Tag Archives: insurance disruption

Who Is Innovating in Financial Services?

Digital transformation, changing cultural values, resource scarcity and environmental impact concerns are affecting every industry, including insurance. Those changes are accelerating the growth of the sharing economy and the demand for resource optimization. The rise of sensors and intelligent digital ecosystems are blurring the boundaries between the digital and physical worlds and generating massive new data sources. Next-generation analytics and artificial intelligence are coming on-stream to harness that data. Adapting to and succeeding within this digitally transformed world will require changes in every aspect of the financial services industry, and the processes by which it delivers value to its customers.

To check on the state of innovation in insurance, the Silicon Valley Innovation Accelerator and Celent combined to conduct a study that combined a quantitative survey with qualitative discussions with key players. Here are the results:

Accelerating Insurance Transformation Infographic 2016 - 98 dpi - 01

Please consider joining us for the series of Insurance Disrupted conferences. The next will be held March 22-23 in Silicon Valley. ITL readers receive a 15% discount here.

The Hype Cycle of Insurance Disruption

The research firm Gartner has a great model for showing the relative maturity of different technologies. It’s called the Hype Cycle, and it looks like this:

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Source: https://en.wikipedia.org/wiki/Hype_cycle

There are five phases. First, a technology emerges, triggering a myriad of ideas for potential applications. Startups are founded, commentators predict it will change everything, incumbents include it in the SWOT (strengths, weaknesses, opportunities and threats) analysis section of their annual strategic plan. These expectations reach a peak and then start to decline as technical limitations, barriers to consumer adoption and regulatory concerns emerge. Chastened, new technologies then slowly regain credibility as people focus on how they can be applied to create real value in the here and now. Finally, they achieve mainstream adoption and acceptance.

So what would the hype cycle of insurance disruption look like, in 2016? I think something like this:

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The hottest topics of discussion in insurance right now are those left-most on the chart. We can expect the next 12 months to see seed-stage angel and VC investments in start-ups addressing the insurance implications of IoT/connected home (Domotz), blockchain (Everledger), drones (Drox) and maybe even artificial intelligence (Brolly).

Meanwhile, insurance industry incumbents will continue appointing chief digital officers, opening digital garages and launching venture funds and start-up incubators with the aim of getting a stake in the next generation of InsurTech companies. It will be a few years before we see whether these investments are creating value.

On the other side of the peak of inflated expectations, there is a deepening malaise around peer-to-peer (P2P) insurance. New York’s Lemonade may have just raised a $13 million seed round, but it has a long hard road ahead. The company’s somewhat hubristic claim to be the world’s first P2P insurer suggests executives aren’t aware of Friendsurance or Guevara and the challenges these admirable businesses have faced in creating a value proposition that consumers can understand and buy into.

P2P insurance remains intellectually exciting to insurance industry insiders but deeply unappealing to ordinary people. Do you want to feel social pressure from your friends not to make a home insurance claim if you spill paint on the carpet? No, neither do I. It will take a radically different articulation of the P2P consumer proposition for it to gain more traction — probably one that doesn’t focus at all on the product mechanics.

If the appeal of P2P insurance is in decline, big data is in the trough. There is even a bot that substitutes the phrase “chronic farting” in any tweet that mentions it. Consolidating a global insurer’s data assets on a single platform and then powering the whole organization with advanced analytics seems about as realistic as boiling the ocean.

But away from these grandiose projects, there are specific insurance use cases where big data has tangible value today. Underwriting using Twitter data is already as powerful as traditional question sets. At Bought by Many, we’ve analyzed the anonymized search data of 3 million U.K. Internet users to identify where the biggest gaps are between consumer demand for insurance and the products being supplied by the industry. Meanwhile, social media data, particularly from Facebook, is hugely powerful for insurance distribution – not just for targeted advertising but for understanding and serving people’s unique insurance needs.

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There is also a number of technologies that are mainstream in other sectors but still haven’t been fully adopted in insurance – programmatic advertising, even web analytics. The most egregious example is mobile. 75% of U.K. adults now use mobile Internet, and yet encountering a mobile-optimized or responsively designed insurance quote and buy process is still a pleasant surprise. Perhaps this reflects insurance companies’ bad experiences of developing apps that no one downloaded during the earlier phases of smartphone adoption; but surely getting mobile sorted should be a higher priority for insurers than launching an incubator. Mobile-first insurance startups like Worry + Peace and Cuvva can provide inspiration.

When it comes to technology, insurance isn’t a leader, it’s a follower. So it’s in the smart application of maturing technologies that the biggest opportunity for insurance disruption lies.

What Limelight Shows on InsurTech’s Future

Limelight Health, the winner of our start-up Showcase at our first Insurance Disrupted | Silicon Valley, gives a sense of what’s to come with innovation in insurance.

Limelight Health has a product called QuotePad, which is one of the first real-time, mobile, all-in-one quoting platforms for health insurance and benefits professionals. (The others highlighted at the Showcase are RigGroupHubroostJumpstart RecoveryZenehomeSureify.)

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Jason Andrew, CEO of Limelight, says what his company is doing is a harbinger of even bigger changes: “We are witnessing one of the largest transformations in the history of a multitrillion-dollar industry. New technology is changing the game for the entire insurance ecosystem. Quicker, more seamless data integration is changing the insurance process, from the way consumers research and purchase insurance to how claims are underwritten. As a result, companies large and small are sprinting to keep up with the demand for agile and integrated technology platforms that can harness this growing data volume and extract real value from it.  The largest carriers are now paying attention to big data, spending more money on research and bringing on data scientists to analyze and shape the future of insurance. “

As the industry moves from a legacy framework to a series of more connected systems with intelligent logic built in, all parties involved in the selling and decision-making process will be allowed to spend more time executing decisions and much less time on the administrative work that is a large and protracted part of the process today.

Andrew says, “For the health insurance market, which is fragmented with a lot of outdated systems that don’t connect or communicate easily, and where redundancy often leads to a high probability of error, we see this as being where QuotePad will make a significant impact on the insurance industry.”

Limelight Health was born in February 2014. Before that, the insurance technology boom had not fully launched, and it took several years of pitching, partnering and persistence to gain the attention of an industry that now supports the cause. Prior to 2014, no one was really interested in investing in insurance.

What we now know as #insuretech and #fintech was not the sexy vertical it is today. And we’re just getting started.

If you’re in the industry you are probably keenly aware of some of the changes that are coming, but not all. Please consider joining us for future Insurance Disrupted conferences, with our start-up Showcases. The next will be held March 22-23 in Silicon Valley. ITL readers receive a 15% discount here.

Organizer and host of Insurance Disrupted Conference: Silicon Valley Insurance Accelerator – SVIA

Innovation Partner: Insurance Thought Leadership

Conference sponsors: Aflac, Munich RE, Captricity, Zendrive, XL Innovate, Saama Technologies, CRC Insurance Brokers, Novarica

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Meeting a Litmus Test for Disruption

The insurance industry has been talking a lot about disruption over the past couple of years. But, as with many things, insurance is a late arriver to the disruption party. Clayton Christensen helped kick off an earnest discussion of the topic back in 1997 with his first book, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. In his 2003 book, The Innovator’s Solution: Creating and Sustaining Successful Growth, he proposed this question as part of a litmus test for the disruptive potential of ideas:

“Is there a large population of people who historically have not had the money, equipment or skill to do this thing for themselves, and as a result have gone without it altogether or have needed to pay someone with more expertise to do it for them?”

While Christensen has recently gotten some flak for being too dogmatic in his criteria for what constitutes a truly “disruptive innovation” (perhaps succumbing to his own definition of disruption?), the question actually describes very well how insurance has historically operated. It is a complex, mysterious product that has forced consumers to rely on the expertise of an agent or company rep to buy, understand and use it.

The increasing transparency and empowerment afforded by data, the Internet and digital technologies have helped level the playing field. Yet the majority of insurance buyers still rely on a live person, usually an agent, to make sure they’ve made the right decisions and to close the sale.

The ever-growing field of companies and investors eyeing the insurance industry sees this issue as one of the greatest opportunities for disrupting the industry’s incumbents. Some companies still take comfort in the fact that the insurance industry has difficult and unique barriers to entry, chiefly its complex regulatory environment and huge capital requirements to cover losses. But the size of the opportunity — $1.1 trillion in net written premiums in the U.S. in 2014, according to SNL Financial – is an incentive that is spurring a lot of creativity, innovation and investment that will help overcome these barriers.  It’s a question of when, not if.

But it’s also still a question of how. How will the insurance business model change to at least meet the litmus test described by Christensen? It’s clear that changes are unfolding because of ambitious outsiders as well as creative and forward-thinking industry insiders.

So what should insurers do? How should they respond? Majesco’s newly released research report (based on a survey conducted in late 2015 with its customers), 2016 Strategic Priorities: Impactful Pace of Change, reveals that many insurers are monitoring potentially disruptive technology and business trends, but, unfortunately, few are actively preparing for the changes coming. Four overall themes emerged from the survey responses:

  • First, there is a clear recognition of the shift to the customer being in control and the importance of being customer-driven.
  • Second, there are significant barriers and limitations on current business capabilities that must be overcome to survive — let alone to grow and compete — starting with transformation of legacy systems that were built around products rather than customers.
  • Third, there are potential blind spots around customer expectations, technology and competition that are lurking around the corner of the not-too-distant future, creating forceful disruption.
  • Fourth, the pace and impact of change have intensified the need for agility, innovation and speed.

While business transformation progress is being made, significant work is necessary to compete in a customer-driven age. At the same time, the world is changing rapidly, and new expectations, risks, technologies, competitors and innovations threaten to significantly disrupt the insurance business landscape. For those unprepared, the change could be devastating.

The insurance industry is recognizing more and more that it is a target for potential disruption, because consumers are demanding – and getting – more transparency and responsiveness from company after company. Changes are being driven from both inside and outside the insurance industry along several different dimensions like technology, products, new players and partnerships. There are formidable hurdles for new entrants, but the incentive is huge for those who can remove the complexity of insurance and increase the value proposition for customers.

Insurance companies need to move beyond monitoring these developments to actively determining how the future will look. To prepare and respond, insurance companies must adroitly do two things simultaneously: modernize and optimize the current business while reinventing it for the future. It’s like changing the tire on a car while you’re driving at full speed down the freeway. Those companies that can do this will transcend merely surviving in an increasingly competitive industry and become the new leaders of a re-imagined insurance business.

Read more about how companies view these and other strategic priorities in Majesco’s research report, 2016 Strategic Priorities: Impactful Pace of Change.

Uber’s Thinking Can Reinvent the Agent

I read the article Nick Lamperelli wrote after attending the Insurance Disrupted conference titled “No, Insurance Will Not Be Disrupted,” with his conclusion that there are insurmountable barriers to the “Uberization” of insurance. I’ve developed great respect for Nick’s perspectives. But our team at Insuritas disagrees.

We think disruption within insurance (at the Uber level) is emerging. We just need to think about insurance in a very different way, much like how Uber thought about the ubiquitous taxi cab and getting a customer from point A to point B while making sure the customer actually enjoyed the ride. Uber knew a vehicle was a requirement to provide the ride, so they focused on reimagining the role of the driver to deliver a new, and enjoyable, customer experience. There are approximately 234,000 licensed taxi drivers in America – and there are approximately 466,000 licensed insurance agents.

Our Perspective

When our team thinks about the three primary actors in insurance – the insured, the agent and the carrier – we’ve drawn a couple of conclusions. First, we’ve concluded that the insurance carrier will not be replaced. The scale and immense capital required to insure the unknown is substantial. We believe carriers will continue to transform their businesses. Automated pricing algorithms and streamlined delivery systems will continue to emerge, particularly as the actuarial science and actual claims history affirms that the new algorithms and modified delivery systems work. There will just be winners and losers among the current providers.

Some thought leaders have been looking at the disruption in banking, particularly in lending, and suggesting insurance disruptors will try to mimic OnDeck, Kabbage, SOFI and Lending Club. These banking disruptors are making loans by underwriting repayment risk using nontraditional and publicly available data points and algorithms (e.g. “likes” on Facebook, Glassdoor ratings, LinkedIn contacts, etc.) to determine if a borrower is likely to meet her repayment obligation. Until there is a market cycle downturn, no one will know if these new underwriting algorithms using publicly available data will prove to be prescient or a disaster.

Some folks are thinking this same type of “disruption” is available for a new generation of insurance carriers. We think it’s important to remember that these new online lenders do risk losing the $100,000 they might lend to a borrower, but they can only lose the $100,000 they lent to a borrower. With insurance, unlike repayment risk, claims risk is open-ended, and the open-endedness of claims loss requires capital levels that make an entirely new model carrier entrant unlikely.

Just as Uber concluded that the role of the car should not be replaced in providing the customer with a satisfactory ride, our team has concluded that the insurance carrier will not be replaced in providing the actual insurance. Insurance customers, like taxi cab customers, aren’t happy with the current experience, so just as Uber decided to look at the licensed taxi driver, we decided to look at the licensed agent.

Uber and Insurance

Uber thought long and hard about the one actor it could reimagine to deliver the customer a simple, comfortable ride: the licensed taxi driver. Uber didn’t disrupt the product – i.e. the car – because it knew people still need a vehicle from point A to point B. Uber simply reimagined the driver experience so the customer got what he wanted. Uber reimagined a new generation of “drivers” operating with elegant new tools to finally deliver a ride the way a customer wanted it, a ride experience the customer would love. That includes: clean and detailed cars because of personal vehicle ownership; technology to better understand each driver’s addressable market; instant guidance on where the customer wanted to go and the most efficient way to get there; ways for the customer to instantly access a picture of the car and driver; the ability to rate, rank and celebrate great service instantly that in turn automatically leveraged more business for the driver; the ability to coordinate multiple riders on a single trip to multiple destinations to save time and money and lower the environmental impact of the ride; and a simple, instant payment method … and that’s just to name just a few.

Uber didn’t eliminate the driver. It couldn’t. Uber simply reimagined a driver who delivered the product a customer wanted – a comfortable ride. Consumers responded, and the rest is history.

Now, think about insurance. The actors are very similar – just think about insurance rather than a taxi ride:

  • the consumer is anxious for a new insurance experience;
  • the insurance carriers are like the ubiquitous taxi cab the taxi driver uses – the carrier may be a bit old and clunky with aging operators and legacy distribution capabilities (not as upgradable as a Toyota Camry), but, as the car is needed to get the customer from point A to point B, the carrier is currently the only source for the risk management products the consumer needs;
  • the licensed agent, who like our licensed taxi driver is the licensed intermediary who delivers the product the consumer wants. And we think it helps to think of the term “agent” globally – agent, broker, MGA, direct writer, core system, raters, IVANS, ACCORD, LeadGen – the collective delivery system of the insurance products to the customer today. Is it possible to reimagine the agent?

We believe the customer is simply looking for a better insurance experience. And, as with Uber, we are focused intensely on the agent. We see the same challenges Uber saw: Traditional agents and all the stakeholders surrounding them are strongly committed to the notion that there is only one way to deliver a customer/insurance experience, and it is through them.The taxi industry stakeholders were (and still are) insisting, “We have the vehicles, the licensed drivers, the medallions, the ride meters, the street maps, the taxi parking spaces, the taxi license, etc. and thus are the only platform able to deliver the ride the customer needs.”

Uber didn’t eliminate the driver; it simply reimagined the work and found a new generation of drivers delighted to deliver a reimagined ride. In that same way, our team is reimagining the licensed insurance agent in America.

A Customer Reimagines an Agent

What do today’s insurance customers want? The ability to shop, compare and buy all of the risk management products they need to protect themselves, their families and their small businesses in a simple, one-stop, omni-channel, comfortable and advisory shopping experience. They want to be able to buy multiple products in a single shopping cart, make a single payment at checkout and have an online insurance account that stores all of their insurance information so they never have to provide the same information twice, never have to keep paper records and buy and cancel all additional products using their online insurance account. The list would be long, all tied to a simple notion: a trusted, comfortable insurance experience.

Now, this is the hard pivot for all of us in insurance. Imagine in 2008 that someone asked you what you wanted from a taxi ride, and you ticked off all of the things the Uber driver actually delivers today, and that list was turned over to the taxi cab industry. Could you ever imagine the taxi industry getting close to delivering what you wanted? Ask that same question of insurance customers, let them tick off everything on their wish list for a great insurance experience, and hand that list over to the insurance industry.

The Reimagined Agent 

For insurance carriers, delivering their product to the customer requires a three-step process:

  • The application – collecting public and nonpublic information (NPI) about the character and collateral of a prospective insured;
  • The quote – once an application is complete, using actuarial science to profitably underwrite and price the claims risk;
  • The sale – once a price is accepted, payment is collected and coverage is bound.

We can leave it to historians to explain how we got here, but there’s a massive infrastructure, including more than 400,000 insurance agents and a multibillion-dollar lead-generation industry in America, designed to sell insurance products to the customer. It is a system almost as old as the taxi system. Go back to your list of things a customer might want for an insurance experience. How about, “I want a trusted adviser who works for me and gets me what I need in a safe and frictionless environment”?

As consumers, we don’t like providing private, nonpublic information to anyone, and we are reluctant to engage with people whose job it is to collect it, period. We never have, whether dealing with insurance agents, mortgage originators, tax preparers, government regulators, auto lenders, nurses, doctors, landlords or attorneys.”

Is it possible to imagine a new type of licensed agent with the tools (just like the ones the Uber driver has) that would let them provide a transformative insurance shopping experience: a simple, comfortable insurance purchase? Can we imagine a new generation of agent that can instantly access all of the public and non-public information about a customer’s character and collateral, deliver it to a wide stable of insurance carriers in exactly the format they need it, get instant quotes from the carriers that reflect the customer’s risk tolerance and assets to be insured, be available to provide any of the advisory insights the customer might want — all at exactly the moment the customer has an insurance need? What about a new generation of agents, fulfilled in their work as risk managers and customer advocates, operating in a seamless, frictionless ecosystem in service to the customer?

Similarly to how Uber has built a new generation of drivers, we are building a new generation of agents, who are empowered and excited to deliver insurance solutions to consumers, who are operating inside companies that have long and deep trusted brand equity with the customer and that have access to everything a carrier needs to know about their character and collateral, eliminating the dreaded insurance interview and application. Our new agent never prospects, sells or steers a customer; she simply focuses on delivering a frictionless shopping, buying and post-purchase service experience tailored to each customer exactly at the instant the customer needs it. We believe the role of an agent, with a completely reimagined operating environment, is more important and more valuable than ever before.

More than 5,000 consumers and small business owners ask our agents for help every month. Our agency owners have addressable markets and underwriting packets on more than five million households and get more than 30 million web visits a month with no cost of customer acquisition and application preparation. Our partners have underwriting packets filled with everything a carrier needs to know about character and collateral, ready to be delivered instantly to the carrier, and our reimagined agent is like the Uber driver who is simply focused on providing a concierge level of service to a consumer who has to buy insurance, making sure price, coverages and support are all frictionless.

In 2009, Uber imagined a new kind of taxi driver. In just six years, 162,037 reimagined Uber drivers are at work, earning $6 per hour more than the legacy taxi driver, while self-employed, controlling their destiny and glad to be providing the customer with a safe and comfortable ride. A new generation of agents is emerging, reimagined to reflect what the customer actually wants. We are very excited, as the customer is starting to respond.