Tag Archives: insurance 3.0

Darwinian Shift to Digital Insurance 2.0

Brian Solis, a digital analyst and anthropologist, studies the effects of disruptive technology on business and society, calling it “digital Darwinism.” Solis borrowed Darwinism to describe how organizations adapt to changing customer behavior (anthropological view) and rapidly changing technology through digital transformation. As Solis says in various articles, the effect of digital Darwinism on business is real, and it’s enlivened through evolutionary changes in people in their views, expectations and decision-making.

And we are seeing it rapidly unfold in the insurance industry.

The pace of disruption and dramatic changes are truly evident when we look at Majesco’s first Future Trends report from February 2016 to the second one in March 2017…and now in 2018. This year’s Future Trends report takes a deeper look at the current state of insurance disruptors across people, technology and market boundaries, and how they are pressuring insurers to adapt, pushing them out of their traditional orbits and toward new models and opportunities — “digital Darwinism” — to Digital Insurance 2.0.

The Insurance Darwinian Shift

Majesco’s consumer and SMB surveys show that customers seek “ease in doing business” across the research, purchase and service aspects of insurance. In addition, they are rapidly adapting to the digital age, and they have a rising interest in innovative products and business models emerging in the market, posing a threat to existing insurers.

See also: Digital Playbooks for Insurers (Part 1)  

Startups like Lemonade, Slice, Zhong An, Haven Life, Bought by Many and Neos are embarking on Digital Insurance 2.0 business models using digital platform capabilities and ecosystems that exploit untapped markets and address under- or unmet needs that strengthen customer relationships.

New business models are serving different markets, have different products and services and use different strategies. While customer demographics and expectations, emerging technologies and data, and insurtech have had a majority of the focus, one area that has been a catalyst for these companies to shift to Digital Insurance 2.0 is platform solutions.

Platform solutions provide these innovative companies speed to value, unique customer engagement, a test-and-learn platform for minimal viable products and value-aligned optimized costs. Their platform solutions also catalyze digital technologies and processes, AI/cognitive, cloud computing and an ecosystem, into a powerful new force to expand capabilities and reach well beyond those of the traditional Insurance 1.0 model. They are creating new paths, energizing the market and lowering operational costs.

Digital Adaptation is Just Beginning

As a result, incumbent insurers must aggressively begin to define their vision and path to Digital Insurance 2.0, leveraging today’s catalytic lever, platform solutions.

And Digital Insurance 2.0 is just the beginning. The catalytic effect of platform solutions in the shift to Digital Insurance 2.0 is rapidly evolving, gaining momentum and laying the groundwork for future reactions. Will the next catalyst be blockchain or some other trend that will propel us toward Insurance 3.0?

See also: Digital Insurance 2.0: Benefits  

Insurers’ abilities to adapt and rapidly move to Digital Insurance 2.0 will likely define their future. As such, insurance executives and leaders should ask themselves the following:

  • Are we appealing to customers’ motivations, making our processes simple and creating compelling triggers to act?
  • What is our business strategy, and how are we incorporating a platform and ecosystem approach?
  • In which markets and with what customers will we find our future growth? What will they expect?
  • What is our partnership approach today, and how will it need to change to extend to a broader ecosystem?
  • Is our technology platform the foundation for our growth?

The future is still unfolding. New technologies and ecosystems will continue to emerge. And with those changes, over the next decade, we will likely see the beginnings of Digital Insurance 3.0 emerge.  Organizations will need agility to adapt and respond, a keen focus on innovation that encourages experimentation, and a priority on speed to value to succeed, or even survive.

Hurricane Harvey’s Lesson for Insurtechs

Just sixteen years ago, Tropical Storm Allison struck Houston, killing 23 people, dropping more than three feet of rain in some areas, flooding 73,000 homes and causing $5 billion of dollars in damage. For people whose homes were flooded in 2001, it is hard to imagine a more tangible or compelling argument for flood insurance. Surely, someone who suffered catastrophic flood damage would protect themselves with optional flood coverage, right? Yet, when Hurricane Harvey hit on August 25thHouston‘s Harris County had 25,000 fewer flood-insured properties than it did in 2012. Across Houston, the number of flood insurance policies fell from 133,000 to 119,000 – an 11 percent drop in the past five years despite a 4.5 percent increase in population.

All of this is a succinct lesson for the investors and innovators who told me at last year’s Insuretech Connect conference that they were frustrated by the lack of real product innovation. Indeed, if Insuretech 1.0 focused on new distribution strategies, such as online aggregators; and Insuretech 2.0 included new internal competitive advances, such as new approaches and tools for underwriting, claims, and risk management, including IoT advances; then, if Insuretech 3.0 is product innovation, it will need to be more thoughtful than product innovation in non-insurance sectors, at least for personal lines.

Indeed, successful insurance product innovation is about picking your battles. At OneTitle, for example, we leveraged an existing mandate (title insurance) and maintained accepted policy forms and coverages, but innovated on virtually every other lever.

See also: Harvey: First Big Test for Insurtech  

Insurance startups, innovators and early stage investors will face a battle if they focus on optional, creative or expanded personal lines coverage options targeting more than a niche population. Tropical Storm Allison already tried—and failed—to convince Americans to buy optional coverage by dumping four feet of water into 73,000 living rooms. It is hard to imagine an insuretech coming up with a more compelling argument than that.

Before you howl about the value of risk avoidance or peace of mind: consider the transaction from the consumer’s perspective. For most, buying insurance is the only commercial transaction that amounts to paying money and receiving nothing in return. As Harvey shows, even making a large claim just 16 years ago is not enough to counteract the consumer’s view that, absent a claim, they receive nothing in return for their premium dollars.

Absent government or third-party mandates, aggregate insurance premiums paid directly by consumers would shrink dramatically. The vast majority of consumers don’t buy insurance – regardless of whether it’s in their best interest – unless they are forced to do so by law or by a third party like a mortgage lender or a landlord. And they don’t show any signs of changing their behavior. Most consumers vastly underweight risk avoidance and peace of mind, even when the risk is as obvious as a flood experienced only 16 years ago. P&C call center veterans tell stories of policyholders who call to request a refund since they didn’t have a claim that year.

Insuretechs, insurance startups and investors would be wise to understand this as they rush to bring more consumer-friendly insurance products to market. There are important opportunities for insurance innovation, but product innovation in mass market personal lines must be viewed through the lens of legal or other mandates. Without that mandate, a new product category or expanded coverage is unlikely to appeal to more than a relatively niche market.

The lack of flood insurance in Houston is only the most recent example of consumers’ willingness to give up valuable coverage in order to avoid spending money on insurance. In 2015, for example, 6.5 million taxpayers paid an average penalty of $470 rather than purchase required health insurance under the ACA.

Viewed a different way, the ACA requires most consumers without employer-paid or other forms of health insurance to select from a menu of insurance choices. The penalty is effectively the least expensive “plan.” It costs $470 and offers no coverage. In the metallically-named ACA plans, this one ought to be named “Lead.” The next least expensive option—Bronze—cost an average of $1,746 after tax credits in 2015. But, 6.5 million adults placed so little value on health insurance that they selected the least expensive “plan” despite an explicit understanding that they would actually receive nothing more than legal compliance in return.

See also: Getting to ‘Resilient’ After Harvey and Irma  

Auto insurance tells a similar story: 32.6 percent of drivers have either no liability insurance (12.6 percent) or carry only the state minimums which, at $25,000 or less in coverage in most states, offer only a veneer of coverage. As an aside, this may be unintentionally rational given that 30.2 percent of American households have a total net worth of less than $10,000, making them effectively judgement-proof.

Of course, there is real opportunity for innovation in insurance, including product innovation. At OneTitle, for example, we started with a mandated product—title insurance—and formed a full stack insurer specifically to ensure that we had the control and flexibility to innovate on price, service delivery, distribution model and efficiency levers.