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Who Will Win: Startups or Carriers?

Who will win: carriers or startups? It’s a question that has dominated conference panels, opinion pieces and many of the conversations I’ve had with insurance industry friends and colleagues throughout 2018. On the surface, this question feels appropriate. For many consumer-facing insurtech startups, their valuation is rooted in the promise of capturing market share from large carriers. While this has led to a major boom in the number of direct-to-consumer (DTC) insurtechs, in reality, 2018 hasn’t yielded any new startups that are able to make a significant dent in the collective portfolios of the large insurers (Lemonade aside). As many carriers are awaiting the fruits of their multiyear organizational transformation programs, the lack of inroads may prompt a sigh of relief. If the trends we have seen this year continue, perhaps there will be enough time for the product innovation to spring from within the old guard, keeping the industry pecking order intact.

Not so fast.

Reframing the Debate

Before breathing their sigh of relief, carriers might start asking themselves another question: If not carriers, then whom? As far as innovation goes, we continue to see resistance across the large carriers to properly invest in a “test and learn” approach for their internal product development teams. At the end of the day, standing up a new product that would generate only $10 million in additional annual premiums just doesn’t get the runway it would for a startup. Instead, we’re seeing the rise of venture groups, innovation labs and incubators (Metlife Techstars, NYLV, SOMPO Digital Labs, etc.) that are to innovate, then potentially bringing the work in-house.

Adrian Jones, who leads investment and reinsurance terms to insurtech startups for SCOR, recently wrote about changing market conditions for reinsurers and their increased exposure to getting “disrupted.” Jones outlines how simpler and leaner startups have eaten away at the markets with the highest profit margins for reinsurers. This has the potential to become one of the most significant factors affecting the consumer space in 2019. Given their new financial exposure, reinsurers will be highly motivated (in a way that carriers currently are not) to adapt and discover new ways to increase their returns. This very well could be the fuel needed to truly ignite the customer experience (CX) advancements the industry has been promising. For a reinsurer, $10 million in annual premium from a startup is not only $10 million. It’s a path to diversify their risk portfolio and, more importantly, to develop an acquisition channel that can yield much higher margins than the current carrier model.

See also: Insurtech: Revolution, Evolution or Hype?

In the larger conversation, reinsurers are generally seen as key observers in the carrier vs. insurtech showdown, not major players. But given their advanced underwriting capabilities, global footprints, lack of direct customer acquisition workforce and substantially less technical debt compared with their carrier siblings, with the right set of partners reinsurers can provide the scale and expertise the new players typically lack. This enables startups to focus on their differentiators: seamless customer experiences and innovative acquisition strategies.

You may or may not be surprised to learn that this trend isn’t new. Many insurtech “darlings” are already taking advantage of this partnership model. Jetty is backed by Munich Re, Root Insurance by Odyssey Re and Ladder Life by Hannover Re. Noteworthy is what these startups can offer consumers outside of the coverage itself. Jetty offers financial resiliency for renters. Root has an IoT-powered auto insurance underwriting model based on mobile data. Ladder Life has significantly trimmed their underwriting questions for term life. Yes, there may be flaws in each value-add example, but that is beside the point. These startups are able to experiment with modified underwriting parameters, and, once they fine tune these products for the masses, the major carriers will pay heavily either by losing market share or by acquiring the startups.

In a recent conversation with an executive from one of the largest P&C insurance companies, the executive told me that he sees reinsurers like Munich Re as very strategic partners, yet an ever-growing risk because, in his words, Munich Re could “start cutting us out.” The threat is real.

What Should Carriers Do?

For starters, carriers need to identify how to enable a top-notch customer experience (CX). In 2018, there has been plenty of talk about improving customer journeys, but few incumbents have released anything remarkable. The time is now for mid-sized insurers and MGAs. There is no reason not to take a cue from the reinsurer playbook. Whether it’s backing an insurtech, creating a direct-to-consumer channel (like our friends at ProSight) or forming platform integration partnerships (as AP Intego is doing), there are opportunities to jump into the fray because the space is perfectly fragmented. Identifying a similarly positioned insurtech is a promising strategy for carriers with a wealth of data in niche markets. But working with an insurtech or building a DTC offering requires underwriting customization and collaboration. If that’s not something a carrier excels at, determining how to leverage existing technology or marketing capabilities is critical. For those with a technology strength, parametric insurance, such as Jumpstart and Floodmapp, may be a better fit. It’s an emerging market I especially have an affinity for.

See also: How to Partner With Insurtechs  

Regardless, it’s important that carriers develop a set of hypotheses on what will make them successful in whatever their new venture may be. At Cake & Arrow, we heavily rely on design thinking and qualitative research as a low-cost approach to validate strategies. Overall, being nimble, cross-functional and exceptionally tactical will be critical to success, which is why I consider large-scale organizational transformations not applicable here.

If all else fails, get the pocketbooks ready, because we will see no shortage of bidding wars in the coming year.

This article originally ran at Cake & Arrow

In Age of Disruption, What Is Insurance?

“Somehow we have created a monster, and it’s time to turn it on its head for our customers and think about providing some certainty of protection.” – Inga Beale, CEO, Lloyds of London

In an early-morning plenary session at this year’s InsureTech Connect in Las Vegas, Rick Chavez, partner and head of digital strategy acceleration at Oliver Wyman, described the disruption landscape in insurance succinctly: while the first phase of disruption was about digitization, the next phase will be about people. In his words, “digitization has shifted the balance of power to people,” forcing the insurance industry to radically reorient itself away from solving its own problems toward solving the problems of its customer. It’s about time.

For the 6,000-plus attendees at InsureTech Connect 2018, disruption in insurance has long been described in terms of technology. Chavez rightly urged the audience to expand its definition of disruption and instead conceive of disruption not just as a shift in technology but as a “collision of megatrends”–technological, behavioral and societal–that is reordering the world in which we live, work and operate as businesses. In this new world order, businesses and whole industries are being refashioned in ways that look entirely unfamiliar, insurance included.

This kind of disruption requires that insurance undergo far more than modernization, but a true metamorphosis, not simply shedding its skin of bureaucracy, paper applications and legacy systems but being reborn as an entirely new animal, focused on customers and digitally enabled by continuing technological transformation.

In the new age of disruption …

1. Insurance is data

“Soon each one of us will be generating millions of data sets every day – insurance can be the biggest beneficiary of that” – Vishal Gondal, GOQUii

While Amazon disrupted the way we shop, and Netflix disrupted the way we watch movies, at the end of the day (as Andy G. Simpson pointed out in his Insurance Journal recap of the conference) movies are still movies, and the dish soap, vinyl records and dog food we buy maintain their inherent properties, whether we buy them on Amazon or elsewhere. Insurance, not simply as an industry but as a product, on the other hand is being fundamentally altered by big data.

At its core, “insurance is about using statistics to price risk, which is why data, properly collected and used, can transform the core of the product,” said Daniel Schreiber, CEO of Lemonade, during his plenary session on day 2 of the conference. As copious amounts of data about each and every one of us become ever more available, insurance at the product level– at the dish soap/dog food level–is changing.

While the auto insurance industry has been ahead of the curve in its use of IoT-generated data to underwrite auto policies, some of the most exciting change happening today is in life insurance, as life products are being reconceived by a boon of health data generated by FitBits, genetic testing data, epigenetics, health gamification and other fitness apps. In a panel discussion titled “On the Bleeding Edge: At the Intersection of Life & Health,” JJ Carroll of Swiss RE discussed the imperative of figuring out how to integrate new data sources into underwriting and how doing so will lead to a paradigm shift in how life insurance is bought and sold. “Right now, we underwrite at a single point in time and treat everyone equally going forward,” she explained. With new data sources influencing underwriting, life insurance has the potential to become a dynamic product that uses health and behavior data to adjust premiums over time, personalize products and service offerings and expand coverage to traditionally riskier populations.

Vishal Gandal of GOQuii, a “personalized wellness engine” that is partnering with Max Bupa Insurance and Swiss Re to offer health coaching and health-management tools to customers, believes that integrating data like that generated by GOQuii will “open up new risk pools and provide products to people who couldn’t be covered before.” While some express concern that access to more data, especially epigenetic and genetic data, may exclude people from coverage, Carroll remains confident that it is not insurers who will benefit the most from data sharing, but customers themselves.

See also: Is Insurance Really Ripe for Disruption?  

2. Insurance is in the background

“In the future, insurance will buy itself automatically” – Jay Bergman

Some of the most standout sessions of this year’s InsureTech Connect were not from insurance companies at all, but from businesses either partnering with insurance companies or using insurance-related data to educate their customers about or sell insurance to their customers as a means of delivering more value.

Before unveiling a new car insurance portal that allows customers to monitor their car-related records and access a quote with little to no data entry, Credit Karma CEO Ken Lin began his talk with a conversation around how Credit Karma is “more than just free credit scores,” elucidating all of the additional services they have layered on top of their core product to deliver more value to their customers. Beyond simply announcing a product launch, Lin’s talk was gospel to insurance carriers, demonstrating how a company with a fairly basic core offering (free credit scores) can build a service layer on top to deepen engagement with customers. It’s a concept that touches on what was surely one of the most profound themes of the conference–that, like free credit scores, insurance only need be a small piece of a company’s larger offering. This may mean embedding insurance into the purchase of other products or services (i.e., how travel insurance is often sold) or it may mean doing what Credit Karma has done and layering on a service offering to deepen engagement with customers and make products stickier.

Assaf Wand, CEO of the home insurance company Hippo, spoke to both of these models in his discussion with David Weschler of Comcast about how their two companies are partnering to make insurance smarter and smart homes safer. When asked about what the future of insurance looks like, Wand put it plainly when he said: “Home insurance won’t be sold as insurance. It will be an embedded feature of the smart home.” Jillian Slyfield, who heads the digital economy practice at Aon, a company that is already partnering with companies like Uber and Clutch to insure the next generation of drivers, agrees: “We are embedding insurance into these products today.”

Until this vision is fully realized, companies like Hippo are doing their part to make their insurance products fade into the background as the companies offer additional services for homeowners, “Can I bring you value that you really care about?” Wand asked, “Wintering your home, raking leaves, these are the kinds of things that matter to homeowners.”

3. Insurance is first and foremost a customer experience

“The insurance industry has to redefine our processes… go in reverse, starting with the customer and re-streamlining our processes around them” – Koichi Nagasaki, Sompo

To many outside the insurance industry, the idea of good customer experience may seem unremarkable, but for an industry that has for so long been enamored by the ever-increasing complexity of its own products, redefining processes around customers is like learning a foreign language as a middle-aged adult. It’s hard, and it takes a long time, and a lot of people aren’t up to the task.

The insurance industry has been talking about the need for customer-centricity for a while now, but many companies continue to drag their feet. But customer-centricity is and remains more than a differentiator. It’s now table stakes. How this plays out for the industry will look different for different companies. Some will turn to partnerships with insurtechs and other startups to embed their products into what are already customer-centric experiences and companies. Chavez of Oliver Wyman would rather see the industry “disrupt itself,” as he believes it’s critical that companies maintain the customer relationship. In his plenary sessions, he cited the German energy company Enercity as a company that disrupted itself. Operating in a similarly regulated industry, rather than becoming just a supplier of energy, the company invested heavily in its own digital strategy to become a thought leader in the energy space, to be a trusted adviser to its customer and to deliver an exceptional digital experience that, among other things, leverages blockchain technology to accept bitcoin payments from customers. For Chavez, insurtech is already a bubble, and, “If you want to succeed and thrive in a bubble, make yourself indispensable.” The only way to do this, he believes, is to maintain ownership over the customer experience, because, in today’s digital economy, the customer experience is the product.

But to own the customer experience and succeed will require insurance companies to completely reorient their business practices and processes – to start with the customer and the experience and work backward toward capabilities. In the words of Han Wang of Paladin Cyber, who spoke on a panel about moving from selling products to selling services, “It’s always a questions of what does the customer want? How do they define the problem? And what is the solution?”

4. Insurance is trust

“The world runs on trust. When we live in a society where we have lots of trust, everyone benefits. When this trust goes away, everyone loses.” – Dan Ariely, Lemonade

During a faceoff between incumbents and insurtechs during one conference session, Dylan Bourguignon, CEO of so-sure cinched the debate with a single comment, calling out large insurance carriers: “You want to engage with customers, yet you don’t have their trust. And it’s not like you haven’t had time to earn it.” This, Bourguignon believes, is ultimately why insurtechs will beat the incumbents.

Indeed, the insurtech Lemonade spent a fair amount of stage time preaching the gospel of trust. Dan Ariely, behavioral economist and chief behavior officer at Lemonade, delivered a plenary session entirely devoted to the topic of trust. He spoke about trust from a behavioral standpoint, explaining how trust creates equilibrium in society and how, when trust is violated, the equilibrium is thrown off. Case in point: insurance.

Insurance, he explained, has violated consumer trust and has thrown off the equilibrium–the industry doesn’t trust consumers, and consumers don’t trust the industry, a vulnerability that has left the insurance industry open to the kind of disruption a company like Lemonade poses. As an industry, insurance has incentives not to do the thing it has promised to do, which is to pay out your claims. And while trust is scarcely more important in any industry as it is in insurance, save in an industry like healthcare, the insurance industry is notoriously plagued by two-way distrust.

What makes Lemonade stand out is that it has devised a system that removes the conflict of interest germane to most insurance companies – as a company, it has no incentives to not pay out customer claims. In theory, profits are entirely derived by taking a percentage of the premium; anything left over that does not go to pay out a claim is then donated to charity. The result: If customers are cheating, they aren’t cheating a company, they are cheating a charity. Ariely described several instances where customer even tried to return their claims payments after finding misplaced items they thought had been stolen. “How often does this happen in your companies?” he asked the audience. Silence.

And it’s not just new business models that will remedy the trust issues plaguing insurance. It’s new technology, too. In a panel titled “Blockchain: Building Trust in Insurance,” executives from IBM, Salesforce, Marsh and AAIS discussed how blockchain technology has the capacity to deepen trust across the industry, among customers, carriers, solutions providers and underwriters by providing what Jeff To of Salesforce calls an “immutable source of truth that is trusted among all parties.” Being able to easily access and trust data will have a trickle down effect that will affect everyone, including customers, employees and the larger business as a whole–reducing inefficiencies, increasing application and quote-to-bind speed, eliminating all the hours and money that go into data reconciliation and ultimately making it easier for carriers to deliver a quality customer experience to their customers.

See also: Disruption of Rate-Modeling Process  

While the progress in blockchain has been incremental, the conference panel demoed some promising use cases in which blockchain is already delivering results for customers, one example being acquiring proof of insurance for small businesses or contractors through Marsh’s platform. With blockchain, a process that used to span several days has been reduced to less than a minute. Experiences like these–simple, seamless and instantaneous – are laying the groundwork for carriers to begin the long road to earning back customer trust. Blockchain will likely play an integral role this process.

5. Insurance is a social good

“We need insurance. It is one of the most important products for financial security.” – Dan Ariely, Lemonade

For all of the the naysaying regarding state of the industry that took place at InsureTech Connect, there were plenty of opportunities for the industry to remind itself that it’s not all bad, and its core insurance is something that is incredibly important to the stability of people across the globe. Lemonade’s Schreiber called it a social good, while Ariely told his audience, “We need insurance. It is one of the most important products for financial security.” Similar sentiments were expressed across stages throughout the conference.

In fact, in today’s society, income disparity is at one of the highest points in recent history, stagnating wages are plaguing and diminishing the middle class, more people in the U.S. are living in poverty now than at any point since the Great Depression, the social safety net is shrinking by the minute and more than 40% of Americans don’t have enough money in savings to cover a $400 emergency, so insurance is more important than ever.

For Inga Beale, CEO of Lloyds of London, insurance has a critical role to play in society, “It goes beyond insurance–it’s about giving people money and financial independence,” she said during a fireside chat. She went on to describe findings from recent research conducted by Lloyds, which determined that, by the end of their lives, men in the U.K. are six times better off financially than women. When designed as a tool to provide financial independence and equality for everyone, insurance can play an important role in addressing this disparity. While this has been a focus in emerging markets, financial stability and independence is often assumed in more developed markets, like the U.S. and Europe. In reality, it is a problem facing all markets, and increasingly so. Ace Callwood, CEO of Painless1099, a bank account for freelancers that helps them save money for taxes, agrees that insurance has an important role to play. “It’s our job to get people to a place where they can afford to buy the products we are trying to sell,” he said.

You can find the article originally published here.

6 Lessons in Trust From Retailers

When it comes to digital transformation, the insurance industry lags woefully behind other industries, and it is not just a question of technology. Even as the industry advances technologically, developing digital capabilities that rival other industries–from chatbots to IoT–selling insurance direct to consumers (DTC) has proved a difficult code to crack. Even Geico, the darling of online auto insurance sales, still closes the majority of its new policies on the phone, via an agent.

The retail ecommerce industry on the other hand has proven to us that there are very few things consumers are not willing to purchase on the internet. From buying groceries to booking airline tickets, consumers are comfortable conducting all kinds of transactions online, from the very simple to the most complex. Every day, millions of people even do their banking online. So what is the deal with insurance?

At Cake & Arrow, we have conducted hours upon hours of primary research in the insurance industry, talking to hundreds of consumers, carriers, agents and brokers in an effort to help our insurance clients answer this question and, in turn design better products and experiences. Throughout this process, we have learned a lot about how customers think and feel about insurance, perhaps our most lasting insight being a lesson about trust. The main reason consumers don’t want to buy insurance online directly through a carrier? They don’t trust insurance companies. This is why, even in the golden age of digital commerce, consumers continue to opt to purchase insurance through brokers and agents.

On the surface, fixing this problem may seem simple. All carriers need to do is to gain the trust of their customers, right? Easier said than done. While earning trust may seem like a simple enough idea, it is an issue most carriers don’t even know how to begin to tackle.

In my experience, when you want to learn to do something well, the best thing to do is to emulate an expert. In the case of consumer trust, it’s the retail e-commerce industry that has, over the past two decades, mastered the art of consumer trust. Each and every day, millions of transactions happen online, and most consumers don’t think twice about ordering their groceries, electronics, clothing, books and everything in between over the internet. This hasn’t always been the case! Gaining the trust of consumers has been a hard-won battle, and those who have done it well (Amazon) are ruling the industry. If imitation is the highest form of flattery, what lessons can the insurance industry learn from the retail industry that can help them foster trust with consumers and drive a truly digital offering?

1. Establish consistent workflows.

The retail industry has the benefit of a consistent process across products, stores and platforms. For the most part, everyone basically understands the standard steps in a checkout flow. Select your product, fill in your shipping and billing information and purchase. And while there are of course optimizations that can be made to make an experience better, in general, consumers know exactly what to expect when purchasing a product online.

The same cannot be said for insurance. Unlike a book or an item of clothing, insurance is not a static product sitting in a warehouse with a price tag. Insurance products are complex. Coverage and prices are variable based upon any number of risk factors, and complex underwriting rules and changing regulations can make it difficult for consumers to understand what exactly they are buying and how it is priced.

This leads to confusion in the process of quoting and buying insurance and to a lack of standardized practices across the board. From a user experience (UX) and design perspective, one of the first steps the industry can take toward gaining consumer trust is to simplify and standardize the quoting process so that consumers know what to expect when buying insurance online and understand each step of the process.

And while underwriting rules and regulations will need to be streamlined to establish an effective industry standard, insurance companies can start by being more transparent with users about what to expect in the quoting process, including informing users about how their personal information is being used. This will help customers better understand the quoting process, feel more comfortable dispensing with personal information and give them general confidence in the process by establishing clear expectations.

See also: Top 10 Insurtech Trends for 2018  

2. Invest in quality visual design.

Over the past two decades, we’ve seen retail ecommerce design evolve, following a general trend toward customer-centricity. Flash sites, cluttered home pages and flashy fonts have given way to clean, simple designs that streamline the shopping process, communicate the brand and are organized around customer needs, interests and behaviors.

The insurance industry needs to follow a similar path, leveraging user-validated design to create trust with customers. A modern, usable, well-designed website is a signal of legitimacy. It tells customers that a real company is behind a product, and this company cares enough about its customers to invest in the experience.

A strong visual design that implements best practices removes that cloud of doubt in the mind of a customer and builds confidence and pride in the end product. In the same way that a strong brand is a promise of quality, a great visual design is an early demonstration that a carrier cares enough about a customer to invest in a quality digital experience that will translate into a quality product.

3. Implement a killer content strategy.

Content strategy is just for news sites, magazines and blogs, right? Wrong. Content is an important piece of the sales process. For our retail clients, we have learned that crafting and executing a killer content strategy is critical to helping customers learn about a product, understand occasions for using products and gain insight into the actual value of a product. Effective education about products and services demonstrates a company’s willingness to keep its customers informed. And the more a customer feels he understands what a company does and what its products are about, the more he will trust it.

While we often see short marketing messages on insurance carriers’ sites, few insurance companies invest in content on their website to help explain to their customers the value of a product or the differences between products, and to educate them on when and where to use the product so they feel empowered when making purchasing decisions. Educational and informative recommendations will help insurance companies establish a rapport with consumers as a trusted adviser. Companies must even be willing to tell customers when a product isn’t right for them and demonstrate that they care about more than a sale, but about helping their customers make informed decisions that benefit them. A killer content strategy will help insurance companies do this effectively.

4. Enable the right level of customization.

The best retail experiences allow for just the right amount of customization. When buying clothing online, for instance, we can choose colors and sizes and have a choice of different delivery options. Subscription services like Trunk Club allow shoppers to input information about personal style preferences, including color and pattern preferences, set price points and decide on frequency to receive a custom selection of clothing recommendations when, where and however often they desire. This kind of customization breeds customer loyalty and, like a good content strategy, can help customers being to think of a company as a trusted adviser with their best interests in mind.

Insurance companies should explore enabling similar types of customization. While easy packages are just that–easy–they don’t drive stickiness with customers. Giving customers the ability to modify and tweak plans according to their unique needs and circumstances will drive a connection between a customer and a product. In the same way that these types of customizations breed loyalty in retail e-commerce customers, giving customers more control over choosing the kind of coverage they need at a price they can afford is a powerful way of building loyalty and competing with other carriers on something other than price.

And while enabling customization is important, it is really critical that companies don’t take things too far, allowing customers too much customization and, in the process, sacrificing the experience. In speaking recently with a carrier, I learned of a story of customization gone wrong. The carrier’s data showed that customers who were able to customize a package were more likely to purchase a policy. Emboldened by this piece of data, they created a new quoting page that allowed customers to customize every aspect of their policy. Lacking the qualitative info on how and why people were more likely to convert when customization was enabled and without user testing on the new custom design, they missed some essential information. Allowing their customers to customize everything about their policy made the experience overwhelming, and conversions ended up falling off significantly.

I tell this story as a reminder to companies that testing and validating every design decision with users is critical–and one of the reasons the e-commerce industry has been so successful at digital.

5. Play around with promotions.

Promotions are one of the most reliable and time-honored means of staying competitive for retailers. Promotions can make or break a business. Free shipping on big orders, Black Friday sales and BOGO (buy-one-get-one) offers are all commonplace in the retail e-commerce industry, and are incredibly effective at creating consumer loyalty and trust.

While, in the insurance industry, it is nearly impossible to offer dynamic pricing or let customers actually play with coverages to get a fully custom price due to regulations, discounting isn’t something to be overlooked. Bundling is a real thing, and customers are more likely to purchase a policy if they see a real deal–and understand its benefits.

For example, I’ve seen many insurers combine rental insurance with auto insurance at a discounted price. When customers see deals like this, they oftentimes don’t understand the full benefits of the deal. For example, they may not know that rental insurance protects not only their property but also against liability and, considering the coverage, is incredibly affordable. Developing a robust content strategy to better inform customers about deals and the benefits of coverage will not only increase sales and stickiness, but help customers begin to truly appreciate the value their insurance company is bringing to their lives.

6. Leverage user-generated content.

When shopping online and in store, we have come to rely on ratings and reviews to help us evaluate products and make purchasing decisions. User-generated content, such as Instagram posts of real customers wearing clothing or jewelry, can help us see how a dress might fit a certain body type or how a piece of jewelry looks in context. This level of transparency sends customers a clear message that as a company you have nothing to hide–further inspiring trust.

See also: Sharing Economy: The Concept of Trust  

Just like in retail, user-generated content can be integrated into your content strategy and can do the work of educating customers about your products–explaining the difference between certain coverage offers, for example, or why as a carrier you stand out from other companies offering similar products.

Real content generated by other customers helps customers understand how a certain policy works–what the service is like, what the claims process is like, what kinds of scenarios are covered. It can be scary to leave your company and offering open to negative user feedback, but, if you are doing your job, it will end up being more useful than it is harmful.

Insurance companies still face many hurdles to getting consumers to trust them and to earning the kind of rapport with customers that the retail industry has established over the years. Anything short of a truly standardized process across all carriers and products will continue to cause confusion and suspicion among customers. But there is nothing stopping insurance carriers from taking strategic steps toward customer-centricity, emulating more mature industries like retail e-commerce that have done it well.

This article first appeared on the Cake & Arrow website, here.

4 Insurers’ Great Customer Experiences

McKinsey research has found that insurance companies with better customer experiences grow faster and more profitably. In 2016, 85% of insurers reported customer engagement and experience as a top strategic initiative for their companies. Yet the insurance industry continues to lag behind other industries when it comes to meeting customer expectations, inhibited by complicated regulatory requirements and deeply entrenched cultures of “business as usual.”

Some companies–many of them startups–are setting the gold standard when it comes to customer experience in insurance, and are paving the way for the industry’s biggest insurers to either fall in line, or risk losing out to smaller competitors with better experiences. Through a combination of new business models, clever uses of emerging technology and deep understanding of customer journeys, these four companies are leading the pack when it comes to delivering on fantastic experiences:

1. Slice – Creating insurance products for new realities.

Slice launched earlier this year and is currently operating in 13 states. The business model is based on the understanding that, in the new sharing economy, the needs of the insured have changed dramatically and that traditional homeowners’ or renters’ insurance policies don’t suffice for people using sites like AirBnB or HomeAway to rent out their homes.

According to Emily Kosick, Slice’s managing director of marketing, many home-share hosts don’t realize that, when renting out their homes, traditional insurance policies don’t cover them. When something happens, they are frustrated, angry and despondent when they realize they are not covered. Slice’s MO is to create awareness around this issue, then offer a simple solution. In doing so, Slice can establish trust with consumers while giving them something they want and need.

Slice provides home-share hosts the ability to easily purchase insurance for their property, as they need it. Policies run as little as $4 a night! The on-demand model allows hosts renting out their homes on AirBnB or elsewhere to automatically (or at the tap of a button) add an insurance policy to the rental that will cover the length of time–up to the minute–that their home is being rented. The policy is paid for once Slice receives payment from the renter, ensuring a frictionless transaction that requires very little effort on the part of the customer.

See also: Who Controls Your Customer Experience?  

Slice’s approach to insurance provides an excellent example of how insurers can strive to become more agile and develop capacities to launch unique products that rapidly respond to changes in the market and in customer behavior. Had large insurance companies that were already providing homeowners’ and renters’ insurance been more agile and customer-focused, paying attention to this need and responding rapidly with a new product, the need for companies like Slice to emerge would have never have arisen in the first place.

2. Lemonade – Practicing the golden rule.

In a recent interview, Lemonade’s Chief Behavior Officer Dan Ariely remarked that, “If you tried to create a system to bring about the worst in humans, it would look a lot like the insurance of today.”

Lemonade wants to fix the insurance industry, and in doing so has built a business model on a behavioral premise supported by scientific research: that if people feel as if they are trusted, they are more like to behave honestly. In an industry where 24% of people say it’s okay to pad an insurance claim, this premise is revolutionary.

So how does Lemonade get its customers to trust it? First, by offering low premiums–as little as $5 a month–and providing complete transparency around how those premiums are generated. Lemonade can also bind a policy for a customer in less than a minute. Furthermore, Lemonade has a policy of paying claims quickly–in as little as three seconds–a far cry from how most insurance companies operate today. When claims are not resolved immediately, they can typically be resolved easily via the company’s chatbot, Maya, or through a customer service representative. But perhaps the most significant way that Lemonade is generating trust with its customers is through its business model. Unlike other insurance companies, which keep the difference between premiums and claims for themselves, Lemonade takes any money that is not used for claims (after taking 20% of the premium for expenses and profit) is donated to a charity of the customer’s choosing. Lemonade just made its first donation of $53,174.

Lemonade’s approach to insurance is, unlike so many insurers out there, fundamentally customer-centric. But CEO Daniel Schreiber is also quick to point out that, although Lemonade donates a portion of its revenues to charities, its giveback is not about generosity, it is about business. If Lemonade has anything to teach the industry, it is this: that the golden rule of treating others as you want to be treated, holds true, even in business.

3. State Farm – Anticipating trends and investing in cutting-edge technology.

The auto insurance industry has been one of the fastest to adapt to the new customer experience landscape, being early adopters of IoT (internet of things), using telematics to pave the path toward usage-based insurance (UBI) models that we now see startups like Metromile taking advantage of. While Progressive was the first to launch a wireless telematics device, State Farm is now the leading auto insurer, its telematics device being tied to monetary rewards that give drivers financial incentives to drive more safely. The company also has a driver feedback app, which, as the name suggests, provides drivers feedback on their driving performance, with the intent of helping drivers become safer drivers, which for State  Farm, equals money.

By anticipating a trend, and understanding the importance of the connected car and IoT early on, State Farm has been able to keep pace with startups and has reserved a seat at the top–above popular auto insurers like Progressive and Geico–at least for now. If nothing else, unlike most traditional insurers, auto insurance companies like State Farm and Progressive have been paving the way for the startups when it comes to innovation, rather than the other way around. For now, this investment in customer experience is paying off. J.D Powers 2017 U.S Auto Insurance Study shows that, even as premiums increased for customers in 2017, overall customer satisfaction has skyrocketed.

4. Next Insurance – Automating for people, and for profit.

Next Insurance believes that a disconnect between the carrier and the customer is at the heart of the insurance industry’s digital transformation problem. In essence, it’s a communication problem, according to Sofya Pogreb, Next Insurance CEO. The people making decisions in insurance don’t have contact with the end customer. So while they are smart, experienced people, they are not necessarily making decisions based on the actual customer needs.

Next Insurance sells insurance policies to small-business owners, and the goal is to do something that Next believes no other insurer is doing–using AI and machine learning to create “nuanced” and “targeted” policies to meet specific needs.

An important aspect of what makes the approach unusual is that, instead of trying to replace agents altogether, Next is more interested in automating certain aspects of what agents do, to free their expertise to be put to better use:

“I would love to see agents leveraged for their expertise rather than as manual workers,” Pogreb told Insurance Business Magazine. “Today, in many cases, the agent is passing paperwork around. There are other ways to do that – let’s do that online, let’s do that in an automated way. And then where expertise is truly wanted by the customer, let’s make an agent available.”

See also: Smart Things and the Customer Experience  

While innovative business models and cutting-edge technology will both be important to the insurance industry of the future, creating fantastic customer experiences ultimately requires one thing: the ability for insurance companies–executives, agents and everyone in between–to put themselves in their customers’ shoes. It’s is a simple solution, but accomplishing it is easier said than done. For larger companies, to do so requires both cultural and structural change that can be difficult to implement on a large scale, but will be absolutely necessary to their success in the future. Paying attention to how innovative companies are already doing so is a first step; finding ways to bring about this kind of change from within is an ambitious next step but should be the aim of every insurance company looking to advance into the industry of the future.

This article first appeared on the Cake & Arrow website, here. To learn more about how you can bring about the kind of cultural and institutional change needed to deliver true value to your customers, download our recent white paper: A Step-by-Step Guide to Transforming Digital Culture and Making Your Organization Truly Customer Focused.