Tag Archives: digital age

The End of an Age in Insurance

Hundreds of millions of years ago, Pangaea was a supercontinent formation now commonly explained in terms of plate tectonics.  It began to break apart in three major phases, but at different times.  During this breakup, some species survived, and others struggled. This breakup reset the world.  It reorganized the continents, oceans and seaways that subsequently altered the cooling and heating of land and ocean. And it influenced five major mass extinction events, which resulted in significant loss of marine and terrestrial species. It disrupted the world, while creating a new one that would ultimately shape the future. We recognize this as pre- and post continental split.

How does this history lesson relate to insurance?  We are exiting the pre-digital age and entering a post-digital environment where survival will be measured by rapid adaptability. The digital age represents a seismic shift in the insurance industry, due to the converging “tectonic plates” of people, technology and market boundary changes that are disrupting and redefining the world, industries and businesses including insurance. As we outlined in our report, Future Trends 2017:  The Shift Gains Momentum, the shift is realigning fundamental elements of business that would take more than minor adjustments to survive, let alone succeed.

See also: 3 Ways to Leverage Digital Innovation  

Just like the tectonic shift millions of years ago that separated the two great continents, we are seeing a similar shift due to the digital age that is pushing a sometimes slow-to-adapt industry by challenging the traditional business assumptions, operations, processes and products. The shift is separating the continents of insurance into two distinctively different business models. The business models of the past 50-plus years (based on the business assumptions, products, processes and channels of the Silent and Baby Boomer generations) will soon be an ocean away from the business models of the next generation (including the Millennials and Gen Z, as well as many in Gen X). To avoid extinction on a pre-digital island, the business models of the past will need to quickly chart a course toward next-generation expectations.

It requires a new business paradigm. We must redefine and re-envision insurance, embracing business components that work in the new context of people, technology and market boundaries and discarding the pieces that are outmoded or irrelevant. Most organizations can’t simply flip off their pre-digital switch (traditional business model and products administered on traditional systems) and flip on their digital age model (new services and products on modern, flexible systems that will handle digital integration and better data acquisition and analysis). So, the shift will require steps. Those steps will operate as both a bridge and a proving ground, while the traditional system is still operational as a firm foundation and the new foundation is being constructed. The steps are active and continuing, and they overlap.

  1. Keep and grow the existing business, while transforming and building the new business.

This is crucial. Marketing and distribution should not pull back from traditional business in anticipation of the launch of new business models, new products or new channels. Insurers cannot stop pushing for more business of a particular type until or unless new products clearly nudge them out of existence. The current business is funding the future and needs to be kept running efficiently and effectively as the market shifts.

  1. Optimize the existing business while building the new business.

A customer engagement improvement is ALWAYS an improvement. If an organization’s teams have been working toward placing digital front ends on the traditional business to engage customers, they shouldn’t stop in the middle of the bridge. Any process that can be optimized on the traditional side will help to maximize the existing business, reduce the cost of doing business and provide a bridge from the past to the future while beginning to enable realignment of resources and investment into the new business. These are very often the incremental changes that will also gently shift the customer base through new ways of doing business.

  1. Develop a new business model for a new generation of buyers.

Some insurers have made the mistake of envisioning their digital front end as their big leap into the future, not realizing that they have only just touched the new landscape. They need a strategy for a new business model that supports simultaneous leaps forward that will create new customer engagement experiences underpinned by innovative products and services. This will create growth, competitive differentiation and success in a fast-changing market dynamic.

Speeding Into the Digital Age

Over the past year, the renaissance of insurance gained momentum due to the convergence of multiple factors or “tectonic plates” that are redefining insurance. The interaction between people, technology and market boundary changes are disrupting the world, industries and businesses that insurance serves. We have seen the introduction of new products, the establishment of new channels, the offering of new services, the launching of new business models and much more. These events have created disruption and opportunity for insurers.

See also: The Key to Digital Innovation Success  

It is a new age of insurance — a digital age. Each and every day, insurers must recommit to their business strategies and their renaissance journeys. They must avoid falling into an operational trap or resorting to traditional thinking. The appetite for traditional multi-year, multimillion-dollar, on-premise custom configurations has waned, all while new competitors, new business models and new products are being launched to the market in a fraction of the time and cost. In this new age of insurance, the focus is on speed to value including:

  • Speed to implementation – get up and running in weeks or a few months versus years
  • Speed to market – rapidly develop and launch new products with ready to use rules and tools
  • Speed to revenue – rapidly enable business growth with minimal upfront cost

Building these new business models will continue to intensify.  Majesco is increasingly working with existing insurers and reinsurers who are taking new paths to capture the next generation of customers and position themselves for growth and sustainable agility across the new insurance landscape. Because new competitors don’t play by the traditional rules of the past, insurers need to be a part of rewriting the rules for the future. There is less risk in a game where you write the rules.

Will you be stranded on pre-digital island in a sea of change?  Or will you join the game?

The Insurance Renaissance, Part 2

A few weeks ago, in our opening blog series on the Insurance Renaissance, we discussed how the climate of change we saw in the Renaissance of the 1400s holds lessons for the current state of insurance. In both periods, we see the epicenters of change and innovation.

For insurers, the Renaissance is more than an analogy. It represents a real pattern of cultural shift with insurance business implications. Its hallmarks are now repeating themselves. For example, today we see digital use and globalization as potent business drivers. If global barriers to communication hadn’t fallen, and new technologies hadn’t become so prevalent, it is unlikely that we would be in the midst of such groundbreaking change. The lowering of barriers during the Renaissance brought about similar change.

During its beginnings, Florence was in the midst of a trading boom that brought new money, goods and ideas into the region from Western Europe, Greece, Arabia, Egypt, Persia and China. Banks grew. Florence became the financial center of Italy and the broader region. Trade routes reduced provincial barriers. Shipping improved. A system of insurance was even in practice, protecting Italian cargoes on their voyages as early as 1300.

These cultural crossings (networks!) resulted in leaps forward in art and science. Ideas were currency just as important as textiles and spices. Innovations in practical sciences, such as mathematics and architecture, benefited from broader thinking. It was funded and driven by the new wealthy — a trading class that hadn’t previously existed in quite the same way. Today, we are seeing a similar influx of money and a new class of insurance technology investment. The Sydney Morning Herald, covering a report on disruption by PwC, recently stated it this way:

“The insurance industry has largely remained the same in the past 100 years, but the sector is in for its biggest shakeup as investors continue to pump billions of dollars into ‘insurtech,’ fueling sweeping changes through technology.

“Insurance is the second-most disrupted industry today thanks to a growing number of start-ups and technology companies eyeing slices of the insurance pie.”

So, where insurers previously may have had great ideas, they now have ideas + technology (InsurTech) + financial resources + people/talent to pursue their ideas. At the same time, with no barriers to access, no legacy systems to hold them back and access to robust insurance cloud platforms, start-ups and greenfields from within and outside the industry are becoming new, innovative players. For organizations that wish to remain competitive, the questions then become:

How do we adapt with ease to the change and disruption?
Can we reimagine the possibilities of doing things differently?
What do we need to do technologically to seize the opportunities in a shifting market?

The new pursuit of agility, innovation and speed

Business innovation and digital readiness is a real, palpable, bankable asset. Organizations that plan to fuel their own growth, create partnerships and generate innovative products need to quickly consider and shift gears to transform to the digital age, highlighted in our Future Trends: A Seismic Shift Underway report. Simplifying environments to bring consumers closer to service and closer to the point of sale will help. Modernizing environments to generate and test products faster is vital. Transforming business operations, using data for continual improvement and opening every available channel are goals worth setting. To thrive, large or small, the new organization needs agility so that it can quickly capitalize on the innovative ideas found by mixing itself in the marketplace.

Insurance, once somewhat isolated, is now becoming part of the digital mix. Like adding an Indian voice track to a French pop tune with a rap beat, the results can be pretty hip. Where can insurers find inspiration in the cross-industry digital mix? How do they spontaneously get inspired?

The short answer is, “Look around.” But the real answer is, “Look nearly anywhere, and you will find innovation.” Genius moments happen most often in environments where groups of people are in touch with industries, geographies, technologies and groups outside of their own environments. Those groups include, of course, consumers. Looking at consumer purchase patterns across all industries will give insurers a new view of how to reach them.

For example, recent Google research found that nearly 20% of smartphone users research or purchase products while they are in bed in the morning or evening. Mix this fact with the idea that consumers are also looking for multiple quotes and good information on insurers and you can understand how mobile-ready aggregators (such as PolicyGenius) are on the rise.

Urbanites who seldom drive don’t want to pay high auto premiums. They might rather opt out of driving altogether. Mix that trend with telematics capabilities, and a pay-per-mile insurance product (such as MetroMile) makes tremendous sense. It doesn’t take real genius to see genius opportunities. It just takes time spent observing customer and market trends and marrying those trends to technological capabilities.

Customers are also increasingly moving their retail purchases to online purchases. That’s great news for insurers who have never been terrifically suited for retail-type sales anyway. What insurers need is face time at the right time, when someone recognizes his or her need for it. Hence, we see insurers increasingly partnering with companies that can buy them face time with products that match up with timely needs. Digital capabilities, integrated data capabilities and agile administration will all assist insurers as they reach into the mix to find their unique niche of opportunities. The same InsurTech that is causing the formation of insurance start-ups and is funded by venture capital is available to traditional insurers. In many or most cases, established insurers are in a better position to capitalize on it by simply prioritizing their need for innovation — deciding that their organizations will be centers of innovation.

See Also: The 5 Charts on Insurance Disruption

Insurers can tap into further ideas by looking at product trends in foreign countries, tapping into the expertise of technology partners, working cooperatively with universities to hold innovation days, partnering with companies outside the industry like automotive, retail and more and spending concerted time looking at the road ahead. In all these cases, insurers will find innovative encouragement by inviting ideas from outside the organization to transform the culture and ultimately the business. After all, it is the Renaissance within each individual insurance company that will provide innovation, excitement and opportunity to compete. So pursue agility, innovation and speed … and join the Insurance Renaissance rapidly unfolding.

10 Reasons to Innovate — NOW!

We’re busy gearing up for the annual SMA Summit, where innovation will take center stage. In the spirit of the summit, I started to gather some inescapable facts that could inspire us all to innovate and improve – to truly become the Next-Gen Insurer. But, rather than peddle the same old innovation benefits and business rationale, I thought it would be refreshing to share 10 facts about change and innovation that will directly affect insurance and that may inspire you, surprise you or reinforce why you should be continuously improving by reimagining and reinventing the business of insurance!

  1. Younger generations like Millennials and Generation Z are going to be the biggest consumers in the market in five to 10 years. Make sure you can reach them. They will not use paper applications or have a face-to-face meeting, but they will be searching for options from their phones and cars. A typical mobile user checks her phone more than 100 times a day (Marketing to Millennials).
  2. Innovative workplaces attract the best and brightest talent. Today, word of a stale, outdated work environment spreads fast. Don’t be one of those employers. Invest in talent, but also invest in your infrastructure and creating an innovative workplace (How Great Companies Attract Top Talent).
  3. A majority of insurers (65%) have focused on innovation for five years or less. You aren’t alone, and, surprisingly, you probably aren’t far behind. With the right focus, you can make remarkable strides in a short amount of time (SMA Research: Innovation in Insurance: Expanding Focus and Growing Momentum).
  4. 80% of all crowdsourcing is done by small business and start-ups. Embrace the crowd! It is often the most cost-effective way to generate ideas. Big business loves the crowd, too. Just look at McDonald’s crowdsourced burger or Apple’s crowdsourced mapping tools (Crowdsourcing: Great For Your Business).
  5. The amount of stored data doubles every 24 months. The U.S. Census estimates that the population has grown more than 27% in the last two decades. Changing demographics, aging citizens and diverse populations are changing the face of data accessible to insurers. To stay on top of the situation, you need a data and analytics strategy that makes the most of the new data available (Vernon Turner).
  6. Wearable devices have grown 200% every month since 2012. This doesn’t mean that wearables won’t eventually be replaced by something else or evolve. It does mean that wearables are growing so fast that it makes sense to try to tap into some of that innovation and apply it to your own organization, your processes or even your products (2013 Internet Trends).
  7. It is six to seven times more expensive to acquire new customers than it is to keep existing ones. One risk of not innovating is that you may start losing customers who can find better, easier-to-use insurance options. Studying consumer behavior might be the best indicator of market trends and areas to innovate. Don’t lose renewals because you haven’t kept up with market demands (15 Statistics That Should Change the Business World But Haven’t).
  8. More than 40% of the companies at the top of the Fortune 500 list in 2000 were not on the list in 2010. The digital age shuttered many long-standing businesses. Some experts think that, in the next decade, businesses that do not embrace innovation or adapt to market demands will suffer the same fate. Insurance is not immune to this phenomenon. Today, everything is connected (Sorry We’re Closed: The Rise of Digital Darwinism).
  9. Just 10% of cars were connected to the internet in 2012, but by 2020 it is estimated that 90% will be. It is amazing to think of how quickly we are witnessing innovation expand. What was once an outlier is now a standard (Amazing Facts Everyone Should Know About the Internet of Things).
  10. Internet of Things (IoT) technology has the potential to add $10 to $15 trillion to global GDP over the next 20 years. Like the connected car, IoT will eventually become standard. What insurers do with the new data available and the amazing growth potential will ultimately make or break them (Internet of Things Market Statistics-2015).

These facts are inescapable. Not only is innovation here, but the statistics are astounding. The time to embrace innovation and become the Next-Generation Insurer is now.

Spending on Agents Beats Spending on Ads

A recent research report published by Cliff Gallant and Matthew Rohrmann of Nomura Equity Research concludes that spending on advertising beats spending on insurance agents.  Once again, Wall Street gets it wrong.

Their logic is flawed. The authors choose to focus only on advertising spending in 2013 and limit their analysis to the top-10 auto insurers. They then compare the advertising spending to premium growth that year. Because GEICO spent the most on advertising and had the largest premium growth, the authors conclude that advertising beats spending on agents.

But one year of advertising spending does not account for GEICO’s 2013 premium growth. The company has spent decades building its brand awareness. Since the mid-1990s, GEICO has spent billions of dollars to become top of mind as the company to consider if you want to purchase cheap auto insurance (a.k.a., “1-800-cheap insurance”). If GEICO stopped advertising, its growth would stop because it has almost no other way to reach the consumer (“almost” because even the king of direct-response insurance has 150 insurance-agent locations.)

Instead, other important factors account for GEICO’s performance in 2013: namely, its strategy to grow premium even if unprofitably. GEICO can afford to grow unprofitably because its owner, Berkshire Hathaway, is more interested in generating funds to invest than in consistent profits. In 2011, for example, GEICO saw its profits plunge 48% while its advertising costs increased 9.4%.

A better way to evaluate whether to advertise or invest in agents is to look at the costs of acquiring and retaining customers.

While GEICO scores high in initial consideration, it lands in the middle of the pack when it comes to the actual insurance purchase, according to the McKinsey 2012 Auto Insurance Customer Insights Report. It costs GEICO relatively little to get a consumer to make an inquiry, but a lot more to have someone buy a policy. And agent-oriented insurers score much higher in retention than GEICO and other direct-to-consumer auto insurance companies do, according to the McKinsey report.

The high retention numbers for agent-based insurance companies demonstrate that companies that underinvest in their agents do so at their own peril. Local agents build long-term relationships with consumers. Advertising doesn’t.

With the advent of the Digital Age, companies can generate bigger returns on their investment in agents. This goes against conventional wisdom. However, cloud computing, digital marketing, and social media let agents compete against the industry’s “brand behemoths” in their local community. Forward-thinking insurance companies are designing programs for their agents to leverage these new capabilities. These companies are finding they get a much bigger return on investment than with traditional advertising spending.

Consumers want choice today, and they expect to do business with companies that can provide a multi-channel experience. A local agent whom a consumer can visit, call or access via a website provides the experience that today’s consumer demands.

Insurers that focus on investing in their agent distribution channel will win. Pressure on companies to increase their advertising led to the insurance advertising wars of the last decade, and many companies diverted dollars from their agents to pay for increasing their advertising. But that trend appears to be changing as companies realize the power of agent-based distribution in today’s auto insurance market. For example, Allstate recently announced a renewed commitment to grow its agency distribution channel after years of neglect.

A strong agent-based distribution channel creates a long-lasting and compelling strategic advantage. Blindly ramping up the ad budget is a simplistic, ineffective solution. Spending on ads just creates an indistinguishable commodity product where price and a cute mascot are the only differentiators.