” multiplying customer touchpoints, boosting satisfaction and ultimately creating opportunities to cross-sell insurance and non-insurance products and services.

This article was originally published on InsurTechNews.com. It was written by Andrea Silvello and Luciano Pezzotta.

5 Challenges Facing Startups (Part 1)

The insurance industry is a $4.6 trillion market worldwide but lags on digitization and providing consumers great experience and service.

In the coming three weeks, we will look in some depth at the five main challenges that startups are facing. Today, we will tackle Challenge No. 1.

Challenge No. 1: Creating a dominant position in a big — but slow-growth — and competitive market

Finding “Blue Ocean” is challenging in a low-growth large market such as insurance — especially compared with the impact of Google creating online advertising or Easyjet giving access to low-cost travel. These companies grew whole new markets using technology.

By contrast, digital startups are unlikely to make the insurance market grow significantly in developed countries. After all, existing insurance penetration is high in both Western Europe and the U.S. This is different in markets such as India and China, which have relatively low insurance penetration among the growing middle classes, and in other underinsured markets in Asia and Africa.

See also: 6 Charts on Startups, Greenfields, Incubators

Although certain multinational brands are global, there are hardly any transversal insurance products. The reality is that insurance is consumed country by country. Even with harmonization of regulations across Europe or across U.S. states, there are critical differences.

In addition, large companies such as car manufacturers, tech companies, energy providers and telcos with easier access to customers, more sophisticated data capabilities and continual customer engagement may find it easier to integrate insurance into their offerings themselves. BCG predicts that, with driverless cars and a move away from car ownership to car sharing and renting, between 20% and 40% of car insurance revenues from private individuals could potentially disappear by 2020.


The opportunity centers on reacting to changing demographics and lifestyles that affect consumer behavior.

New generations such as millennials (18- to 34-year-olds) have different lifestyles, expectations and attitudes regarding risk as compared with their parents. Millennials own less, have more flexible career paths, are likely to be more mobile (living in different cities or countries) and do not care about financial protection as much as previous generations. Can startups make insurance more personalized and specific for life changes, whether for an individual, household or business?

Leverage the creation of parallel markets where insurance can be an integral part of the service.

New disruptive technologies and services — such as driverless cars and smart living — create an opportunity for new agile insurance startups working with a white canvas. Traditional insurers will find it extremely difficult to grasp this because it involves internal transformation and new technologies. Other players could decide it is better to work with a specialist startup with a compelling solution covering customer engagement and data analysis as well as the requisite insurance services rather than develop their own full insurance offerings.

See also: Startups: How to Find the Right Partner

Identify and explain the benefits of insurance covers that are currently under-insured.

In markets with high insurance penetration, there exists unlocked potential of uninsured people. For example, today, 20%  to 30% of insured persons in Germany do not have a private general third party liability cover. The challenge is to explain the benefits and to make it affordable. This could work by integrating these covers into other services or finding a better way to distribute such products.

Go international with offerings and operations in multiple countries.

A startup can operate in several markets and leverage its offering and platform. If there are any ambitions for startups to go international and operate in more than one country to reach scale faster, consideration of the following factor is important: recruiting an international team and setting up the technology.

Can startups go further and allow easier insurance switching while moving countries?

We are curious about your perspective.

Insuring a ‘Slice’ of the On-Demand Economy

In our emerging on-demand economy, Blue Ocean strategy will abound for P&C and life and annuity (L&A) In this post, I will focus on the Blue Ocean strategies that are needed in the P&C insurance industry.

The essence of Blue Ocean strategy, as discussed in W. Chan Kim’s and Renee Mauborgne’s 2005 book Blue Ocean Strategy, is “that companies succeed not by battling competitors but rather by creating ‘blue oceans’ of uncontested market space.” Society’s expanding on-demand economy is generating newly uncontested P&C insurance markets.

These new insurance markets are being formed from the blurring of consumer and corporate exposures that have historically been considered separate exposures by insurance companies, intermediaries, regulators and customers.

My objective in this post is to discuss the emergence of a new insurance player, a licensed insurance intermediary, that offers insurance that the Transportation Network Company (TNC) drivers—specifically Uber and Lyft drivers—should purchase to protect themselves, their ride-share vehicles and their passengers.

TNC drivers have insurance requirements for all three time periods

From the moment they “tap the app on” to the moment they “tap the app off,” Uber and Lyft drivers generate a fusion of personal and commercial automobile insurable exposures. The fused automobile insurable exposures are in play throughout three three time periods during which drivers need to protect themselves; their personal vehicles being used as ride-share vehicles to pick up, transport and drop-off their passengers; and, of course, their passengers.

The three time periods are:

  1. Time Period 1: This period begins when an app is turned on or someone logs in to the app but when there is no ride request from a prospective passenger. The driver can be logged into Uber, Lyft or both, but the driver is waiting for a request for a ride.
  2. Time Period 2: This period begins when the driver is online and has accepted a request for a ride but has yet to pick up a passenger.
  3. Time Period 3: This period begins when the driver is online and a passenger is in the car but has yet to be dropped off at the destination.

No, your personal automobile insurer probably does not cover the ride-share

It would be foolhardy (at best) and extremely costly (to the ride-share drivers) to assume the insurance policy that covers the driver’s personal automobile would also cover the exposures the driver generates as a TNC driver throughout the three time periods.

However, there is an expanding list of personal automobile insurers that:

  • cover time period 1 for ride-share drivers—TNC companies do not provide coverage during this period; and
  • will not cancel a driver’s personal automobile insurance policy if the driver tells the insurance company she is using the vehicle as a ride-share vehicle while driving for Uber or Lyft.

But the fact remains that there is a paucity of insurers that cover the personal and commercial automobile risks for people using a vehicle as a ride-share vehicle during all three time periods.

Further, drivers could very well find themselves with insufficient coverage even if the TNC provides coverage during time periods 1 and 2.

The paucity represents Blue Ocean uncontested market opportunities

The opportunities are the drivers’ need for insurance coverage to:

  • the fullest amount possible given the requirements of each state and each driver’s situation (i.e. the cost to repair the vehicle will differ by vehicle and state where the driver operates)
  • fill the insurance gaps between 1) the driver’s personal automobile coverage; 2) what Uber or Lyft provide during time periods 2 and 3; and 3) what each state requires.

Simply put, depending on the type of vehicle the driver is using as the ride-share vehicle and the state where the driver is operating, it is entirely possible that whatever insurance the TNC provides—even if it meets the minimum requirements of the state—is inadequate to financially help the driver (Note: this is not meant to be an exhaustive list of financial requirements):

  • remediate/restore the ride-share vehicle to its pre-damaged condition;
  • pay for physical rehabilitation for the driver, passengers or pedestrians who are injured in an accident caused by a ride-share driver or a third-party;
  • pay for property remediation caused by the ride-share driver
  • pay the lawsuit of ride-share vehicle passengers who claim the driver attacked them;
  • pay for the lawsuit of ride-share drivers who claim a passenger attacked them; and
  • make payments in lawsuits brought by passengers or pedestrians injured or killed, or owners of property destroyed or damaged by the ride-share driver.

Slice emerges to provide hybrid personal and commercial P&C insurance

Slice Labs, a new player in the insurance marketplace based in New York City, is emerging to target this specific uncontested market space by providing Uber and Lyft drivers with access to hybrid personal and commercial automobile insurance for all three time periods. In a March 29, 2016, press release, the company announced it secured $3.9 million in seed funding led by Horizons Ventures and XL Innovate.

I truly appreciate and personally respect Slice for taking the time to enter this Blue Ocean market space in the “right way” by first becoming licensed in the states where the company wants to operate. Currently, Slice is licensed to conduct business for Uber and Lyft drivers in seven states: California, Connecticut, Iowa, Illinois, Pennsylvania, Texas and Washington.

Getting licensed

Moreover, Slice’s business model is to operate as a licensed insurance intermediary with underwriting and binding authority. The intermediary has become licensed as insurance agents for personal and commercial P&C, excess and surplus (E&S), and accident and health (A&H) insurance. Slice also has managing general agency licenses in the states where that license is required to sell the hybrid insurance coverage. Slice is taking this path of licensure because it is using a direct model and doesn’t plan to distribute through agents (intending instead to distribute through the TNC platforms and directly to the drivers).

Further, because this is a hybrid personal and commercial automobile insurance opportunity, Slice is designing and filing the requisite policy forms in each state where it wants to operate.

Slice is underwriting the risk, but it is not financially carrying the risk. For that, Slice will be working with primary insurers and reinsurers. Slice has not yet reached the point where it can identify which (re)insurers are providing the capability. Obviously, without having the insurance financial capacity, Slice can’t operate in the marketplace (unless Slice plans to use its seed financing and future investment rounds for that purpose—assuming that is allowed by each state where Slice wants to operate).

It is also important to know which (re)insurers are providing the capacity. I hope Slice releases that information very soon.

Conducting business with Slice

A driver purchases the hybrid policy by registering on the Slice app (registering is the process of the driver receiving and accepting the offer to apply for insurance), which triggers Slice’s underwriting process. At the completion of the underwriting process, Slice generates and sends the driver a price for the policy that will cover the driver’s fused personal and commercial automobile insurance requirements for each cycle of turning on and off the Uber or Lyft app.

Once the driver purchases the policy, Slice sends the driver the declaration page and policy in a form required by each state. Slice will send the DEC page and policy digitally if that is allowed by the state. Moreover, the Slice app will show the proof of insurance, the time periods the insurance policy is in effect and the amount of premium being charged during the time period from “app on to app off.”

If there is a claim, the driver will file the first notice of loss through the Slice app. Although Slice plans to work with third-party adjusters to manage the claim process, the driver will only interact with Slice until the claim reaches a final resolution.

What do you think?

Will this uncontested market space remain uncontested for very long? I sincerely doubt it. The addressable market is huge: every Uber and Lyft ride-share driver who does not have the requisite insurance or doesn’t have sufficient insurance (the two are not necessarily the same animal).

What do you think of Slice, of this market opportunity and of other on-demand economy opportunities that reflect a fusion of personal and commercial insurance exposures?