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Will Amazon Disrupt Insurance?

In the last months of 2017, I wrote – together with my friend Andrea Silvello – “All the Insurance Players Will Be Insurtech,” and the book was published in the first days of 2018.

See also: Is Insurance Really Ripe for Disruption?  

I included all the foundations of my insurtech thoughts; the elaboration of many discussions I have had since I published my article “Will fintech newcomers disrupt health and home insurance?” in August 2015; and a review of my five insurtech predictions from a year ago. Here is that look back, followed by a prediction on the hottest discussion at the start of this year: whether Amazon will enter the insurance industry:

Prediction: Exit

Not everyone will prosper. Although many amazing insurtech companies are seeing great results and scaling up—and many will continue to enter the field—some will surely leave the game, as well.

Result

I was dreaming of an insurtech unicorn’s exit. Well, dreams become reality sometimes: Well Zong An – the Chinese full stack insurtech – made its IPO with a $10 billion evaluation in fall 2017. Also, Travelers acquired Symply Business for $400 million.

On the other hand, Guevara left the game in the second half of the year. This winnowing down, a Darwinian “survival of the fittest,” should ultimately strengthen our industry.

Prediction: Reconversion

This is the other side of the moon. I saw many initiatives doing a great job putting together a fantastic team and a sexy equity story, and some raised relevant capital, but their business models look (to me) not sustainable from an insurance perspective. I don’t want to claim that no one of them could succeed, and history has already shown how skepticism can be wrong. But I’m expecting to see some players use their great skills and the funding raised to change radically their business models.

Result

In spring 2017, Trov did a round of financing of more than $40 million with a valuation higher than $300 million, but, from what we heard from the CEO at different conferences, the company is focusing its efforts on a back-end system that insurers can use on their customer base rather than on growing its customer base and portfolio of on-demand risks. Also, Zenefits went through a difficult 2017, stepped back from the brokerage business and started to license its technology as an SaaS (software as a service) player.

Prediction: Connected Insurance

My two cents are on any insurance solution that uses sensors for collecting data on the state of an insured risk and on telematics for remote transmission and management of data on the insurance value chain. A crazy prediction: Let’s consider the most mature use case, auto insurance telematics in Italy, which represents one of the best practices globally. In the country, I’m forecasting more than 7.5 million cars connected with an insurance provider by the end of 2017 (compared with 4.8 million cars connected at the end of 2015).

Result

In line with the expectations, Italy’s insurance telematics policies had reached 7 million by the end of third quarter 2017, according to the IoT Insurance Observatory.

Prediction: Culture Shift

Incumbents are becoming always more interested in debating innovation and concretely testing new approaches, including collaboration with startups. I expect to see this new breeze surround old-style insurance institutions, with a growing awareness on how all the players in the insurance arena will be insurtech players.

Result

A board member at one of the largest global reinsurers recently summarized the essence of insurance as assessing, dealing and accepting risks using the latest technologies. That’s one sign that the industry is coming around. We saw 3,800 more signs at InsureTech Connect, the world’s most prestigious insurtech conference. In 2016, the conference had 1,200 participants; in October 2017, it sold out with more than 3,800 attendees. Andrea and I were there on the stage and witnessed the incredible energy of those insurance professionals, regulators and startups.

Prediction: Sustainability

Many value propositions are bundling risk covers and services, thus allowing the insurer to influence behaviors and prevent risk, contributing to the sustainability of the sector. In the next months, I expect to see some insurers becoming more relevant in the life of their clients and act as partners and not only as claim players.

Result

The speeches of top insurance executives show the sector’s ambition to go in this direction. A slide projected on a wall is just that, however: in the field, we see very few examples of implementation.

What will happen in coming years?

Unfortunately, I damaged my laptop a few days ago so my crystal ball for the 2018 predictions is also not working…but I want to provide my middle-term view about the issue most-discussed at the end of 2017: Amazon activity in the insurance sector.

I predict Amazon will not disrupt the insurance sector. I believe it will do something – especially around insurance coverages on the products it sells – but will not be able to touch the core of the insurance profit pool on either commercial lines or personal lines (auto, property, life, health). My view is based on two main beliefs:

  • One of the key elements to be a successful insurer is underwriting discipline, as highlighted by Mario Greco recently or some famous Warren Buffett sentences in the past. Well, I believe that underwriting discipline conflicts with the culture of any tech giant. Amazon could buy an insurance company or hire talented people to close the gap on insurance knowledge, but the corporate culture doesn’t fit with the insurance business fundamentals.
  • In insurance, each market has its particular characteristics. One size doesn’t fit all — the opposite of how things work in social media or in internet businesses. I’m speaking about what the customers want (need) to buy in the different markets and how they want to buy it. In life insurance – the usual push product, which needs to be sold – digital channel at global levels represent less than 1% of new sales. But even look at auto insurance. The U.K. auto insurance market is controlled by online distribution, and, 10 years ago, insurance executives assumed that all Western European markets would follow the U.K. path within a few years. But auto insurance distribution in Europe continues to be dominated by traditional channels. You can argue that local carriers executed poorly, but even branches of U.K. insurance groups, with their great expertise, couldn’t duplicate the success that was had in the U.K.

I don’t think things cannot be changed. In fact, I believe there are a lot of opportunities to do things in a different way. But “one size fits all” doesn’t work, and I’m skeptical about the tech giants’ ability to deal with those local insurance characteristics. A tech giant based in Silicon Valley or with a European hub in Dublin will dirty its boots on insurance distribution (or other steps of the value chain).

It is an interesting time to be in the insurance sector, but I’m pretty confident GAFA (Google, Amazon, Facebook, Apple) and BAT (Baidu, Alibaba, Tencent) will not disrupt this sector.

How to Get Broader View of Customers

Historically, many insurance companies spent so little time thinking of customers as flesh-and-blood people and were so limited by their information systems that they referred to customers as policy numbers. But insurers are developing much fuller pictures of their customers for two reasons: because they have to, and because they can. The change will provide major benefits.

The “have to” part of the equation comes because customers’ perceptions are changing and their demands on companies are increasing. Amazon lets whole families track all their purchases in one place and makes smart recommendations for possible purchases, based on purchase histories. Why shouldn’t insurers? Facebook knows so much about users that it can guess when you’re thinking of buying something and put a link to, say, a couch in front of you when you move into a new place and somehow indicate you’re in the market for furniture. Why can’t insurers be that smart and sensitive?

In general, the group known as GAFA – for Google, Amazon, Facebook and Apple – has provided such a good customer experience and has so shaped our daily activities that every other company is increasingly held to their standards. That’s true even for insurers, which have always felt they were just being compared against each other and which have had to change little about their basic approach since Edward Lloyd set up his coffee shop near the wharves of London in 1688 and began facilitating the writing of insurance contracts for ocean voyages.

The “because they can” part of the change comes through a concept known as Customer 360 that is taking hold in the industry. The approach relies on advancements in technology that knit together existing systems, which have traditionally been managed as independent silos. As part of the change, companies like Saama pull together all kinds of data – both structured and unstructured – and cover all aspects of the customer and of the customer experience.

See also: How to Bottle Great Customer Experience

Customer 360 provides so much fuller a view of customers that it produces four clear benefits:

  1. Rates for customer acquisition increase because analytics allow for more targeting and personalization. At the same time, customer acquisition costs decline.
  2. The customer experience improves, which both reduces customer churn and creates opportunities with potential new customers as Net Promote Scores climb.
  3. Opportunities to cross-sell and up-sell arise. As a result, key metrics improve, including share of wallet, policy premium revenue and multiline penetration.
  4. Insights about the competition and the market increase, because you know more about what rivals are doing and how customers are responding.

The analytics involved in Customer 360 may also let you push the data and produce additional uses and insights. If a hurricane is approaching Louisiana or a tornado appears in Texas, you can advise clients on how to prepare and then how to get quick service if they need to file a claim — the claims process becomes faster for customers, in any case, because once you have a few claims filed about a storm you no longer need to gather the basic information about it.

Customer 360 works by understanding a full household, rather than treating each member as an individual. The approach then pulls together data in six areas that historically have been hard to coordinate:

  1. Products, whether personal lines such as auto, homeowners and life or whether commercial lines.
  2. Preference management. Does the customer want to be contacted by phone or email? Do those preferences vary based on where the customer is in the process (billing, claims, etc.)
  3. Interaction management. Have you contacted someone with marketing materials, phone, etc.? Have you detected some activity on social media? Has something changed about a customer’s credit?
  4. Life events and decision management. Does government data tell you something new about a customer? Does a change in age suggest a new course with a prospect?
  5. Extended data. What can you learn from Lexis-Nexis, from the census, from other third parties?
  6. Performance management. How can you keep improving your understanding of the customer and grow your relationship?

Right now, most insurance companies aren’t actually sure who the customer is. The company knows who the agent is and works with the agent to make sure the customer gets the kind of customer he wants, but most of the data they have is on the agent.

With Customer 360, if someone’s history suggests she is looking into baby names or includes an Instagram post about being pregnant, you know it’s time to offer them life insurance policy options. Someone starts looking at houses? Time to offer new house insurance. And so on.

With Customer 360, insurers have a dashboard on the customer that looks like this:

All policies are grouped together, even if they are in different names in a household or at different addresses – no more trying to sell a policy to a husband that the family already has one in the wife’s name, for instance. Preferences are there to be seen, meaning an agent won’t do something that annoys a customer. All interactions are logged in one place. And analytics generate insights that suggest opportunities for up-selling or cross-selling.

See also: Want to Enhance Your Customer Experience?  

While the sort of integration required for Customer 360 used to take as long as five years, many of these projects can now be tackled in seven or eight months. The speed comes partly because we begin with 70% of the components for Customer 360 pre-built; the client builds its competitive advantage with the final 30%.

Recently, for instance, Saama helped integrate more than 15 legacy systems, automated data ingestion, integration and integrity checks and added a role-based, secure dashboard with new key performance indicators (KPIs) and self-service capability for end users. In all, more than 20 years of data was loaded into the model.

Many insurance companies have talked about Customer 360-type integration for a while, yet they’re still missing out on the opportunity. With this approach, it’s possible for companies to have a broader view of their customers than ever before. And that only means good things both for customer satisfaction and for a company’s bottom line.