Tag Archives: convergence

Convergence in Action in Insurtech

One of the most pressing questions that has arisen from the insurtech movement is this: Will insurtech startups have a need to utilize the incumbent tech market’s capabilities?

In the past three years, startups have been actively partnering with other startups, insurers and tech incumbents. Partnerships, of course, come in many different flavors. The latest SMA research has revealed that startup MGAs and greenfield insurers are increasingly partnering with existing core systems providers – as clients.

The first wave of insurtech startups – most of which were focused on personal lines – tended to go it alone, developing their own core systems. Many of today’s innovative new insurers and new MGAs have focused on commercial lines and see value in the core systems that incumbent insurers and MGAs already use. Their new core systems are increasingly coming from established core systems providers.

For the insurtechs, this means that they have access to expertise and content. Both are especially helpful for insurtechs pursuing opportunities in commercial lines – which account for the vast majority of the startups that purchased new core systems last year. The earlier insurtech startups targeted personal lines and life/health ventures. Today, more startups pursue the significant opportunities in commercial business.

See also: How to Collaborate With Insurtechs  

To compete in commercial lines, these startups need to have the robust capabilities that support the various new products being brought to market. Time to value is critical, and the content (rates, rules, and forms) provided by tech incumbents’ agile core systems can increase their speed to market. In addition, the expertise of their new vendor partners can be a valuable resource to help them navigate the complexity of the commercial market.

As SMA detailed in our recent report, Core Systems Purchasing to Thrive in the Digital World: What’s Hot – And What’s Not, 12% of all new P&C core systems sold in 2017 were bought by startup MGAs and greenfield insurers. We expect them to be a stronger presence in 2018 and onward, creating substantial benefits for startup and incumbent tech providers alike and opportunities in new spaces for all forms of partnerships. As this new market wave continues, the creativity and capabilities of all will be needed to support the insurance business moving forward.

Convergence: The Inevitable Reality

The insurance industry is expected to converge soon. It is an inevitable reality. The question is how quickly such convergence likely to happen? The answer is soon. Definitely within a decade. And needless to say, customers are going to drive the next wave of convergence for the insurance industry.

The insurance industry must examine the convergence journey of banking industry closely. Today, banks offer varied converged portfolio of products for customers. It ranges from various account types, deposit and savings products, range of loans, various cards, investments, portfolio services to numerous products as per need of customers. The question is: if today, insurance buyers shop for P&C, life and health insurance products for their needs at different places, why such insurance is not readily available in a converged manner? This is definitely a big opportunity for the insurance industry. Insurers that already possess licenses for different insurance segments, must leapfrog in offering converged insurance products for competitive advantage.

Market and Product alignment: P&C, Life and Healthcare industry

Insurance industry traditionally has been operating differently for property and casualty (P&C), Life and Healthcare segments. It followed such industry alignment as per needs of various buyers since its formation time and historically such alignment continued over decades with minor tweaks as per market demand. The regulatory frameworks were built around an industry structure to protect the interest of buyers and encourage healthy competitions in the marketplace.

Today, the insurance industry has reached the multi trillion dollar in size globally and it is one of the key contributors for every economy serving billions of people in the world. Although there a few handful insurance companies that offer personal, life, annuities, disability, health and other range of insurance products for its customers, such products are typically sold either as separate policies or different business lines under a different legal entity or divisions in a fragmented manner. The overall market is fragmented today in terms of serving the customer holistically. And this is a great opportunity for the insurance industry in offering converged insurance to its buyers.

See also: Model for Collaboration and Convergence  

Why worry about it now? It is an opportunity that cannot be ignored!

Today, every individual or corporate buyer cares for the insurance. It is different thing that many lack understanding of insurance products, few find them too complex to understand and many think companies are not selling or offering the right products for their needs. However, this issue is more related to customer education or awareness and can be addressed.

It is very likely that within a family or household, you may find a minimum of 3 or more different policies for personal, life insurance and healthcare needs that are purchased from different insurance companies. This is definitely a missed opportunity for many insurance companies and shows the poor state of the industry in not serving the customer holistically for their basic insurance needs. The question is not about whether the buyer understand insurance or not, but more about whether insurance companies offer adequate products catering to common/generic needs of buyers. Few people may cite regulatory hurdle, licensing challenges, underwriting/actuarial complexities and operating models as potential bottlenecks in adoption of converged insurance, however such doubts may become irrelevant in case the market start maturing or your competitor’s starts moving in that direction or customers start demanding such converged insurance. It is the time to assess the demand holistically, assess market future demand and measure customer feedback and inputs.

Product bundling as a strategy is certainly good for competitive advantage

Within a household, if we assess the personal lines insurance products that are purchased, one may mostly find that auto insurance is being bought from one insurance company, homeowners from another and travel insurance from different insurance company.

The product bundling is a good opportunity not just within a segment (e.g. Personal insurance within P&C) but it makes more sense to bundle products across various insurance segments (e.g. P&C, Life, Healthcare) to serve the customer needs. And there are many successful companies today, who have been doing it with very positive results consistently. State Farm, Progressive, Liberty Mutual are a few good examples who have attained market leadership position in personal insurance in the United States by offering bundled Auto and home products for its customers for quite some time. Nationwide Insurance has been helping customers with bundling Auto, Life and Home products. Similarly, there many other leading brands globally who have been benefitting from product bundling. For example, in the UK, the market leader Aviva is the first mover this year (2017) in offering the converged insurance and made a formal commitment by merging its General, Life and Health insurance business units across the organization to offer simple, convenient and improved value service to its customers. The shift towards converged insurance is just starting in the marketplace and not very far to hit the industry in a big way.

Convergence of products is becoming more critical in today’s digital age

In today’s digital age, customers are inclined towards digital products that can be purchased seamlessly with ease with some initial research. If the brand is strong and insurance product(s) offer adequate value at affordable price, customers mostly would prefer to buy it from the same insurance company. The days are not very far when many insurers will adopt “one-stop-shop” strategy for serving customer in the new digital age by offering converged insurance products.

It is the right time for insurance companies to start preparing for the new converged world, develop cross functional capabilities, identify changes required in processes, operating model and develop platforms that caters to the needs of the new digital world. Emerging Technologies definitely play a critical role in shaping the new converged digital ecosystem. It also offers an opportunity for IT players, software vendors and insurtech companies develop fit for purpose solutions that can address the need of the new digital and converged insurance economy.

See also: Convergence: Insurance in 2017  

Avoid market distractions: Focus on core capabilities and customer Centricity

Many insurance companies today are concerned about the disruptions in the industry. The influence of emerging technologies, insurtech and sluggish growth are adding to the anxiety of insurers globally. While many insurers are focusing on digital themes today trying to keep pace with digital technologies, few are unknowingly tilting themselves away from their focus for core capabilities. Underwriting, risk management, claims management and customer Service are the core capabilities of any insurance company and they must continually refine, invest and improve these areas irrespective of the state or direction of technologies for its competitive advantage and market leadership. The technology investments and core capabilities, investment must be detached. Any trade off here is harmful in the long term for insurance companies.

In today’s digital age, convergence of insurance is an opportunity for insurers to address the fragmented products and services landscape. Convergence of insurance is inevitable. The market shifts had just started and customer will drive the next wave of convergence for the insurance industry. Are you ready to be part of the industrial transformation? It is right time to think about it as a long term business strategy and distinctive tool for competitive advantage.

Reshaping Insurance Via ‘Convergence’

The world is at an inflection point, with emerging technologies poised to change every aspect of our lives and businesses. Exactly how each industry will be transformed and how insurance will be affected is difficult to predict. However, a number of key trends are gaining prominence, and the implications for insurance are so significant that they bear close watching. SMA’s recently released research report, 2017 Emerging Tech Landscape: Implications for Insurance, identifies those key trends and discusses the developments in eight emerging technologies that have big repercussions for insurance. Two trends, in particular, warrant special consideration:

Objects are moving from smart to intelligent.

The initial phases of “smart” saw many objects becoming smart and connected, such that their activity and the environment around them could be monitored and measured. Now, more things of the IoT are leveraging artificial intelligence to make recommendations and even to make decisions and take actions autonomously. This is true of vehicles, homes/buildings, wearables and many other areas.

Convergence: Insurance in 2017  

Convergence drives value.

The combination, or convergence, of multiple technologies, both new and old, is now underway in a quest to create new value for customers. Technologies such as the IoT, AI, mobile and cloud are being integrated in new ways to provide solutions to the problems of individuals and businesses.

Many emerging technologies are advancing so rapidly that keeping track of them all is a full-time job. The sheer number of companies, products and solutions based on emerging tech that are materializing every day is staggering.

These advancements and announcements will affect insurance in one of three primary ways. Some will enable operational efficiencies and processes, such as artificial intelligence, drones and blockchain. Others will offer new options for rethinking the customer’s experience. Wearables, the IoT and new payment technologies are examples of tech with important implications for customers.

The third manner in which emerging tech will alter insurance will be to change the very nature of risk. Many of these new technologies have great potential to reduce risks of all types for all lines of business. Alternatively, new risks are being introduced, some of which are visible and predictable, while others will be unexpected. Autonomous vehicles come to mind as an area with tremendous promise to reduce accidents. Robotics and wearables can also help remove individuals from unsafe environments or allow for rapid reaction when disaster strikes.

See also: The Great AI Race in Insurance Innovation

The insurance industry is not sitting idly by and watching these changes unfold. Insurers are investing, partnering, piloting, reorganizing and launching initiatives at a pace that is unprecedented in the industry. For example, 41% of insurers say they are actively pursuing partnerships outside the traditional industry boundaries. Innovation initiatives are widespread and have almost become table stakes. The industry is at the front edge of a major transformation, and emerging technologies are a big factor in driving and shaping the change that is underway.

Don’t Be Distracted by Driverless Cars

Because of the arrival of autonomous vehicles, a good number of prognosticators are loudly heralding the end of auto insurance and the insurers that rely on this income stream. While there is no doubt that the auto insurance will change over time because of autonomous vehicles, the doomsday folks paint a picture of an almost certain — and right-around-the-corner — cataclysmic change, with the general population cheering wildly about not having to pay for auto insurance anymore.

Disappointingly for those people, this is a highly unlikely scenario.

At the most fundamental level, autonomous vehicles are expensive. Until the bulk of the population can afford autonomous cars and trucks, we will be living in a world with a foot on each side of the driving paradigm. This means that, while the autonomous vehicle might not hit the car in front of it, the vehicle behind it may very well end up in its back seat. Uninsured and underinsured coverage, comprehensive coverage, coverage for property damage and liability coverage will be needed for a long, long time.

See also: Connected Vehicles Can Improve Claims  

In the meantime, auto insurers will have the opportunity to work out the liability paths with the autonomous auto manufacturers. And auto insurers will have the time to adjust their product mixes and financials. Underwriters and claims personnel will adjust processes and practices. Believe me, I am not suggesting that change won’t happen. It will. And some of the changes will be painful from several perspectives. But with all the various factors potentially reining in the spread of autonomous vehicles — cost, regulators, consumer wariness — insurers will adjust. At least the insurers that believe in innovation and data and analytics will adjust — and flourish.

What people are not focusing on is the rapid change in the products and services that are coming from the convergence of emerging technologies — and this is happening right now. Take a quick perusal of the topics in SMA’s Next-Gen Innovation Community, and some examples come to light:

  • To diagnose a rare genetic disorder, a physician combined an exomes analysis with a facial comparison using an app called Face2Gene, which was developed by the same programmers who taught Facebook to find your face in your friends’ photos.
  • To reduce manufacturing times and production periods, Adidas will use 3D printing or additive manufacturing methods as the core technology of its factory that produces sneakers.
  • The use of “cobots” — collaborative robots that perform tasks alongside humans — is rapidly gaining popularity, and it is the fastest-growing segment of the U.S. robotics industry.
  • The global semiconductor industry is pushing to develop new chip designs, materials and manufacturing processes. One reason is the widening use of the artificial-intelligence technique known as deep learning in products — both consumer and manufacturing products.

Additional examples could consume volumes of space. But what does this convergence mean for the insurance industry? It means unknown risk and unknown liability.

Unlike the autonomous vehicle world, where underwriters and claims adjusters understand the general risk and liability landscape, the convergence of emerging technology is generating significant numbers of unknowns. Relationships between the unknown risks and liabilities will be the most challenging.

The insurance industry should not be as concerned about the impact of autonomous vehicles as it should be about what is happening now in the rapidly changing world of products and services because of the effects of emerging technologies. Underwriters and claims personnel must be supported by sophisticated data and analytics capabilities using AI, machine learning and cognitive computing (pick your favorite advanced tool!)  because risk and liability will not be in the same forms as are currently familiar to insurance professionals.

See also: Autonomous Car Tech Reaches Mid-Market  

There are a lot of reasons that insurers will not look the same in five to seven years. Core modernization, digital capabilities and, yes, autonomous vehicles will generate change. But the halls of successful insurers will not be empty. They will be filled with technical experts in product liability, D&O, E&O, cyber and medical malpractice — to name but a few product lines that will have the ability to rapidly respond to a risk and liability landscape that didn’t exist  in their wildest imaginations two to three years ago.

Insurers that are not preparing themselves for this eventuality will fail.

Convergence: Insurance in 2017

Convergence is emerging as the key theme for 2017.

As insurers continue major initiatives, launch new ones and respond to the external forces acting on the industry, the strategies are increasingly overlapping and becoming mutually dependent. On one hand, traditional challenges and related strategies are not going away. Insurers have a business to run every day — the management of their products in the market, customers requiring service and regulators and shareholders/members monitoring progress. On the other hand, the digital, connected world is full of new opportunities, but at the same time gives rise to some new and credible threats. Insurtech, emerging technologies and innovative products and business models create more pressure to change but also produce new ways to compete and generate new strategic initiatives.

The insurance industry is in the throes of transformation, with almost half of North American insurers stating that their companies are in transformation mode. At the same time, many are realizing that the pace of change within their companies is not matching the pace outside their company. Customer expectations, the digital world, emerging technologies and the disruption of other industries are putting more pressure on insurers to rethink and reposition their businesses. Interestingly, customer expectations have now been elevated to the point of becoming the number one driver of technology investments.

See also: CES2017: Cool Stuff, Insurance Implications  

One of the key findings of our recent research on strategic initiatives for 2017 is that digital is gaining more momentum than any of the 16 initiatives we have been tracking. Strategies to become a digital insurer have now reached a high penetration in the industry, with 72% of insurers now claiming that they have this initiative underway.

Another set of findings is that traditional initiatives, such as enterprise data/analytics and customer experience, continue to be highly important, while new initiatives such as insurtech investments, digital distribution ventures and greenfield insurers are starting to pick up. These initiatives do not occur in isolation; in fact, there are significant dependencies among the initiatives. Thus, the reshaping of the industry is more likely to be the result of blending the best of the old with the best of the new. This is the notion of convergence.

While tackling 16 major enterprise initiatives seems daunting for an individual company, each insurer will identify a subset that will be most important for them. Almost all the initiatives will have some role, but the priorities will differ based on current market position, business strategy, resources and funding. One way to prepare for the future is to create plans to address foundational capabilities. SMA has defined seven bridges to the future, or initiatives that represent pathways upon which insurers can build transformation strategies critical to becoming a Next-Gen Insurer, such as Go Digital, Major in Data and Analytics and Operationalize Customer Experience.

More information on these seven bridges can be found in SMA’s research report, Insurance in Transformation: Building 7 Bridges to the Future.

See also: 5 Topics to Add to Your List for 2017  

For insights on insurer plans and strategies for the 16 strategic initiatives, see the recently released report, Insurers’ 2017 Strategic Initiatives: The Convergence of Traditional and New Initiatives.