Tag Archives: HiPPO

To Be or Not to Be Insurtech

It is probably a bit presumptuous to liken the insurtech startup movement to Hamlet’s famous “To be or not to be” soliloquy. It is, after all, a well-known and historical Shakespearean reference. However, the similarity is in the questions asked, and such a question has probably been asked prior to many defining moments. And just as Hamlet pondered many questions, there are many questions that revolve around the state of the insurtech movement. At this juncture, some five years into this movement, the one question that has most likely gone by the board is – Is it real?  You can debate whether we are at the beginning of the insurtech cycle or at the end. However, there are several strong points in favor of the fact that it is real.

See also: Convergence in Action in Insurtech  

SMA has been following the insurtech startup trends since 2013. Currently, we track approximately 1,200 insurtechs. It is definitely a fluid number. Some startups go out of business, and others come in to fill the void at a regular pace. In the 2013-2015 timeframe, the insurtech startup landscape was a tsunami of activity – it was difficult to get one’s arms around what was happening. In the latter half of 2017, some strong realities emerged. SMA’s recently released research findings have revealed several major insurtech trends or themes that are specific to insurance and have meaningful implications for the industry. In response to the “is this real” question, three of the 10 themes anchor the insurtech movement firmly in reality.

  • Insurtech has spread to all tiers and lines of business – Originally, most of the activity was in personal lines and health. Now, of the P&C contingent, which SMA data indicates is 39% of all the activity, a little over half is personal lines; 35% is commercial lines; 13% is workers’ comp. Historically, technology providers have targeted particular tiers for their sales efforts. The startup community targets insurance business problems without a specific tier focus. What this means is that insurers of all sizes are able to adopt insurtech-provided technology. SMA partnering data shows that there are insurtechs with customers ranging from top 10 insurers down to single-state insurers. The bottom line: The fact that insurtech is not focused on the top echelon of global players but rather on business problems across the insurance ecosystem lends itself to the “it’s real” theme.
  • Live implementations are increasing – Not surprisingly, in the beginning of the startup movement, most of the activity was around fundraising and proofs of concept. In 2017, and continuing at an accelerating pace in 2018, insurer “go lives” are happening. Some insurtechs have 10, 12 or more insurer logos on their websites. These are not investor listings; they are the names of insurers that are rolling out capabilities in the marketplace. In particular, drone usage, smart home/connected property and connected vehicle initiatives are common and growing. The “it’s real” indicator is that insurers are not going to roll out technology that affects their customers just for the fun of it – customers are not guinea pigs. Insurers are seeing the value in insurtech offerings and are executing.
  • Insurtechs are partnering – While there is nothing wrong with a technology provider staying in their space, a long-standing trend within the insurance industry has been partnering for greater value. This has not escaped the attention of a number of insurtechs. For example, Bold Penguin and Ask Kodiak have partnered, as have Elafris and Hippo and Betterview and Understory. Mature technology providers also see the value of startup partnering; for example, Willis Towers Watson and Roost, Verisk Analytics and Driveway. Majesco partners with a network of insurtechs. The “it’s real” factor is that insurtechs are not simply attempting to see what they can do just for today – but, rather, what they can do for the long haul, to become strategic contributors within the insurers they work with.

While there are still questions about the insurtech movement, one of them should not be – Is it real? Business value is being generated by many startups – and no insurer is going to walk away from that. New channels and service opportunities are emerging that are generating interest and execution. New products are sprouting up at a regular pace. Not every startup and every idea is going to be a winner, but many will be. And some already are. Bottom line? Both Hamlet and Shakespeare would be proud of the insurance industry for seeing the possibilities and not just the questions.

See also: 4 Key Qualities to Leverage Insurtech  

Chatbots and Agents: The Dynamic Duo

Just like Batman and Robin, strong teams are made up of complementary partners. In the insurance world, this partnership is often the human agent and a technology counterpart. Take a Geico agent and the virtual assistant Kate. Kate’s AI-enhanced offerings and “always on” abilities serve as the perfect sidekick to the local insurance agent.

As customer expectations have evolved, the insurance industry has had to change along with it. We’ve seen this with the rise of digitally native insurance companies like Hippo that streamline the application and sign-up process for homeowners insurance, as well as with more traditional organizations like Amica Insurance, which is revamping its digital strategies by working with IBM to give adjusters stronger tools to fulfill routine tasks.

See also: Hate Buying? Chatbots Can Help  

Today, anything short of a flexible, convenient and digitally mature experience is behind the times. It’s important for insurance companies to recognize that, given these advances and the diverse needs of policyholders, they will need to scale their offerings and implement more advanced services to support human agents. Though humans will never be replaced by chatbots, chatbots’ unique ability to personalize and automate processes has enormous potential in enhancing the relationship between the insurer and the policyholder.

How Can Chatbots Enhance the Insurance Experience?

Customers are becoming more and more comfortable with user interface (UI) technologies like Amazon Echo and Google Home and are exhibiting a more diverse set of expectations for digital capabilities in every facet of their lives. Chatbots can help supercharge insurance organizations with their ability to simplify everyday tasks. These virtual assistants have the potential to enhance efficiencies for both the insurer and the policyholder, especially when it comes to researching offerings, purchasing a policy and filing an insurance claim.

Policy Exploration

Researching different insurance policies can be a daunting task. It’s difficult for buyers, especially first-timers, to know what the best policy might be for their needs and budget. When looking at the insurance equation from the top of the funnel, chatbots have the potential to help win a customer’s business with their intuitive interface and educational support. Getting the right information up front is important for customers so that they aren’t surprised by anything down the line. Chatbots can process data at extraordinary speeds and help to make sure that customers are getting the right policy and the necessary information so they feel comfortable with their purchase. With the ability to quickly scan through the wealth of information on the internet and recognize user patterns, chatbots can ensure that policy offerings are accurate and tailored to the needs of the customer, helping insurance organizations make a great first impression.

Purchasing

When it comes to purchasing a policy, the process can be clunky, filled with unfamiliar industry jargon and massive amounts of paperwork. Chatbots can make the quote process much smoother for buyers by helping customers quickly navigate the intricacies of the buying process, while also simplifying it by auto-filling difficult questions with the assistance of third-party sources and natural language capabilities. Insurers are freed to work on more complex customer needs and issues without being bogged down by endless amounts of paperwork, leading to greater internal efficiencies.

Claims and Payments

The situations in which policyholders file claims don’t always happen within traditional business hours. The 24/7 nature of chatbots makes sure that customers have access to assistance when they need it, whether that means information about their policy or guiding them through what to do in the case of a car accident. The payment and claims process typically involves multiple steps, and the automated nature of chatbots can help streamline this experience in a way that helps both insurers and policyholders. A large number of calls that policyholders make to their insurance organization are about the claims process. Chatbots can field these calls and provide users with a complete look at the status of their claim in real time, just as if they were tracking a UPS package. Given that calls are typically about the status of a claim, chatbots are particularly good at fielding them because they can access this information within their database.

See also: How Chatbots Change Open Enrollment  

Looking Forward

The insurance industry still needs a drastic digital transformation as it migrates from policy-centric strategies to more customer-centric ones. In addition to updating their technology, insurers need to shift their antiquated mindsets and processes toward innovation, especially as younger generations with higher digital standards gain greater purchasing power. If these organizations want their digital transformation to be sustainable, they’ll need to integrate digital mindsets throughout the culture of their organization, making sure everyone understands the value of digital investments and will continue to implement them.

As it stands, just 42% of insurance organizations support a seamless user experience. If insurers want to satisfy users, they’re going to need to emphasize their omnichannel offerings, like chatbots, to create a solid foundation for further technology advancements. As the needs of the digitally savvy consumer become increasingly important, each insurance company will need to figure out how to stay relevant to this new generation, and having a chatbot by their side is a step in the right direction.

How to Move to the Post-Digital Age?

We are in the midst of the shift from the information age to the digital age, which is realigning fundamental elements of business that require major adjustments to thrive, let alone survive.

As we noted in our new report, Greenfields, Startups and InsurTech: Accelerating Digital Age Business Modelsnew greenfield and startup competitors are rising from within and outside of every industry, including insurance, to capture the post-digital age business opportunities of the next generation of buyers. By shifting to meet the forces of change, these companies are positioning themselves to be the market leaders in the post-digital age. Those that do not make the shift risk not only the loss of customers but also market share and relevance in the coming new age of insurance.

See also: 6 Charts on Startups, Greenfields, Incubators  

Sometimes, the next big thing isn’t easy to spot. The disruption of the insurance industry is in the early days, so predictions are difficult. Will the new greenfields and startups become the next market leaders? If history is a guide, the answer is yes … some will. Just consider Progressive and how many dismissed it early on. Now it is a top 10 insurer in the U.S. Or consider what has happened in other industries with companies that are defunct because they missed the shift:

  • Streaming video: Blockbuster failed to see this trend. It filed for bankruptcy in 2010 and Netflix is now worth more than $61 billion.
  • Mobile games: In 2011, the president of Nintendo North America suggested that mobile game apps were disposable from a consumer perspective. Today, Pokemon Go has 65 million users. Is that disposable?
  • Apple iPhone: Former Microsoft CEO Steve Ballmer reportedly commented that the first Apple iPhone would not appeal to business customers because it did not have a keyboard and would not be a good email machine. Apple iPhone single-handedly disrupted and redefined multiple industries and continues to do so.
  • Autonomous vehicles: In 2015, Jaguar’s head of R&D stated that autonomous vehicles didn’t consider customers’ cargo. Since then, Jaguar Land Rover has invested $25 million in Lyft to join the autonomous trend.
  • On-premise enterprise software vs. cloud-based SaaS platforms: In 2003, Thomas Siebel of Siebel Systems said Microsoft would roll over Salesforce in the CRM market. In 2005, Oracle acquired Siebel Systems for $5.85 billion. Salesforce’s market cap, in contrast, is more than $60 billion.

Insurance Industry Change and Disruption

At no time in the history of insurance can we find as many game-changing events and a rapid pace of advancement occurring at the same time. At the forefront is the increased momentum for insurtech, and the greenfields and startups within, creating high levels of activity, excitement and concern on the promise and potential of insurance disruption and reinvention.

When you add it all up, the insurance industry has many characteristics that make it an attractive target for aggressive investments in innovation. First, its size is enormous – based on industry data, it is estimated that premiums written are more than $4.7 trillion globally. Second, it faces multiple challenges that offer opportunities for exploitation by nimble, efficient and innovative competitors.

Insurtech advancements and the forces of change see no significant slowdown. The momentum for change that has been building is unstoppable. Industry advancements, cultural trends and IT reactions are gaining speed as they gain strength and a framework for stability and growth. It is pushing a sometimes slow-to-adapt industry by challenging the traditional business assumptions, operations, processes and products, highlighting two distinctively different business models: 1) a pre-digital age model of the past 50-plus years based on the business assumptions, products, processes and channels of the Silent and Baby Boomer generations and 2) a post-digital age model focused on the next generation including the Millennials and Gen Z, as well as many in Gen X.

Greenfields and Startups Make the Boardroom Agenda

The market landscape is rapidly changing. During 2016, Lemonade launched. Metromile decided to become a full-stack insurer, leaving its MGA days behind. New MGAs entered the picture, including Slice, TROV, Quilt, Hippo and Figo Pet Insurance, to name a few.  Existing insurers made market debuts with new startups including Shelter’s Say Insurance with auto insurance for millennials, biBerk from Berkshire Hathaway for direct small commercial lines and Sonnet Insurance as the digital brand from Economical Insurance in Canada, among others.

Add to this the projected shrinking of insurable risk pools due to the emergence of autonomous vehicles, connected homes and wearables and the domino effect of these on other industries, and it’s not hard to imagine a future with traditional carriers fighting over a much smaller pool of customers where only the most efficient, effective and innovative will survive.

As a result, discussion surrounding greenfields, startups and insurtech moved into the board room of every insurer and reinsurer trying to understand how to leverage the shift to the digital age and develop strategies and plans to respond. Yet some insurers have a blind spot in recognizing the competition both from outside and within the industry, and the critical need to begin planning a new post-digital age business model. The result is a growing gap between knowing, planning and doing among leaders and fast followers or laggards, which is rapidly becoming insurmountable due to the pace of change.

Closing the Gap with Greenfield and Startup Business Models

Assuming that most insurers grasp the need for a greenfield and startup mentality to grow, what remains is to aim all efforts toward accomplishing an organizational shift. How do you move your company from the pre-digital age to the post-digital age and close the gap?

It requires leadership to build consensus. It requires vision to aim in the most market-ready direction. And it requires a new business paradigm that will allow for change. We must redefine and re-envision insurance to enable growth and remain competitive.

While many have made progress in replacing legacy systems and traditional business processes, this is not enough. These systems, while modern, were built around pre-digital age business assumptions and models, not to support the range of needs in a post-digital age model driven by a new generation of customers. Like other industries, today’s insurance startups and greenfields need and want options that do not require investment in significant infrastructure or upfront costs and therefore seek a cloud business platform solution to maximize options and minimize costs and capital outlay.

See also: How to Plant in the Greenfields  

A modern cloud business platform provides an advantage for greenfields and startups, breaking down traditional boundaries, IT constraints and age-old business assumptions about doing business, while building up the ability to rapidly develop and launch new products and services. The platform is a robust set of technology, mobile, digital, data and core capabilities in the cloud with an ecosystem of innovative partners (many insurtech technology startups) that provides the ability to launch and grow a business rapidly and cost effectively.

Will established insurers suffer at the hands of tech-savvy, culture-savvy competition? Some may, but only if they allow themselves to. There will be constant pressure from greenfields and startups to outdo each other in the race to better meet the needs and demands of a new generation of buyers in a post-digital age for insurance.

For traditional insurance companies, the need to re-invent and transform the business is no longer a matter of if, but of when.  Insurance leaders should ask themselves: Do we have a strategy that considers transformation of both the legacy business and creation of 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?

A new generation of insurance buyers with new needs and expectations creates both a challenge and an opportunity that a greenfield and startup business model can capitalize on to incubate, launch and grow. The time for plans, preparation and execution is now — recognizing that the gap is widening and the timeframe to respond is closing.

2 Heads Are Better Than 1, Right?

Everybody knows that two heads are better than one. We’ve known it since kindergarten, where we were taught that cooperation, collaboration and teamwork are not just socially desirable behaviors-they also help produce better decisions. And while we all know that two or more people working together are more likely to solve a problem or identify an opportunity better than one person doing it alone, it turns out that’s only true sometimes.

Ideally, a group’s collective intelligence, its ability to aggregate and interpret information, has the potential to be greater than the sum of the intelligence of the individual group members. In the 4th century B.C., Aristotle, in Book III of his political philosophy treatise Politics, described it this way: “When there are many who contribute to the process of deliberation, each can bring his share of goodness and moral prudence…Some appreciate one part, some another, and all together appreciate all.”

But that’s not necessarily how it works in all groups, as anyone who has ever served on a committee and witnessed groupthink in action can probably testify.

Groups are as prone to irrational biases as individuals are, and the idea that a group can somehow correct for or cure the individual biases is false, according to Cass Sunstein, Harvard Law School professor and author (with Reid Hastie) of Wiser: Getting Beyond Groupthink to Make Groups Smarter. Interviewed by Sarah Green on the HBR Ideacast in December 2014, Sunstein said that individual biases can lead to mistakes but that “groups are often just as bad as individuals, and sometimes they are even worse.”

Biases can get amplified in groups. According to Sunstein, as group members talk with each other “they make themselves more confident and clear-headed in the biases with which they started.” The result? Groups can quickly get to a place where they have more confidence and conviction about a position than the individuals within the group do. Groups often lock in on that position and resist contrary information or viewpoints.

Researcher Julie A. Minson, co-author (with Jennifer S. Mueller) of The Cost of Collaboration: Why Joint Decision Making Exacerbates Rejection of Outside Information, agrees, suggesting that people who make decisions by working with others are more confident in those decisions and that the process of making a judgment collaboratively rather than individually contributes to “myopic underweighting of external viewpoints.” And even though collaboration can be an expensive, time-consuming process, it is routinely over-utilized in business decision-making simply because many managers believe that if, two heads are better than one, 10 heads must be even better.

Minson disagrees: “Mathematically, you get the biggest bang from the buck going from one decision-maker to two. For each additional person, that benefit drops off in a downward sloping curve.”

Of course, group decision-making isn’t simply a business challenge–our political and judicial systems rely and depend on groups of people such as elected officials and jurors to deliberate and collaborate and make important decisions. Jack Soll and Richard Larrick, in their Scientific American article You Know More than You Think, observed that while crowds are not always wise, they are more likely to be wise when two principles are followed: “The first principle is that groups should be composed of people with knowledge relevant to a topic. The second principle is that the group needs to hold diverse perspectives and bring different knowledge to bear on a topic.”

Cass Sunstein takes it further, saying for a group to operate effectively as a decision-making body (a jury, for instance) it must consist of:

  • A diverse pool of people
  • Who have different life experiences
  • Who are willing to listen to the evidence
  • Who are willing to listen to each other
  • Who act independently
  • Who refuse to be silenced

Does that sound like a typical decision-making group to you? When I heard that description, I immediately thought of Juror 8 (Henry Fonda) in “12 Angry Men”–a principled and courageous character who single-handedly guided his fractious jury to a just verdict. It is much harder for me to imagine our elected officials, or jury pool members, or even the unfortunate folks dragooned into serving on a committee or task force at work, as sharing those same characteristics.

The good news is that two heads are definitely better than one when those heads are equally capable and they communicate freely, at least according to Dr. Bahador Bahrami of the Institute of Cognitive Neuroscience at University College London, author of “Optically Interacting Minds.” He observed: “To come to an optimal joint decision, individuals must share information with each other and, importantly, weigh that information by its reliability.”

Think of your last group decision. Did the group consist of capable, knowledgeable, eager listeners with diverse viewpoints and life experiences, and a shared commitment to evidence-based decision-making and open communication? Probably not, but sub-optimal group behavior and decisions can occur even in the best of groups. In their Harvard Business Review article “Making Dumb Groups Smarter,” Sunstein and Hastie suggest that botched informational signals and reputational pressures are to blame: “Groups err for two main reasons. The first involves informational signals. Naturally enough, people learn from one another; the problem is that groups often go wrong when some members receive incorrect signals from other members. The second involves reputational pressures, which lead people to silence themselves or change their views in order to avoid some penalty-often, merely the disapproval of others. But if those others have special authority or wield power, their disapproval can produce serious personal consequences.”

On the topic of “special authority” interfering with optimal decision-making, I recently heard a clever term used to describe a form of influence that is often at work in a decision making group. The HiPPO (“Highest Paid Person’s Opinion”) effect refers to the unfortunate tendency for lower-paid employees to defer to higher-paid employees in group decision-making situations. Not too surprising, then that the first item on Sunstein and Hastie’s list of things to do to make groups wiser is “Silence the Leader.”

So exactly how do botched informational signals and reputational pressures lead groups into making poor decisions? Sunstein and Hastie again:

  • Groups do not merely fail to correct the errors of their members; they amplify them.
  • Groups fall victim to cascade effects, as group members follow the statements and actions of those who spoke or acted first.
  • They become polarized, taking up positions more extreme than those they held before deliberations.
  • They focus on what everybody knows already-and thus don’t take into account critical information that only one or a few people have.

Next time you are on the verge of convening a roomful of people to make a decision, stop and think about what it takes to position any group to make effective decisions. You might be better off taking Julie Minson’s advice, electing to choose just one other person to partner with you to make the decision instead. Seldom Seen Smith, the river guide character in The Monkey Wrench Game by Edward Abbey, was obviously a skeptic when it came to group decision-making, but he may have been on to something when he declared:

“One man alone can be pretty dumb sometimes, but for real bona fide stupidity, there ain’t nothin’ can beat teamwork.”