Tag Archives: clayton christensen

3 Myths That Inhibit Innovation (Part 1)

As the pace of change accelerates, the chances that incumbent businesses will be affected or displaced grows. According to a recent CB Insights report, insurance is one of the top five industries facing disruption risk; 85% of surveyed corporate strategists believe that innovation is critical for their organizations. Yet the vast majority are focused on incremental changes.

In other words, while the insurance industry is in the business of mitigating risk, too many insurance companies aren’t taking advantage of innovation to address disruption.

A number of innovation myths foster complacency among market leaders. While the myths aren’t unique to the insurance vertical, our industry may have embraced them more fully than others. These myths can be grouped into three main areas: strategic complacency, financial concerns and misperceptions of the innovation process.

Over the course of three articles, we will explore each of these areas in detail, starting with strategic complacency.

Strategic Complacency

Great Changes

The insurance industry is at a crossroads. A number of significant trends are converging to change our customers:

  • Their behavior,
  • The risks they experience,
  • The technologies they use,
  • And, most importantly, their expectations.

Add to those challenges the changes in underwriting, pricing and service delivery allowed by new technologies and analytic capabilities. Both the opportunities and the challenges presented by the intersection of these trends are significant for senior leadership in all segments of our industry. Yet, too often, the insurance industry hides behind our perception that “insurance is different,” or that “we’re regulated” or that “it’s complicated.”

Other industries have faced similar situations, and things haven’t always gone well for the established companies, even in a complicated industry computers and software or a heavily regulated one like automotive manufacturing.

Some market leaders such as IBM are often written off as roadkill, but they reinvent themselves time and again. Others like Blockbuster mistakenly believe that their position provides them with unassailable advantages and end up either dramatically changed or out of business. In Blockbuster’s case, the high water mark in their valuation was in 1996, the year before Netflix was launched. In 1998, their valuation was 50% of what it had been two years prior. They mistakenly believed that breadth of location and depth of inventory were walls that couldn’t be scaled by the competitive hordes.

One thing is certain:

The client views his or her needs and wants as primary. That client neither understands nor cares how difficult transformation is, what the backroom challenges are or whether we’re addressing the issues as fast as we can.

See also: Innovation Imperatives in the Digital Age   

Clients just want to solve their problems now. If the incumbent can’t or won’t provide what the client requests, then the client goes elsewhere.

In times of great change, strategic complacency kills.

Customer Intimacy

Ask any insurer about its strengths, and one knee-jerk response will be, “We take great care of our customers.” If that is the case, why does such a significant portion of our customers respond negatively to the industry and our efforts?

Explore customer experience with insurance industry leaders a bit further, and the responses will be more nuanced, perhaps to the point of admitting the poor job the industry actually does. The good news is that some of the problem isn’t our fault.

Our industry provides irreplaceable products and services of which we can be rightly proud. We regularly step into the breach in some of the most trying times our customers will ever face. But, thankfully, those events are rare or even nonexistent for the average customer, and many insureds don’t recognize that a valuable service was provided by risk transfer even during a period when they experienced no losses.

Insurers’ job is to see the big picture, and to connect disparate facts. We have increasing amounts of data about those customers, which provide insights into behaviors and opportunities.

These factors lead many organizations to profess that they deeply understand their customers, and that, when the customer is looking for additional products or services, the insurer will immediately know and develop the appropriate response. Dig a bit deeper, and another story emerges. Perhaps we don’t have the intimate relationship that would inspire those insights.

Unfortunately, in many corporate cultures, it is hard to be a dissenting voice on customer intimacy and experience when others are professing the “common wisdom,” no matter how misguided. Finally, both improved customer experience and more intimate customer relationships are difficult, multifaceted problems and easy to put off.

Carriers rightly see the relationship as one insurer to many insureds. On the other hand, customers see the relationship as one to one. While insurers think in terms of spread of risk across a pool of clients, customers are only interested in what’s in it for them.

In many instances, because of these differing perspectives, the carrier-customer bond is weak. A recent Bain & Co. report said that, worldwide, only half of insureds have been in contact with their insurer for any reason in the past 12 months.

The result is that customers don’t have any real relationship with their carrier and are likely to focus on price. Rarely will they share their needs and wants with a services provider with whom they have a tenuous relationship.

Strategic complacency can appear when shorthand expressions of customer intimacy and experience prohibit open dialogue on customer priorities, or efforts designed to address problems are short-circuited because of their complexity. Even though insurers have gigabytes of data on their insureds, the data doesn’t translate into information and insight.

Lack of Urgency

Another myth among insurers is that there is no great urgency to change. Organizations survey the competitive landscape and don’t see any discernible threats on the horizon.

There are two primary reasons. First, most innovation efforts are quiet, so insurers don’t necessarily see what potential competitors are doing until a product or service hits the market. Second, many lauded innovation efforts are taking place in lines or niches that don’t appear to be a threat to incumbents.

So what if one new insurer is writing usage-based insurance for the gig economy, or another specializes in coverage for renters? Either those aren’t lines of business that “real” insurance companies want to write, or they aren’t a key component of the carrier’s book.

See also: Digital Innovation: Down to Business  

The insurance innovation landscape is large and convoluted. Most early innovation efforts are small, and the “signal” is easily mis-categorized as noise. Because of this, potential competitors and collaborators are easy to miss. But the lack of urgency is a key factor in Harvard Professor Clayton Christensen’s seminal work on industry disruption.

His model states that innovators find a segment of unserved or underserved consumers that represent low profit potential. These startups then offer an inferior product or service to these consumers. It doesn’t have to be perfect because these consumers aren’t being appropriately served prior to the innovator’s arrival.

The crude nature of the solution is derided by incumbents, because their customers “wouldn’t want to purchase something that limited.” Because the unserved or underserved segment is low-profit, and may have other undesirable characteristics, the market leaders have no urgency to respond.

But while the existing players ignore or disparage the newcomers, the disruptors refine their offerings. Once innovators win the low-profit segment, they move upstream by repeating the process with more profitable and desirable customers.

Often, by the time established industry players figure out that they are under threat, it is too late to reverse their fortunes.

Guy Fraker, chief innovation officer at Innovator’s Edge, says, “Ignore this innovation activity, whether from incumbents or new entities, at your peril.”

This lack of urgency, and the willingness to either accept as fact, or blithely repeat, mistaken beliefs and put off difficult, needed changes to address customer problems contribute to strategic complacency. Recognizing these problems and opening dialog within your organization is a key to formulating a strategic response to the onslaught of changes affecting the insurance industry.

The next post will further explore common myths with a focus on financial concerns surrounding innovation.

Lemonade Really Does Have a Big Heart

Twelve months ago, Lemonade opened for business. For me, it marked the start of a new chapter in the history of the insurance industry. To coincide with their launch, I posted this article after speaking with CEO and co-founder Daniel Schreiber. The headline was “insurance will never be the same again!”

Of course, it was easy for me to make such a grand pronouncement 12 months ago, on the day that Lemonade hit the street. At that time, they had no customers, had not written any insurance and had certainly never paid a claim.

One year on, and Lemonade is up and running. Was I right to say insurance would never be the same again? I caught up with Daniel again to find out!

Disruptive Innovation

First things first, let me set some context. A question I get asked a lot by insurers and industry folk is, “why should we be interested in what Lemonade are doing?” It’s a great question and exactly what they should be asking. (I also point out that they need to be really interested in what ZhongAn is doing, as well).

To massively over-simplify and paraphrase Clayton Christensen, Lemonade has brought simplicity, convenience and affordability to a marketplace where the existing offering is complicated, expensive and inaccessible.

This is why the incumbent insurers need to take note when Lemonade pays a claim in three seconds. Otherwise, they could end up like DEC. Once the market leaders in minicomputers, DEC dismissed the rise of PCs, only to watch helplessly as IBM and Apple ate their lunch with personal computers.

Or Kodak, the inventor of digital photography. The company was too wedded to an outdated business model that relied on people printing their photos. That was until it was too late, and Kodak went from being the world’s fourth largest brand to bankrupt in less than two decades!

Now, it might have taken about 15 years for the demise of Kodak and about 10 for DEC to wake up and smell the coffee. The point being that disruptive innovations don’t take hold overnight; they need time to gain traction and build momentum.

But in this digital age, this speed of change is increasing. This is the key characteristic in the World Economic Forum’s definition of the 4th Industrial Revolution. It took Google just five years to hit a $1 billion in revenues. And Amazon only four!

Just think about this for a second. A decade ago, we didn’t have the iPhone, the iPad, Kindle, Uber, AirBnB, Android, Spotify, Instagram, WhatsApp, 4G. Could you imagine life without these now? Could you conceive that insurance is going to change and for the better?

You trust me, and I will trust you

There is another reason why incumbent insurers should be watching Lemonade very closely. It has addressed the fundamental issue with insurance and customer perception, which is trust, behavior and the conflict of interest.

There’s a ton of research and data that shows customers don’t trust insurers. And for good reason.

Insurers make the product complicated by using fancy jargon that Joe and Josephine Bloggs can’t understand. Insurers get paid up front and then create hurdles and barriers when the customer rightfully asks the insurer to do what they’ve already paid them to do.

And worse, the customer has to prove they are not a liar to the insurer’s satisfaction before a penny is paid out.

“Insurance fraud has become a self-fulfilling prophecy for incumbent insurers,” Daniel said. “They don’t trust customers to be fair and honest. This drives their behavior toward customers. And guess what, customers respond accordingly. Which justifies the insurer’s behavior in the first place. It’s a vicious circle that neither side can break.”

See also: Lemonade’s New Push: Zero Everything  

Lemonade’s virtuous circle

This conflict of interest doesn’t exist in the Lemonade business model. By operating as a tech platform that is also an insurance carrier, Lemonade has separated cost of operations from the pool of risk capital. It has also raised the bar when it comes to total cost of operations at 20% GWP.

Lemonade don’t profit from non-payment of a claim (in the way an incumbent insurer does). The company starts by trusting customers to make honest claims. Which is why Lemonade pays out straight away, with around a third of claim payouts fully automated. No human intervention at all.

Lemonade accepts that there are a few bad apples but works on the premise that most of us are fundamentally decent people.

It is usually at this point that the diehards and old laggards of the insurance industry start throwing fraud and loss data at me. Citing decades of data that proves Lemonade will eventually crash and burn under the weight of inflated and illegal claims.

My response is always the same “hands up everyone who is a bad person.” Of course, no hands go up because the vast majority of us are decent, respectful, honest people.

Which is why Lemonade has now had six, yes ,SIX, customers who have handed claims payouts back.

Just think about this for a moment.

A customer makes a claim (in seconds), gets paid (immediately), finds the situation has changed (later), realizes he got paid too much (oops!), then gives the payment back (you kidding me?).

Could the customer’s behavior be directly related to Lemonade’s behavior?

Yes, certainly! You only have to look at customer behavior at Grameen Bank in Bangladesh to see that trust can be relied  upon. Here, unsecured personal loans are repaid on time without the need for credit scores and debt collection agencies.

You don’t have to take my word for it, either. Hot out of the oven is this video of Lemonade customers in New York.

So, what’s the story, one year on?

Lemonade has been true to its word on the subject of transparency.

Throughout the year, the company has published its numbers, warts and all, for everyone to see. Building and maintaining trust is fundamental to Lemonade’s business model, and this starts with being open and honest.

Daniel has shared with me the latest numbers, and they are very impressive. I won’t repeat them here, because I know the team will be posting them all shortly in the latest Transparency Chronicles. They’re proud of the numbers, and rightly so.

See also: Lemonade: World’s First Live Policy  

All I will say is that Daniel and the team have steered a considered and thoughtful course in their first year. They could have chased the numbers, as many first year startups would do, only to regret the quality of business they end up with.

But Lemonade’s team has stuck to their knitting, have impressive growth numbers, a quality customer base completely aligned to the brand and are now licensed in 18 states (with more to follow).

Our job has only just started,” Daniel said. “Over the next year, we will continue to make insurance easier and better for our customers. One area we’ve started to look at now is the underlying insurance language and the products that form the heart of all insurance.”

Are you surprised?

You shouldn’t be! Lemonade is a highly professional startup and will no doubt become the definitive case study for exactly how “it” should be done.

But has this surprised Daniel?

“There are two things that have surprised us this year,” Daniel told me. “First, the extent of the warm reception we’ve received across the industry and from customers. We hoped customers would like us, but we never took for it granted.

“After all, you can’t beta test a new insurance company. The MVP (minimally viable product) approach simply doesn’t apply to insurance. It’s regulated and has to be the real deal from the get-go, right first time. So, for us, having customers put their faith in Lemonade from Day One has been very satisfying.

“The second is that our faith in humanity and behavioral economics has been affirmed. There will always be people who want to game the system, but on the whole, all our expectations about customer behavior have been exceeded.

“Who would have thought we would have six customers who gave their claim payouts back. That is very gratifying and also humbling for us. And gives us encouragement to continue doing what we are doing.”

Lemonade is live; insurance will never be the same again!

For me, I’m convinced. Historians will look back to Sept. 21, 2016, the day that Lemonade opened for business, as a watershed for the insurance industry.

Which means, of course, that the key question now is, who among the incumbent insurers will provide the Kodak moment? The one who simply missed that the world had changed until it was too late.

The Big Lesson From Amazon-Whole Foods

I doubt that Google and Microsoft ever worried about the prospect that a book retailer, Amazon, would come to lead one of their highest-growth markets: cloud services. And I doubt that Apple ever feared that Amazon’s Alexa would eat Apple’s Siri for lunch.

For that matter, the taxi industry couldn’t have imagined that a Silicon Valley startup would be its greatest threat, and AT&T and Verizon surely didn’t imagine that a social media company, Facebook, could become a dominant player in mobile telecommunications.

But this is the new nature of disruption: Disruptive competition comes out of nowhere. The incumbents aren’t ready for this and, as a result, the vast majority of today’s leading companies will likely become what toast—in a decade or less.

Note the march of Amazon. First it was bookstores, publishing and distribution, then cleaning supplies, electronics and assorted home goods. Now, Amazon is set to dominate all forms of retail as well as cloud services, electronic gadgetry and small-business lending. And the proposed acquisition of Whole Foods sees Amazon literally breaking the barriers between the digital and physical realms.

See also: Huge Opportunity in Today’s Uncertainty  

This is the type of disruption we will see in almost every industry over the next decade, as technologies advance and converge and turn the incumbents into toast. We have experienced the advances in our computing devices, with smartphones having greater computing power than yesterday’s supercomputers. Now, every technology with a computing base is advancing on an exponential curve—including sensors, artificial intelligence, robotics, synthetic biology and 3-D printing. And when technologies converge, they allow industries to encroach on one another.

Uber became a threat to the transportation industry by taking advantage of the advances in smartphones, GPS sensors and networks. Airbnb did the same to hotels by using these advancing technologies to connect people with lodging. Netflix’s ability to use internet connections put Blockbuster out of business. Facebook’s  WhatsApp and Microsoft’s Skype helped decimate the costs of texting and roaming, causing an estimated $386 billion loss to telecommunications companies from 2012 to 2018.

Similarly, having proven the viability of electric vehicles, Tesla is building batteries and solar technologies that could shake up the global energy industry.

Now, tech companies are building sensor devices that monitor health. With artificial intelligence, these will be able to provide better analysis of medical data than doctors can. Apple’s ResearchKit is gathering so much clinical-trial data that it could eventually upend the pharmaceutical industry by correlating the effectiveness and side effects of the medications we take.

As well, Google, Facebook, SpaceX and Oneweb are in a race to provide Wi-Fi internet access everywhere through drones, microsatellites and balloons. At first, they will use the telecom companies to provide their services; then they will turn the telecom companies into toast. The motivation of the technology industry is, after all, to have everyone online all the time. The industry’s business models are to monetize data rather than to charge cell, data or access fees. They will also end up disrupting electronic entertainment—and every other industry that deals with information.

The disruptions don’t happen within an industry, as business executives have been taught by gurus such as Clayton Christensen, author of management bible “The Innovator’s Dilemma”; rather, the disruptions come from where you would least expect them to. Christensen postulated that companies tend to ignore the markets most susceptible to disruptive innovations because these markets usually have very tight profit margins or are too small, leading competitors to start by providing lower-end products and then scale them up, or to go for niches in a market that the incumbent is ignoring. But the competition no longer comes from the lower end of a market; it comes from other, completely different industries.

The problem for incumbents, the market leaders, is that they aren’t ready for this disruption and are often in denial.

Because they have succeeded in the past, companies believe that they can succeed in the future, that old business models can support new products. Large companies are usually organized into divisions and functional silos, each with its own product development, sales, marketing, customer support and finance functions. Each division acts from self-interest and focuses on its own success; within a fortress that protects its ideas, it has its own leadership and culture. And employees focus on the problems of their own divisions or departments—not on those of the company. Too often, the divisions of a company consider their competitors to be the company’s other divisions; they can’t envisage new industries or see the threat from other industries.

This is why the majority of today’s leading companies are likely to go the way of Blockbuster, Motorola, Sears and Kodak, which were at the top of their game until their markets were disrupted, sending them toward oblivion.

See also: How to Respond to Industry Disruption  

Companies now have to be on a war footing. They need to learn about technology advances and see themselves as a technology startup in Silicon Valley would: as a juicy target for disruption. They have to realize that the threat may arise in any industry, with any new technology. Companies need all hands on board — with all divisions working together employing bold new thinking to find ways to reinvent themselves and defend themselves from the onslaught of new competition.

The choice that leaders face is to disrupt themselves—or to be disrupted.

InsurTech Can Help Fix Drop in Life Insurance

No one disputes that life insurance ownership in the U.S. has been on the decline for decades.

The question up for debate is what to do about it.

The emergence of an insurtech sector is an indicator of entrepreneur and investor confidence in upside potential. The hundreds of millions of dollars being poured into technology by carriers is another.

See Also: Key to Understanding InsurTech

But before piles of capital are poured into attempts to capture the opportunity, investors and legacy insurers should reflect on the root causes of this seemingly unstoppable trend and prioritize innovations that aim at solving the biggest issues:

  • Carriers have evolved, through their own cumulative behavior over decades, away from serving the needs of the majority of Americans to meeting the needs of a shrinking, high-net-worth population
  • A declining pool of independent agents are chasing bigger policies within this segment
  • The industry has, effectively, painted itself into a corner and is trapped in a business model that, given its own complexity, is difficult to change from within

How have carriers painted themselves into a corner? 

Carriers face what Clayton Christensen termed, in his 1997 classic, “the innovator’s dilemma.” While continuing to do what they do brings carriers closer to mass-market irrelevance, today’s practices, products, processes and policies don’t change. They deliver near-term financials and maintain alignment with regulatory requirements.

It’s worth acknowledging how the carriers have ended up in this spiral, particularly the top 20, which collectively control more than 65% market share, according to A.M Best via Nerdwallet.

  • Disbanding of captive agent networks for cost reasons has also meant the loss of a (more) loyal distribution channel. The carriers that used to maintain captive agent networks enjoyed the benefits of a branded channel whose agents were motivated to promote the respective carrier’s products. They chose instead to …
  • Shift to third-party distribution, increasing dependency on a channel with less control, and where they face greater risk of commoditization. Placing life insurance products in a broad array of third-party channels, including everything from wealth management firms to brokerages and property/casualty networks, has added complexity and increased emphasis on managing mediated, non-digital channels. This focus comes at a time when other sectors are accelerating the move to direct, digital selling, aligning with changing demographics, technology trends and consumer preferences for digital-first, multi-channel relationships.
  • Product cost and complexity has raised the bar to close sales and has increased the focus on a smaller base of the wealthy and ultra-wealthy. With the exception of basic term life, life insurance products can be complex. They can be expensive. And, as a decent level of insurance at a fair premium requires a medical exam including blood and urine sampling, it takes hand holding to get potential policyholders through the purchase process. For the high and ultra-high net worth segments, the benefit of life insurance is often as a tax shelter, not simply to protect loved ones from the catastrophic consequences of unexpected earnings loss. More complexity equals more diversion from the mass market.
  • Intense focus on distribution has come at the expense of connecting with the client. Insurance company executives have long insisted – and behaved as though — the agent is the client, if not in word then effectively in deed. The model perpetuated by the industry delegates the client relationship to the agent. This has its plusses and minuses for the client, and certainly has come back to bite the carriers as they contemplate a digital approach to the marketplace where client data and a branded relationship matter. Carriers certainly do not win fans with clients – overall Net Promoter Score ratings for the insurance sector broadly are even lower than Congress’ approval ratings, and for at least one major carrier are reportedly negative.
  • The number of licensed agents is on the decline. The average age of an insurance agent or broker has increased from 37 years in 1983 and is now 59, based on McKinsey research. Agents have a poor survival rate: only 15% of agents who start on the independent agent career path are still in the game four years later. Base salary is negligible, and it’s an eat-what-you-kill business. This is a tough, impractical career path for most and has become less attractive over time.
  • The industry is legendarily slow and risk-averse. Think about actuaries – the function that anchors the business model makes a living by looking backward and surfacing what can go wrong. That is a valid role, but the antithesis of what it takes to build a culture where innovation can thrive.

What is the path to opportunity?

Here are innovation thought-starters to create value for an industry undergoing transformation:

  • Clients must be at the center of strategy. Twentieth-century carrier strategy may have been grounded in creating distribution advantage and pushing product, but 21st century success will come to those who put the client at the center of all aspects of execution. “Client centricity” is a way of operating a business, not a slogan.
  • Innovation starts with a new answer to the question, “who is the customer.” The agent is a valuable partner, but she is not the client. There is white space in the mass market – the middle class – not being served by the current system beyond a limited offering. Life insurance ownership has been linked to the stability of the middle class. We should all be concerned with the decline in life insurance ownership and lack of attention paid to this segment.
  • The orthodoxy, “insurance is sold not bought,” sets a self-inflicted set of limitations that can and should be disrupted. The existing product set may have to be pushed to clients because of its complexity, pricing, target audience, channels and near-term performance dependencies.
  • Getting the economics right and meeting the needs of today’s clients will demand a digital-first offering – from being discoverable via SEO and social on mobile screens, to supporting application processing, self-service, premium payments, document storage and downloads and connection to licensed reps whenever clients feel that is necessary. It will require full digital enablement of agents to create the right client experience, and improve revenues and expenses. Ask anyone who has purchased life insurance about his or her decision journey, and invariably you will find out that shopping for insurance is a social, multi-channel experience. People ask people whom they like and trust when it comes to making important life event-based decisions. Aligning to how people behave already is a winning approach, and is what customer-centricity is about.
  • In a world of big data, it’s ironic that the insurance sector is one of the most sophisticated in its historical use of data. Winners will realize the potential of new data sources, unstructured data, artificial intelligence and the many other manifestations of big data to personalize underwriting, anticipate client needs and create positive experiences including multi-channel distribution and servicing. Amazon, Apple and Google have set the standard on what is possible in customer experience, and no one will be exempt from that standard.
  • Life insurance products may be an infrequent purchase, but the need to protect one’s loved ones can be daily. In today’s product-push model, a continuing relationship beyond the annual policy renewal is the exception. Consider the potential of prevention services as a means of boosting lifetime value and client loyalty. In a world full of insecurity, there is a role for a continuing conversation about prevention and protection. But the conversation must be reimagined beyond pushing the next product to one that places a priority on serving the client.

Meeting a Litmus Test for Disruption

The insurance industry has been talking a lot about disruption over the past couple of years. But, as with many things, insurance is a late arriver to the disruption party. Clayton Christensen helped kick off an earnest discussion of the topic back in 1997 with his first book, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. In his 2003 book, The Innovator’s Solution: Creating and Sustaining Successful Growth, he proposed this question as part of a litmus test for the disruptive potential of ideas:

“Is there a large population of people who historically have not had the money, equipment or skill to do this thing for themselves, and as a result have gone without it altogether or have needed to pay someone with more expertise to do it for them?”

While Christensen has recently gotten some flak for being too dogmatic in his criteria for what constitutes a truly “disruptive innovation” (perhaps succumbing to his own definition of disruption?), the question actually describes very well how insurance has historically operated. It is a complex, mysterious product that has forced consumers to rely on the expertise of an agent or company rep to buy, understand and use it.

The increasing transparency and empowerment afforded by data, the Internet and digital technologies have helped level the playing field. Yet the majority of insurance buyers still rely on a live person, usually an agent, to make sure they’ve made the right decisions and to close the sale.

The ever-growing field of companies and investors eyeing the insurance industry sees this issue as one of the greatest opportunities for disrupting the industry’s incumbents. Some companies still take comfort in the fact that the insurance industry has difficult and unique barriers to entry, chiefly its complex regulatory environment and huge capital requirements to cover losses. But the size of the opportunity — $1.1 trillion in net written premiums in the U.S. in 2014, according to SNL Financial – is an incentive that is spurring a lot of creativity, innovation and investment that will help overcome these barriers.  It’s a question of when, not if.

But it’s also still a question of how. How will the insurance business model change to at least meet the litmus test described by Christensen? It’s clear that changes are unfolding because of ambitious outsiders as well as creative and forward-thinking industry insiders.

So what should insurers do? How should they respond? Majesco’s newly released research report (based on a survey conducted in late 2015 with its customers), 2016 Strategic Priorities: Impactful Pace of Change, reveals that many insurers are monitoring potentially disruptive technology and business trends, but, unfortunately, few are actively preparing for the changes coming. Four overall themes emerged from the survey responses:

  • First, there is a clear recognition of the shift to the customer being in control and the importance of being customer-driven.
  • Second, there are significant barriers and limitations on current business capabilities that must be overcome to survive — let alone to grow and compete — starting with transformation of legacy systems that were built around products rather than customers.
  • Third, there are potential blind spots around customer expectations, technology and competition that are lurking around the corner of the not-too-distant future, creating forceful disruption.
  • Fourth, the pace and impact of change have intensified the need for agility, innovation and speed.

While business transformation progress is being made, significant work is necessary to compete in a customer-driven age. At the same time, the world is changing rapidly, and new expectations, risks, technologies, competitors and innovations threaten to significantly disrupt the insurance business landscape. For those unprepared, the change could be devastating.

The insurance industry is recognizing more and more that it is a target for potential disruption, because consumers are demanding – and getting – more transparency and responsiveness from company after company. Changes are being driven from both inside and outside the insurance industry along several different dimensions like technology, products, new players and partnerships. There are formidable hurdles for new entrants, but the incentive is huge for those who can remove the complexity of insurance and increase the value proposition for customers.

Insurance companies need to move beyond monitoring these developments to actively determining how the future will look. To prepare and respond, insurance companies must adroitly do two things simultaneously: modernize and optimize the current business while reinventing it for the future. It’s like changing the tire on a car while you’re driving at full speed down the freeway. Those companies that can do this will transcend merely surviving in an increasingly competitive industry and become the new leaders of a re-imagined insurance business.

Read more about how companies view these and other strategic priorities in Majesco’s research report, 2016 Strategic Priorities: Impactful Pace of Change.