Tag Archives: disruptor

Bigger Disruptor: Lemonade or Tesla?

I’ve never been a big fan of the term “disruption.” I believe that a majority of insurance startups are partnering with incumbents to enable industry transformation and are catalysts for change, to be sure. But few are truly turning the industry on its head.

For instance, Lemonade is a startup that, since its inception, has positioned itself as a disruptor. The slogan is still, “Forget Everything You Know About Insurance.” The constant marketing drumbeat from the company has emphasized its different approach and has focused on appealing to millennials. And, with the recent spectacular IPO, Lemonade has the attention of the insurance world. I believe Lemonade has been very good for the industry (and it has certainly been good for the founders). But I think that Tesla has the potential to be even more of a disruptor in the long run.

This might seem an odd assertion, given that Tesla has heretofore only dipped its toe in the insurance waters, and Lemonade is four years old and on a roll. At this stage, Tesla is only a year into the California auto market as a broker backed by State National (a Markel company), with mixed results. But what has caught my attention is Elon Musk’s callout to insurance actuaries – inviting them to join Tesla to create a “revolutionary” insurance company. You don’t go on a hiring spree of actuaries if you plan to be just a distribution player. Now, on the surface, it might seem strange that insurance would be of interest to Elon Musk. To illustrate, let’s play the Sesame Street game, “Which one of these things is not like the other?”

Space exploration…Autonomous vehicles…Hyperloop travel…Battery Gigafactory…Insurance.

The answer is obvious – does insurance really have the potential to transform the world like these other ventures? Maybe not, but insurance is undoubtedly an enabler of these revolutionary advances and an essential foundation of the economy. And there is actually great potential to “revolutionize” insurance and make a lot of money in the process.

Back to the Lemonade/Tesla discussion. Starting an insurance carrier is a long play. Lemonade, with all its success, is only a small blip in the industry financial picture. Renters and pet insurance are nice businesses, but they will always be secondary lines. Lemonade has also entered homeowners, so there is much more potential there. But now they have to contend with the likes of Hippo, not just the State Farms and Allstates of the world. At SMA, we consider insurers with premiums of over $5 billion to be Tier 1. Lemonade may become a Tier 1 insurer someday, but likely not for years.

See also: COVID: How Carriers Can Recover

On the other hand, let’s consider Tesla’s prospects. Tesla is not the first auto insurance company to enter insurance and try bundling. Others have taken this approach, and, especially those in the autonomous vehicle game, have announced plans for insurance. Most still partner with an insurance company as underwriter. This has been Tesla’s initial approach, as well. Now, with stated plans to build an insurance company, the calculus changes.

Imagine yourself as a brilliant young actuary – wouldn’t it be cool to sign on with visionary Elon Musk and help rethink insurance? For that matter, it won’t stop at actuaries – other industry professionals are sure to be recruited for this venture. Underwriters (if Musk has them), adjusters, loss control engineers and others will probably join. Now, that is no guarantee of success … and the same long play dynamics will apply to Tesla as Lemonade. However, Tesla has some unique advantages. First, it has a well-respected, established brand. Secondly, it has the underlying assets that will be insured – the electric/autonomous vehicles. Third, it has the track record and energy of Musk and his enterprise.

Of course, this is all speculation – Tesla may not go full bore into insurance, and, if it does, it may not succeed for various reasons. But I, for one, would not bet against Elon Musk. 

Postscript: This blog sets up a discussion about two prominent players. There are certainly others that could be big disruptors for insurance. Three companies come to mind and have been the subject of prior SMA discussions: Root, Hippo and Munich Re. Root has shown the most impressive growth among the full-stack insurer entrants and has significant future potential as it moves into other lines and other states. Hippo has built an impressive ecosystem and a unique approach for homeowners insurance. And SMA is on record as saying that Munich Re may be the ultimate disruptor as it explores new business models, new products and broadly invests in insurtech. 

Traditional Insurance Is Dying

Finance. Taxis. Television. Medicine. What do these have in common?

They’re all on the long–and growing–list of industries being turned upside down by disruptive technology. 

The examples are legion. Once-sure-bet investments like taxicab medallions are at risk of going underwater. Bitcoin is giving consumers the power to bypass banks. Traditional television is at risk from online streaming.

Insurance Is No Different

In fact, innovative players have been disrupting the insurance market since before “disruption” was the buzzword it is today. 

Look at Esurance, which in 1999 rode the dot-com wave to success as the first insurance company to operate exclusively online. No forms, no policy mailers–it didn’t even mail paper bills.

By going paperless, Esurance told customers that it was the kind of company that cared about their preferences–and established itself as a unique player in an industry that places a premium on tradition. Insurance isn’t known for being innovative. 

Most insurance leaders operate under the assumption that if it ain’t broke, you shouldn’t fix it. And in a heavily regulated industry, that’s not totally unreasonable. 

But you only have to look at the scrappy start-ups that are taking down long-established players to understand what awaits the companies that aren’t willing to innovate.

Thinking Outside the Box

Take Time Warner–profit fell 7.2% last quarter as industry analysts foretold “the death of TV.” Meanwhile, Netflix’s profits are soaring beyond expectations–even as the risks it takes don’t always pan out. 

Remember the “Marco Polo” series that cost a reported $90 million? Neither does anyone else. But for every “Marco Polo” there’s an “Orange Is the New Black.” Highly successful programs on a subscription model show that Netflix’s willingness to take risks is carrying it past industry juggernauts.

The market is changing–and if you want to stay competitive, you need to use every weapon in your arsenal. Millennials aren’t buying insurance at the rate their parents did

To a consumer population weaned on technology like Uber and Venmo, the insurance industry seems positively antiquated. Facebook can advertise to you the brand of shoes you like–so your insurance company should be able to offer a product that you actually want.

The Information Importance

According to Accenture, “Regulated industries are especially vulnerable” to incumbents. When there are barriers to entry based on licensing requirements or fees, competition is lower. Decreased competition, in turn, leads to less incentive to innovate. This can leave regulated industries, such as insurance, healthcare and finance, in a highly vulnerable position when another company figures out a way to improve their offerings.

Other attributes that can make an industry vulnerable, per Accenture’s findings, can include:

  • Narrow focus: If a brand focuses entirely on cost savings, convenience or innovation, it isn’t effectively covering its bases. A disruptor that manages to offer two or three of these factors instead of just one has a near-immediate advantage.
  • Small scope or targets: Failing to expand offerings to all demographics can mean that industries or service providers aren’t able to replicate the broad reach of disruptors.
  • Failing to innovate: Disruptors don’t always get their product right on the very first try. Companies must innovate continuously and figure out ways to build continuous improvement into their business model.

Tech start-ups use information as an asset. How can you tell if information is a valuable weapon in the battle you’re fighting? 

“Big data” isn’t just a buzzword; industry analysts are calling it the wave of the future. At Citi, they’re talking about “the feed”: a real-time data stream that leverages the Internet of Things to reshape risk management. 

Auto insurers are turning to connected cars to let them reward safe drivers. Some life insurers are even offering discounts to customers who wear activity trackers.

It Can Happen to You

For most insurance companies, incorporating an unknown element into the way they operate is daunting. 

But talk to any cab driver, grocery store clerk or travel agent, and they’ll tell you that the only way to survive in a technology-driven world is to innovate.

Look at the insurance technology market to see what improvements you can incorporate into your organization, and think expansively about how you can use information: for agency management, to attract new customers and retain old ones, to expand your profit margins or to streamline operating costs. 

Your survival depends on it.

Why Insurance WILL Be Disrupted

As it’s Pantomime season, can I start this with “Oh, Yes It Will”? (For those not familiar with Pantomime, check out some of the history here.)

I write in response to a great post from Nick Lamparelli on why insurance will not be disrupted (here). He takes a really interesting position. But I sit on the other side of the fence and believe insurance will, is and can be disrupted.

In answer to Nick’s six points as to why insurance will NOT be disrupted, here’s my perspective:

1. He writes: “At the core, insurance customers are leasing the potential to access capital…. How do you make a big pile of money irrelevant?” But this will vary from line of business to line of business. Where there are person-to-person (P2P) and other self-insurance approaches, why do I need capital? I will self-insure.

2. He writes: “Peer-to-peer providers just won’t be able to get sufficient scale to efficiently use capital to cover risk.” But isn’t this more about how they enable distribution and connections and pools of risk?

3. He writes: “IoT [Internet of Things] devices [and other new technologies] will slowly be adopted by most insurers as they look to get competitive edges, but the follow-the-leader paradigm of the industry will mean that any edge will disappear quickly, and we will all be running hard just to stay in place. These technologies are impressive. I would classify them as a solid innovations to the industry, but not disruptive.” I agree on this – it’s more evolution, not revolution. The revolution comes if the carriers actually do something with the technologies and create better products that are truly personalized. Note that we are still thinking in a product mindset, and I suspect this will change.

4. He writes: “I think State Farm and large auto insurers like them will be just fine, and technologies such as autonomous vehicles will be more of an annoyance than an existential threat.” Like Nick, I think there will be evolution. But I think the change with autonomous vehicles is not only to move from personal insurance to product liability (or a mix with a flex of product and personal liability, e.g. the manufacturer will provide the base layer of cover, but after that you have the flex options to add extras). To me, the issue is more about distribution of the product. I envisage that next you will buy insurance to cover a journey, instead of buying insurance once a year through a price comparison/aggregator site. Equally, the big auto insurance carriers Nick mentions will need to look for new sources of income and value-added services, be it breakdown or otherwise to drive revenue and profit. I suspect these will be more often from outside our standard world. The car will be the most connected thing we engage with, and that alone brings a whole host of exciting opportunity. If we do go for autonomous cars in scale and get them right, then the disruption could be that product liability (PL) dramatically reduces to being a capacity provider only to a new distribution channel (auto providers?). Or the CL carriers and reinsurance providers actually take prominence (higher likelihood in my view).

5. He writes that regulators could stomp on innovation. This is a tough one, but I think the consumer will always win. Regulators’ views will be driven by what’s best for the customer. Equally, smaller, nimbler insurers that can turn on a dime will be better-equipped to manage through regulation changes, as opposed to large, legacy-laden carriers that will be too slow to react and catch any positive outcome.

6. He writes that there is very little that technology can do to disrupt insurance for natural catastrophes, which is his area of expertise. I reply: OK, you win. Not many seem to be tackling this, if any at all. However, how we manage in advance, or the ensuing events, how we handle the supply chain and how we treat return to pre-loss will improve, again as natural evolution rather than as disruption. You could argue that crop insurance has changed dramatically over the years with better weather data. Some pay out proactively based on weather data, without ever the need for a claim. This to me is revolutionary and goes back to the point that customers come first.

I’m 100% with you and Paul VanderMarck, chief strategy officer at Risk Management Solutions – customers and better outcomes will ultimately win. However, on the race to this end, there will be many who change and challenge our thinking. To me, this is why there are so many new entrants and existing carriers investing heavily to understand what, why and how we can disrupt. Have a look at some of the work from CB Insights, which gives a fascinating view on the state of the market. See here for some of the great work Matthew Wong and team are doing.

Separately, I think we have jumped on the “disruptor,” label, as, like any industry, we need to be able to offer up the opportunity for the next unicorn (Zenefits, Oscar etc.) and to attract the right attention, from both inside and outside the industry, along with the appropriate talent and thinking!.

Either way, for me it’s an exciting time out there in insurance, and we must continue to evolve, revolve, pivot, disrupt – whatever we call it. Sitting still is not an option!

What Silicon Valley Says on Insurance

Overheard at “Insurance Disrupted 2015,” held Nov. 18 and 19 in Palo Alto, CA, cosponsored by Silicon Valley Innovation Center and Insurance Thought Leadership:

From The Sun Also Rises, by Ernest Hemingway:

“How did you go bankrupt?”… ‘Two ways. Gradually, then suddenly.’

Paul Carroll, CEO of ITL:

“Insurance has been in the ‘gradually’ phase of disruption; the ‘suddenly’ phase is here.”

Tongue-in-cheek lines from others:

“The future always happens.”

“Moving at the speed of insurance”

There were many loud-enough-to-be-heard, smart, rational and innovative voices calling for change to the historic model for insurance at last month’s gathering of insurance disruptors in Palo Alto. Most encouraging is that these voices were coming from both traditional players and entrepreneurs behind an emerging insur-tech start-up sector.

Close to 200 of these folks (as well as several hundred more via live streaming) converged at an Elks Lodge of all places to share insights and ideas about how to create new business models, more compelling and engaging client experiences that meet overlooked marketplace needs, new products and new distribution methods. All are taking advantage of technological possibilities that may seem old-hat in other sectors, whose digital maturity is further along on the curve.

This post captures the main messages delivered by several dozen speakers and panelists during the event:

  • Insurance businesses able to see themselves in the prevention business, not just in the protection business, will be the ones that thrive. The potential to shape strong, compelling offerings that help people anticipate and avoid risk has great, untapped commercial potential and holds the possibility of truly improving people’s lives. But one of the biggest challenges for historically successful executive teams is being able to reframe a company’s purpose away from its past greatness toward a different future. So many businesses end up dead or among the walking dead because they are unable to leave behind an outmoded definition of how they created value vs. what it now takes to succeed. Technology is just the enabler — success is about mindset, vision, leadership and conviction.
  • Value beyond the product sales transaction will create massive opportunity for those able to act upon the possibilities. Many examples exist of companies in other sectors (and are beginning to emerge within insurance) that add value before and after the transaction. Think of any brand you love because of the experience leading up to and following the actual purchase event. These same opportunities exist in the insurance sector. As one of my favorite, preeminent global innovators likes to say, “There’s gold in them there hills.”
  • Does anyone really want to buy insurance? No. People buy insurance to solve an “end-game” problem. We are entering the era where winners will be those who show they understand this. It’s about clients, not products. Client-centricity is too often a fashionable mantra, but in reality is relegated to lip service. Insurance grew up as a sector engineered to push product through a distribution system where the incentives were to push more product. The connection between client-focus and both a healthy P&L and balance sheet is well-established in other sectors, and is no less true here. Incumbents face cultural, infrastructure, regulatory, metrics and talent challenges to execute this shift. In contrast, start-ups unencumbered by legacy issues are hard at work pursuing client-focused business models with such intensity that there will be breakthroughs at scale. It’s only a matter of how soon. The winners will combine digital technologies and advanced analytics and insight to define their future and not be tied to a rear-view mirror perspective.
  • Think emergent knowledge, not big data. Does anyone really think they need more, bigger data? Frankly, as I meet with executives and discuss the challenges of competing in our world, no one complains about lack of data. A mentor taught me years ago that it’s most important to know what questions to ask. In the big data era, too many people are going backward from the data, setting themselves up to amass as much as they can and then trying to figure out what to do with all of it. Meanwhile, they’ve increased their costs and security risks, and bogged down always-scarce analytics and IT talent in misguided exercises. Insurers possess via their actuarial capabilities some of the most analytically intense talent anywhere. Is it possible to redirect some of this incredible capability and use it to ask the right questions? Don’t worry about obtaining more data. Assume any data you want will be available at some point. These sorts of mindset shifts will set insurance sector participants on the path to accelerating knowledge that will lead to new opportunities.
  • The cloud is not about automation, The cloud is about the incredible possibilities enabled by data transparency and availability, and by the synthesis of formerly unimaginable kinds of disparate data accessible through increasingly improving user-interface layers powered by smart algorithms and machine learning. Insurers that approach the cloud as mere automation driving cost savings will be left behind, not only by competition but by clients who are becoming empowered by their own ability to get their hands on their data, and as a result gain more understanding and control over what their insurance needs really are, and how best to meet them.
  • Data synchronicity can be an opportunity or a threat. Insurers have earned their keep by taking advantage of the fact that they had intelligence and insights that clients and distributors could never access. Think about it: The pooling of risk is built upon carrier ability to bring together disparate data about scale populations to foresee risks and price against the odds of them occurring. That advantage is eroding as data become more widely distributed and accessible. The habit of looking back at a decade’s worth of data to assess risk and create actuarial tables will be replaced by constant testing in small chunks that drives continuous learning. Behavioral modeling will become real time, and acting with speed to execute on constant new knowledge will be the basis for competitive advantage.
  • Usage-based insurance – UBI – is driving toward hyper-specialization and personalization in underwriting, sales and service. The industry will move away from the whole notion of insuring a pool, toward being able to price an individual based on her driving, health, property care and behavioral record, and insure her neighbor entirely differently. If the notion of pooling of risk goes away, the entire structure of the industry will evolve to something new. Don’t just stay tuned. Tune in.
  • The smart home, smart car, smart-everything-in my-life is creating data sources contributing to UBI capabilities, giving insurers the ability to help me anticipate and even prevent risk. The insurance sector in total probably knows more than just about anyone else about so many aspects of your life — this is the sector’s opportunity to realize or squander. The sensors becoming embedded in every aspect of our lives will have profound implications for every aspect of the insurance sector, many of which are not identified, yet alone understood. See first point above; insurers must shift to being in the prevention business, not just the protection business.
  • Compared with Congress, whose overall approval rating is at about 14%, the industry’s average Net Promoter Score of 46% may not look that bad. But it’s a sorry state of affairs. One major carrier has an NPS that is actually negative, and others are in competition with the government for setting a low bar. One can only imagine the upside from raising the propensity to be recommended to others by current clients. Acting upon the points already shared above will directly contribute to achieving acceptable satisfaction levels. Action to create true multi-channel sales, service and claims experience aligned with how clients really behave will take focused work and investment. And time. It’s time to start, now.
  • In the U.S., a full 87% of people under 35 have no contents insurance. What is the societal risk of leaving a generation unprotected from the risks that invariably befall some among us? Insurance ownership has traditionally been part of the bedrock of an economically healthy society. If the under-35 crowd is not connecting with the traditional offerings of the industry, given the consequences, how will the industry step up and move to a position of relevance motivating enough for this important demographic to see it as worthy of a piece of their wallet?
  • Will you be an insurer that leverages marketing and technology, or reframe your self-image to that of a technology and marketing company that happens to sell insurance? One of the greatest inhibitors of transformation is the inability to reshape your business model and all of its many elements to align with where the world is going, not to where the world has been. As yet another mentor taught me early in my career, “You are who you say you are.” Who are you?

The future always happens. What I overheard in Silicon Valley suggests that for some it will happen to be an exciting time of growth and renewal. Others continue to scratch their heads. Many (understandably) feel a bit bewildered. The good news about being late to the game vs. peers in industries in the throes of disruption — think media, music, retail and the insurers’dw cousins in banking — is that there are meaningful models, execution paths and stories of success and failure that can enable leapfrogging in a position of leadership and strength toward what this sector will become.

A CMO’s IT Dream Team

Dear CIO and my partner-in-creating-the-future:

I came across this great quote from Rita McGrath that makes me laugh but also wince because it’s such a painfully accurate observation, especially as I think about how many of these barriers we could overcome by transforming the way marketing and IT work together:

“All of our innovation barriers are self-inflicted.”

As the CIO, you lead a function that must demonstrate ever-greater value and impact. The pressure is on to shift away from being a utility provider to an enterprise strategic asset — an active creator of value and a collaborative contributor — a function driving, and driven by, innovation.

Guess what? Marketing feels a similar set of pressures, and I believe the keys to our success lie in how we work together. Not because there is strength in numbers, so much as because value creation in the new economy will happen at the intersection of three of the hats our functions influence, shape and lead within the organization: customer insight and analytics + user experience + implementation capability.

Years ago, I co-led a big initiative alongside one of my all-time favorite CIOs. We were assigned an audacious multi-year, IT-based effort. The CIO gave me a great piece of advice that has stuck with me through many assignments. “Amy,” she said, “you just have to chunk it.”

Chunking complex projects down into bite-size and digestible parts has become one of my personal core operating principles, and is relevant to the challenge of reinventing what we do for a digitally powered world. So herewith are six “chunks” I’d like you to embrace as elements of the answer.

  1. Connect the future path of the IT organization to the company’s vision. This sounds obvious. Nonetheless, taking the time to confirm that there is a vision, that it is clear and defensible and that it is understood by all constituencies may expose opportunities to get the IT foundation to be as air-tight as possible.

By the way, this advice applies equally to marketing. With all of the intense pressure to generate marketing return on investment (ROI), step one has to be a connection to business priorities.

  1. Empower IT team members with customer insight. An example of this would be to package and leverage ethnography, including artifacts coming out of in-home/on-site visits and day-in-the-life tag-alongs with customers – and by packaging I mean not the typical, mind-numbing Powerpoint slides, but video and other highly visual, interactive media that bring insights to life and make it easy to draw connections to development decisions.

I’d be happy to conduct workshops with members of the IT team to translate field learning into actions for business performance improvement and potentially disruptive business models.

  1. Insist upon and work actively to foster collaboration between IT and other functions … abolish the “order-taking” role. I’ve never met an IT professional who enjoyed being an order-taker, but it’s hard to redefine a role that for now-irrelevant reasons is often defined as such. Think like a start-up. How to change? Start by establishing processes grounded in business priorities and customer insight that foster collaboration between IT and other functions. Work with marketing to set the example. Demonstrate your role as a source of value.

One process I’ve seen work uses a repeatable approach to tapping into market insight and customer analytics to formulate hypotheses for growth, vetting and prioritizing them, putting the best ones into a test-and-learn cycle with working user prototypes, reading results and moving to next steps: kill, test again or roll out. This model demands design, analytics and technology skills, along with openness, a collaborative mindset and agility. With these conditions in place, it works.

  1. Implement an organization structure that enables digital transformation … and transcends the usual silos and politics. Challenge the norms and at least nudge your approach to accelerate IT’s impact on the digital transformation. There is always an “ideal scenario,” and then there’s the reality of anchoring to the company’s history, culture and business environment. These are all part of the context for a pragmatic organization solution that is both future-focused and rooted.

A good starting point is a fresh approach to a user experience capability. To be done right, this unit taps into a range of skills that would traditionally be distributed in marketing, IT, potentially finance or operations. Don’t overlook the impact on performance of co-location and a unified structure, what skills are really needed and how to close existing gaps. Consider the role of external resources who can jumpstart efforts, whether design agencies, big data analytics partners or maybe mobile app developers. IT should have a seat at the table to form this capability but may not be its organizational home.

  1. Take a clean-sheet approach to what is internal vs. external. Today the questions around what should be internal vs. outsourced, and how those outsourced relationships should be structured, have become more important and more complex. As with internal roles, external providers who know their stuff are more likely to walk the talk on a more multi-functional approach than traditional providers.

For both organization and external capabilities there is no right answer, except to be driven by the business vision and priorities, to be open-minded to new ways to execute and to expect external partners to collaborate, not just take orders.

  1. Enable a real prototyping capability … not just to see if code will run, but to get continuous and actionable customer feedback on the experience, either live in-market, or minimally in a simulation. This capability should enable speed, iteration and low cost.

On this recommendation, I have seen more examples in larger regulated institutions of what won’t work than what will. Live prototyping remains a challenge in regulated sectors, where there is no room for the downside of risks that might hurt a user, but where businesses are foregoing the upside of user-centered design.

Disruptors make the choice to frame business models that can advance without the permissions and burdens of a regulated entity. Creating infrastructure that assures compliance and predictability while also enabling agility is by itself an innovation opportunity.

Let’s work together on progress toward the Dream Team vision.