Quotes from only five data points, or even fewer? Name your number, and you can find an insurer looking to transform the sales experience to match. We have seen a great deal of this momentum in personal lines with increasing attention in small commercial lines. And the line of business delivering today is workers’ comp!
Insurers writing workers’ comp – including insurtech startups – are innovating in many areas, including quoting, servicing, claims and the overall customer experience. There is high potential for emerging technologies, including AI and wearable devices, to enable these advancements and tremendous benefits to be gained from external data sources as well as the untapped data already within an insurer’s systems. Together, these circumstances have created fertile ground for innovation.
Both established and greenfield insurers are taking advantage of the possibilities that advanced technologies bring to the workers’ comp sector. This year’s SMA Innovation in Action Awards gave us two excellent examples of how both types of companies are approaching these new opportunities – in the digital MGAs Cake Insure, which was incubated by Pinnacol Assurance, and Pie Insurance, a greenfield venture. They demonstrate two different approaches to the same goal: leveraging new technologies and external data to create a seamless digital experience for customers.
Pinnacol Assurance is a workers’ comp insurer that is more than 100 years old. They wanted to reinvent the purchasing experience for workers’ comp by emphasizing digital and leveraging new technologies such as AI to condense the entire process into five minutes or less. Cake Insure, a digital MGA, is the result.
Cake’s online platform gives consumers a responsive, mobile-friendly experience that requires only a few data points to generate a quote. An AI-driven policy classification engine uses natural language processing and machine learning to enable straight-through processing for more than 90% of new policies. This technology enables Cake customers to simply enter a description of their business in their own words to get a quote, with no industry jargon or class codes required. Certificates of insurance can be generated and shared immediately via the Cake client portal or email. Cake’s success demonstrates how an established insurance company can embrace greenfield thinking and reinvent the customer experience.
Greenfield insurers and MGAs are also pursuing the transformational possibilities of workers’ comp. Pie Insurance is a full-stack digital MGA for Sirius Group that set out to change the workers’ comp market for small businesses, an underserved and often overcharged business segment.
Pie uses predictive analytics and high-quality data sets in real time to give small business owners a seamless, mobile-friendly way to find the coverage they need at the right price. According to Pie’s proprietary data, 80% of small businesses overpay for workers’ comp, often by as much as 30%. The company provides consumers with a detailed breakdown of the coverage and pricing that is appropriate to their risk and offers an online quoting experience that is as easy as getting an online quote for personal lines insurance. The savvy use of third-party data combined with predictive analytics gives Pie the ability to quote a new workers’ comp policy in minutes.
These companies are simply two examples of how the workers’ comp market is transforming. Both established and greenfield insurers and MGAs are making headway in this area. We can expect further changes to come as insurers find even more ways to bring new technologies to bear on the customer experience. So, stay tuned.
For more information on the SMA Innovation in Action Awards program and this year’s winners, please click here.
American entrepreneurship is alive and well and growing! There are countless rags-to-riches stories of how people with a good idea, boundless energy and infectious optimism have made it big, or simply made a rewarding livelihood and legacy for themselves and their families. Today’s fintech and insurtech movements are testament to this in spades! And while most national news stories focus on big business, and national cultural events like Black Friday tend to overshadow small businesses, there’s a growing movement embracing these vital contributors to our communities and economy.
The Rise of Small Businesses and the Shop Small Movement
On Nov. 26, 2016, the 7th annual Small Business Saturday event sponsored by American Express and the National Federation of Independent Businesses (NFIB) was held to encourage shopping and patronage of local small business merchants – in the wake of the preceding day’s big box store Black Friday shopping hysteria. According to research done by these organizations after last year’s Small Business Saturday, more than 95 million consumers shopped at small retailer businesses, spending $16.2 billion, up 8% from 2014. Interestingly, the event garnered support from many corporate sponsors – many of which count small businesses as their customers.
Millennials show strong support for local small businesses, indicating they want to be “connected” to the products and businesses they buy from. A study by Edelman Digital showed that 40% of millennials preferred to buy goods and services from local small business retailers, even if doing so cost more.
While Small Business Saturday and Buy Local have a decidedly retail focus to them, the importance of all types of small businesses cannot be overlooked. U.S. Census Bureau figures from 2014 showed that businesses with fewer than 10 employees make up nearly 80% of all firms in the U.S. This is a huge market with enormous needs for products and services, including insurance to keep them running, protected and competitive.
Where’s the Love?
The Rise of the Small-Medium Business Customer research sought to understand small-medium business decision makers’ perceptions and views of those who support and supply them, including insurance. Four hundred business owners were surveyed using the Census Bureau’s definitions of very small to medium-sized businesses (SMBs), which we grouped into three segments (1-9 employees, 10-99 employees and 100-499 employees). The survey provided insights to evaluate perceptions on SMB customer views of insurance as compared with other businesses
The results were enlightening. Interestingly, fair price was more important than lowest price across all of the business segments. However, the ability to create a custom product from a range of options is more important than both lowest price and the ability to pick from a set of “pre-packaged” options. This finding reflects the increasing demand for personalization rather than price-driven mass production of insurance products.
Even more revealing were the results among the smallest (1-9 employees) businesses. The survey highlights that the traditional insurance business model has not been built with the capability to adequately meet the unique needs and expectations of SMBs. The industry has, instead, pursued a “one size fits all” approach. The consequences are that this segment of smallest SMBs (though with the largest number of such businesses) is uninterested in insurance, sees little value in insurance and considers insurance a necessary commodity or “necessary evil” required for their businesses.
All three segments of SMBs, regardless of size, did not rate insurance as being particularly easy to do business with, in terms of researching, buying and servicing products, compared with the other types of businesses we asked about in the survey. Among the 1-9-employee segment, P&C, life and employee benefits ranked in the bottom half on all three of these aspects.
Much more telling, however, this segment gave the lowest Net Promoter Scores (NPS) to insurance, showing a gap of as much as 60 points between insurance and the top business. (Net Promoter Scores measure the likelihood that a customer will make a recommendation to a prospective customer.)
Adding fuel to the fire, these small businesses were the least likely to say insurance was responsive, innovative, had easy to understand products and provided good value for the money. This is not a pretty picture for traditional insurance — but a great opportunity for innovative “greenfields” and startups.
Going Small Requires Big Thinking
Increasingly, small business customers are demanding a personalized and digital experience, representing the shift from mass standardization of insurance to the micro-personalization of insurance, requiring broader data and sophisticated analytics to truly understand and respond to small businesses as well as a digital experience via a multi-channel approach.
The rapid emergence of digital direct-to-SMB insurers and MGAs such as Assurestart (now part of Homesite/American Family), Cover Your Business.Com (a Berkshire Hathaway company), Hiscox, Insureon, Bolt, Slice and others are leveraging these ideas to reach the small business market. They are providing innovative products, streamlined and simple processes and digitally engaging capabilities that are extending the direct business model to SMB customers. In addition, aggregators, comparison sites or new distribution channels like Ask Kodiak help small businesses find the insurance products they need more easily.
Our research identified gaps between many industry-held perceptions and customer-defined realities, which expose an insurance industry steeped in tradition — its business models, business processes, channels and products that are difficult to find, buy and service — and opens the door to new competitors. We have seen this play out before with personal lines over the last 10 to 15 years. The difference is that the pace of change and adoption of a digital play is unfolding more rapidly this time in commercial insurance, demanding that insurers respond, because the window of opportunity is smaller.
Each company serving the SMB market must itself strategic questions, such as: “How do we bridge between the past, today and the future? How do we keep current customers loyal and engaged as we redefine our business to meet the needs of the vastly underserved and growing small business market? How do we get on par with other digital businesses that are setting new expectations for the SMB market?” If traditional insurers don’t ask these questions and respond, others will – taking current and future market share.
Small businesses today are at the forefront of building new, technology-enabled, digitally first, innovative businesses that operate in a multi-channel world … like what we are seeing in insurtech. These businesses are increasingly led by millennials who have “grown up” digital and, as a result, seek fresh alternatives to age-old formulas … especially for insurance needs and offerings, helping them effectively meet their unique needs and expectations. It’s time for the insurance industry to translate the good will from the Buy Local and Shop Small movements into big thinking and innovative solutions.
A new generation of small business insurance buyers with new needs and expectations create both a challenge and an opportunity. There is no clear path or destination. The time for plans, preparation, and execution is now — recognizing that the SMB customer is in control. Those who recognize and rapidly respond to this shift will thrive in an increasingly competitive industry to become the new leaders of a re-imagined insurance business that aligns to a rapidly growing, millennial-owned, innovative SMB marketplace. Insurance companies must stop talking about the opportunities and being digital, and start doing something about it by using the disruption and change as a catalyst for “real change.”
When you add it all up, the insurance industry has many characteristics that make it an attractive target for aggressive investments in innovation. First, it is enormous; it is estimated to be a global market of premiums written of more than $4.7 trillion. Second, it faces multiple challenges that offer opportunities for exploitation by nimble, efficient and innovative competitors, including:
Low-interest-rate environment: Together, forcing a focus on the core business of insurance, creating enhanced customer experiences and value and rethinking operations to manage expenses are driving the innovation of business models underpinned by an efficient, flexible and variable-cost-based infrastructure.
New customer attitudes and behaviors: From a move toward owning to renting, looking for niche solutions such as short-term, on-demand insurance or seeking solutions that help to manage risk, there is a growing need for new products and services that may be offered through new business models.
Changing customer expectations: Fueled by digital technology, data and experiences from other digital companies (Amazon, Google, Facebook, etc.), expectations are radically shifting and driving increased dissatisfaction levels with how insurers engage and interact with customers.
Traditional insurance is stale and complex: Insurance is seen as an intangible, low-engagement product that customers do not enjoy buying. They are seeking alternatives that make the process simple, quick and painless, with engagement that meets their needs.
Yet insurance is still needed by individuals and businesses to protect them and help them manage an increasingly changing risk environment. As a result, there is a gap between what traditional insurers are providing and what is needed in today’s rapidly changing marketplace.
Enter the greenfields, start-ups and incubators that are aiming to innovate insurance. They are seeking to define new business models and processes that create a better way to “do insurance,” capture new market opportunities, create products and services and be at the forefront of the changing market. The nature of this new pressure is characterized by technology, data and very active investment activity as reflected in the new term, InsurTech. The research firm CB Insights is tracking more than 130 start-ups and private companies in the InsurTech space that have raised more than $3.5 billion in aggregate funding.
Many insurance companies recognize the importance of not standing idly by while others are reinventing insurance and creating new models, products, services and value propositions. Indeed, a survey conducted by Celent among its insurance panel found that 86% felt that innovating over the next three to five years was critically important (InsureTech Has Arrived: A Primer, May 2016). And, as highlighted in Majesco’s recent thought leadership report, Greenfields, Start-ups and Incubators … Innovation in Insurance Products, Channels, Services and Business Models, a small but growing number of companies are becoming active in this space by establishing venture capital units/divisions; creating start-ups and greenfields; and incubating new products, services or channels.
Still, most insurance companies have been hampered by the prospect of needing to do multiple monumental tasks simultaneously: First, continuing to run the current business with existing (and in many cases) outdated legacy systems; second, modernizing those systems to bring the current business into the modern era; and third, innovating/re-inventing the business in the race with InsurTech competitors to respond to the rapidly changing needs, expectations and risk profiles of the customer.
This dilemma is not new. The tension between the current state and the vision of the future state is always there; it is just more pronounced today, given the pace and complexity of change. The companies that are exemplars at innovation are the ones that embrace these tensions and manage them strategically.
Consultant and Dartmouth professor Vijay Govindarajan adapted an ancient Hindu philosophy to characterize the required components of this capability in his new book, A Three-Box Solution to Managing Innovation (Harvard Business Review Press, April 26, 2016).
Box 1 (with Hindu god Vishnu, the preserver, as the metaphor) is about managing the present and keeping the current success of the company going.
Box 2 (based on Shiva, the destroyer) is about selectively forgetting about and letting go of the past. This includes some of the things that led to the company’s current success, which may not be relevant in the future; they are today’s strengths but may very well be tomorrow’s weaknesses.
Box 3 (based on Brahma, the creator) is about inventing the future — the game-changing innovations that are going to transform the business for tomorrow.
Govindarajan explains that many companies stay stuck in Box 1 and are afraid of Box 2. In an interview with the Huffington Post, he noted, “Once companies become large and successful, the tendency is to preserve success. The tendency is to focus on Box 1. Box 1 is about managing the present, Box 2 is about selectively forgetting the past and Box 3 is about creating the future. For large companies, success becomes a trap because they tend to focus on Box 1/present.”
Successful companies balance activity and focus across all three boxes. For example, a healthy Box 1 is critical to fund the activities in Boxes 2 and 3, which will determine the future of the company. As he said, “Just as the three Hindu gods work in concert to keep the universe humming, a company manager must keep the present business strong and at the same time get rid of outdated enterprises and develop new lines.”
A Three-Box framework is helpful for structuring strategy for innovation and reinvention, but putting it into action isn’t necessarily easy. In our experience working with numerous carriers on their transformation journeys, we have found the following three tools to be helpful in moving from thinking to action.
First, develop a target operating model that defines how to efficiently and effectively operationalize your company’s vision and business strategy for both the existing business and the future business model. The right combination of business processes (process strategy), organizational structure and staffing (people strategy) and technology and data assets (technology strategy) will likely be different for the existing and future models, so ask these key questions: What is your minimum viable product? New operational model? New business model? What areas of the existing business are most critical to keep it funded today and the future? A target operating model can help you define your existing and future business so that you rapidly get results and value.
Second, create and execute a well-documented, detailed business transformation plan that makes it explicitly clear how the transition from current to future state will occur. The plan should include details on your current state to help drive new efficiencies — including all of the connections, data flows and work flows — and the inevitable bottlenecks and inefficiencies that are costing you money and reducing quality. It should also include details that define your new business model and what you need for the future business, which is likely very different from your current model. To create confidence in how and when you will arrive at the future state defined by your target operating model, the plan must identify and document an appropriate number of transition states that define what the process, people and technology components will look like — and for how long.
Third, leverage cloudplatforms and partner ecosystems across all boxes to eliminate the need for new infrastructure and reduce the uncertainty around the veracity of future state business model ideas through “fail fast” experimentation and rapid scalability.
These three steps combined with the Three-Box framework create the 3 X 3 approach for ensuring your company’s current and future success.
3 X 3 Approach to Reinvent Your Business
Reinvention and Transformation: The New Normal
The wave of change to a digitally and data-empowered world driven by ever-increasing customer demands is inevitable. And it is a given that there will be constant pressure from both start-ups and established companies to outdo each other in the race to better meet those needs and capture more share of the enormous value presented by the insurance market.
For insurance companies, the need to reinvent and transform the business is no longer a matter of if, but when. Together, the Three-Box framework and three-step approach provide a formula to use to develop your reinvention and transformation strategy. But the bigger challenge insurance leaders face is the pace of transformation — because the pace of change is not slowing down.
Insurance leaders should ask themselves: Do we have a strategy that considers both transforming the legacy business and creating a new business for the future? Who are our future customers and what will they demand? Who are our emerging new competitors? Where are we focusing our resources… on the business or on the infrastructure? What can we do to demonstrate to all employees that we must be — and that we are — committed to working in balance across all three boxes?
No industry has been witness to as many changes in the business world as insurance. Paradoxically, the insurance industry has remained (relatively) the same operationally. However, it can no longer turn a blind eye to the change rapidly occurring around and within insurance. The need of the hour is not “inno-va-shun”— shying away from necessary change. It is a straightforward pursuit of real innovation, the combination of modernization and creativity that will capture business and keep it.
Unfortunately, our minds have conjured up thoughts around innovation that make it seem like more of a hurdle than it actually is. We may harbor futuristic, expensive, technologically impossible notions around the term. But innovation, stripped of all the hype and abstractness associated with it, is simply a survival tool that will foster competitiveness and growth. There is little mystery involved, and there is much opportunity for payoff to the business. In some cases, becoming innovative is as simple as lifting off traditional constraints. Experts within and outside of insurance are centered on constraint removal, asking, “What is the shortest path from unmet insurance needs to insurance sales?” This has sparked an investment frenzy.
InsurTech, (a variant of Fintech) is focused on innovation and investments in insurance, and it is growing by leaps and bounds. CB Insights reports a figure of $2.65 billion in InsurTech investment for 2015, representing 350% growth over 2014 investments. According to PwC’s survey based on companies included in their DeNovo platform, funding of Fintech start-ups more than doubled in 2015, reaching $12.2 billion, up 118% from $5.6 billion in 2014.
Cutting-edge InsurTech and Fintech companies are forcing insurers to take a radically different look at the competitive landscape. There is an increasing awareness by insurers of this change, reflected in a PwC report indicating that 74% of insurance companies identified their own industry as the one part of the financial services sector that will most likely be disrupted by FinTech over the next five years.
So what innovation is happening in insurance? Is it all about hiring a set of experienced contrarians, providing them with a fertile environment, lots of time and space and access to unlimited funds to come up with an assembly line of “the next” ideas that will radically transform the insurance industry? That sounds exciting. Who wouldn’t want their own highly funded insurance incubator?
The truth is far more prosaic. Innovation in insurance is not just restricted to developing new solutions and technologies or products and services but it is grounded in the consistent development of new offerings, channels and business models to reach and expand in existing and newer markets. It is the building of the next-generation insurance operation that will work as the world changes.
Rather than wait for transformation of the existing business, insurers are looking to innovate, reinvent and create new business models to operate and succeed in a new business paradigm. The time is ripe to experiment and be part of the disruption unfolding, rather than being left by the wayside
Helping fuel the innovation is an array of new partnerships, accelerators, incubators and innovation labs within the industry and individual companies. They are creating solutions, products, services and business models, de novo options – de novo, from the Latin expression meaning “from the beginning,” “afresh,” “anew,” “beginning again.”
And it is not just new capital backing de novo models. Existing traditional insurers are investing into their own greenfields, start-ups and incubators. They are launching new companies and business models to reach new market segments and introduce new products and services. They are carefully building and maintaining the new efforts outside of the traditional brand, distribution channels and business operations to keep the new efforts out from under traditional constraints. There is a wide array of experimentation and de novo options happening within insurance companies to respond to these challenges by generating opportunities.
But to do so, these insurers need a “platform solution” that will enable agility, innovation and speed, not unlike platform solutions that have powered de novo options in other industries. Fundamental to the platform is the need for low IT costs because investment must be focused on the business, products and channels, not in the capital and operational expenditures for the traditional bricks and mortar infrastructure. An insurance cloud platform can be the differentiating and critical enabler.
New platforms need to go beyond the core insurance solution to include ready-to-use, pre-built content, data sources, channel options and best practices that can jump start the business. An ĵacceptable timeframe would be weeks to months, instead of the years that many business transformation projects require.
The insurance industry is quickly realizing the need for innovation. It is not a question of when … but how soon one innovates. New insurance companies, MGAs, underwriting firms and others are incubating new products, new business models and new channels and reaching new market segments. The unprecedented number of new endeavors is a clear indication of this phenomenon. Yet, too many insurers are locked into legacy core systems or engaged in multi-year legacy transformation programs, limiting their ability to innovate and experiment with de novo options.
One cannot but agree with Rob Siltanen when he said,
“Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They’re not fond of rules. And they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them. About the only thing you can’t do is ignore them. Because they change things. They push the human race forward. And while some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do.”
How are you preparing to change your world — the world of insurance?
If insurance were a map, we would be surveying a whole new world. The fences and boundaries of tradition have fallen. The snow-capped mountains of certainty are melting away. The rivers of market share are changing course, and streams of data are coming directly to our doors. We know there are still products to plant and fields to harvest, but how will our planting change in the months and years to come?
Many insurers will be looking at greenfields for the answer.
Greenfields, start-ups and incubators are different ways of looking at the same essential concept — starting from scratch. Each is a new beginning. Greenfields are new initiatives often aimed at developing new markets. Start-ups are most often new initiatives that will reach existing markets. Incubators are designed to test new products within new or existing markets. For our purposes, we will lump them all together under the title of greenfields, because from an organizational perspective the need for them and preparation for them are similar.
Think about how insurance has grown, just based on the questions we have asked ourselves over time. Insurers used to ask, “How do we do what we do better?” They were thinking of underwriting, selling and meeting market demand.
As the internet and the digital realm arose, they began asking themselves, “How do we do what we do differently?” They needed to know how to reach the same people with better channel management and improved customer service.
Now, they are asking, “How do we do what we don’t currently do at all?” They want to know how to identify, build and capitalize on new risk needs, new markets and social networks, how to use technology to its fullest, how to become a trusted resource for services outside of insurance and how to reinvent the organization and brand so that it is prepared to be profitable no matter what initiatives lie on the horizon.
It is the preparation that is an important first step. A great idea can’t take root in an organization that won’t support it. How can insurers prepare for greenfield development?
Greenfield insurance companies that are starting outside of a traditional insurance organization and those that are starting under the umbrella of traditional insurance companies both value “fresh air” and an environment that is unclouded by tradition.
Starting from scratch allows them to think without constraint, test without constraint and operate without constraint. They do have barriers. Most are operating within a window of opportunity, and all are operating under the assumption that investments need to pay off. But for the most part, greenfields take advantage of the fact that organizational politics, processes, traditional technologies and time-honored ideals are all open to reassessment, replacement or removal.
Organizational silos need to be bridged, if not completely abandoned. The new opportunities where greenfields will work best will be created by cross-functional teams that understand how to integrate new technologies with the best ideas. This is one reason hackathons have recently grown in popularity. They are simply borrowing a common concept from ad agencies, TedX events and jazz musicians…the idea that walls and ideas aren’t compatible. The best fertilizer for ideas is a diverse set of perspectives on how the idea will be constructed and how it will work in practice. Teams need functional area experts, but they also need general leadership with a holistic perspective as well as input from technology partners who grasp what is technologically possible.
Investing in seeds
Seeds are investments, and most investments have phases. The greenfields in insurance are ripe for these investments, and they are bearing fruit. But those that will be most successful will pay close attention to planting methods.
For example, farmers don’t take the newest seeds and plant 1,000 acres. They test them in plots. In insurance, our ideas need to be cultivated quickly, first in small pots, in our incubators and centers of excellence — we can call these our insurance greenhouses. If they appear to be working, we test them in small geographies, then roll them out to larger segments. Seed planting is speed planting. The idea works, or it doesn’t. We scale up quickly or toss the idea out. We invest wisely by investing small, until the investment proves itself and then we invest more.
As we watch seed money flowing into InsurTech, we know that some of these investments won’t pay off. Many venture firms will have invested more in a proof of concept than they should have. Some will attempt a rollout before the concept is mature. The best growth will happen through organizations that know how to phase greenfield investment.
Greenfields will be capitalizing on technology to save investment funding. This includes reusing technologies and sharing systems. Cloud platforms with a “pay as you go” pricing model are perfect for greenfield development because they answer the demand for agility, innovation and speed (low implementation time, quick speed to market, light or no customization) with lower investment and maintenance costs … allowing the investment to focus on the business, not the infrastructure. Greenfields are creative pursuits to new opportunities. Their back-end solutions will require just as much creativity as their front-end marketing, but they will want solutions that don’t require massive customization.
Greenfields will therefore capitalize on what they don’t need to build from scratch. Modern core platforms will allow them to use pre-built, integrated content and data sources, pre-built best practices and products and pre-built channel options. They will use their creativity to build new business models around pre-built infrastructures, instead of building new systems from the ground up.
The passion for planting
In the coming weeks, we will take a more in-depth look at greenfields, start-ups and incubators. We’ll look at the surprising growth of insurance innovation investment and what it means to existing businesses. We will discuss how deeply the choice of platform can affect insurer preparation, and we’ll also look at the greenfield spectrum that includes new value-chain technologies, new aggregator channels and completely new types of insurance.
Our goal is not to gawk at the high number of entrants into the market, but to glean a whole new perspective on opportunities. You may find that your unique position will allow you to have market-capturing ideas ahead of others. And you may develop a passion for planting your own seeds in the greenfields of opportunity. Is your organization ready for your team’s next great idea?