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The Insurance Renaissance, Part 5

This is part 5 of a 5-part series. Part 1 can be found here. Part 2 can be found here. Part 3 can be found here. Part 4 can be found here.

A Thirst for Reality

Today’s Insurance Renaissance shares one very clear trait with the Renaissance of the 1400s — in both cultures we find the thirst for reality.  If you look at the paintings of Jan Van Eyck or the sculptures of Donatello, you see a cultural wave influenced by the desire to see and know reality and portray it. Leonardo Da Vinci wrote about the change. When he described the art of Giotto di Bondone, his predecessor, he said, “Giotto appeared, and drew what he saw.” That was the beginning of a shift toward “real” pictures of people painted in the right perspectives, colors and tones.

The insurance industry has always understood this craving for reality. In order to know and understand, they must first see clearly. The concept hasn’t changed much, but the tools and dimensions of perception have certainly changed.  We hone our tools (software and hardware), find the right paints (data streams, sensors, evidence providers) and practice at producing the correct colors and tones (analytics, product development, marketing messages). But the questions of reality and where an insurer fits into the current market are complex. When it comes to prioritizing, it seems that the “thirstiest” areas hold the most promise for technology’s answers. You could make a long list of how our organizations are now thirsty, but here are a few examples.

  • We need new products that meet new market needs and customer expectations
  • We want data to uncover new risk areas and improve risk selection
  • We want predictions of customer trends to build appropriate channels and products
  • We need to become digitally enabled
  • We need to transform claims management … and eliminate or reduce claims proactively with customers
  • We need to grow analytic capability to well beyond operational effectiveness

See also: How to Turn ‘Inno-va-SHUN’ Into Innovation  

So how will insurers, as a part of the Insurance Renaissance, capture reality and put it to good use?  Let’s look at six areas in particular.

New Products – Meeting an Unfolding New Market

With the emergence of new technologies, new demographics and the falling of industry boundaries, we are seeing the growing demand for new, innovative and (in many cases) personalized insurance products than ever before. These range from products focused on the “on demand” economy, to new risks such as cyber and new needs for the sharing economy. All of these are unleashing a demand for innovation, simplification, and in some cases unbundling of the insurance risk to meet very different demands and expectations. Insurers need to capitalize on these opportunities to seize new markets and gain competitive advantage to drive revenue and profitability.

Risk Selection — From Answers to Eyes

The Internet of Things (IoT) from the connected car to the connected home, wearables for healthy living and more has given eyes to risk. For years, a commercial insurer would have to rely upon answers to questionnaires, claims experience and all of the numbers associated with insuring a business risk. Now sensors, drones, cameras and satellites are capturing not just real data, but real images. All of these efforts represent greater control and decision capabilities for insurers whose systems are prepared to use them.

Customer Profiles — Getting to Know Them

Who are we insuring? For centuries, insurers never truly know their insureds. Now, they can, leveraging real-time feedback on their day-to-day living, driving, exercise and travel. Technology has advanced far enough that artificial intelligence (AI) and demographic profiling can potentially recognize risk patterns that policyholders don’t recognize themselves. The additional consumer knowledge will contribute to additional, valid, automated decisions, streamlining the process. Automated decisions will contribute to flipping the insurance model upside down and beginning to focus heavily upon prevention.

See also: Data Science: Methods Matter  

Digital Readiness — Bringing the Pictures Home

Insurers are now beginning to rely upon the tools that consumers wear, the devices they carry with them and their desire to do business where they are, at times that are convenient for them. Consider this: The consumer is actually the one paying for the equipment that the insurer is using to foster the relationship AND track lifestyle. Every digital interaction between the insurer and the consumer is a teachable moment for the insurer — but only if the insurer is digitally prepared and developing an omni-channel presence. So, if the insurer will simply “go half way” and provide the back-end platform, the consumer will provide the front-end communication devices, the telematic sensors and the location data. To bring this back to our analogy, it is the insurer prepping the canvas and the policyholder painting a self-portrait. That’s a real, modern, Insurance Renaissance concept. But insurers can’t tap into free portraits without providing the canvases.

In many cases, now that greenfields, startups and aggregators are filling information gaps and now that companies such as Majesco are providing cloud-based platforms, an insurer doesn’t even need to make a tremendous upfront investment to become digitally prepared. It simply needs to have the desire to capture opportunities and a willingness to modify business models. It is the thirst that matters.

See also: How to Plant in the Greenfields  

Claims Transformation – From Payout to Prevention and Elimination

In today’s fast paced world of disruption and transformation, the management of claims is increasingly complex, challenging and in a constant state of flux. Insurers who want to deliver a new level of customer experience to compete, must move beyond efficiencies, cost reduction and claims payment to innovating the claims process to enhance the customer relationship and to prevent or eliminate claims using new technologies.  The response to potential and actual catastrophic events is proactive, with a focus on saving lives, minimizing or eliminating damage (think about an alert for a severe thunderstorm with hail to get a car under cover) and to provide customers a feeling of personalized care.

Analytic Capability — Making the Invisible Visible

Trends will always be with us. They may annoy us with their persistence, but if there were no such thing as trends, there would be far fewer opportunities for competitive growth. It doesn’t matter if trends are demographic, operational, economic or atmospheric…we know more when we see trends clearly.

Analytics is like a periscope that reaches up out of the depths of the home office and views the landscape, allowing us to make the decisions that will keep us on course. Today’s analytics are far more precise (and fast) than they used to be, so our virtual picture can be strikingly close to reality.  Analytic answers color in our blind spots, bringing light to areas where we have traditionally been in the dark. It adds a new dimension to our decisions and also allows for improved experimentation and testing.

The Insurance Renaissance — Front Row vs. On Stage

Of course, the end of all of this improved observation isn’t just a better picture of reality. If that were the case, insurers could be content to sit and watch.  The end result of the clear picture must be an active performance based upon perpetual observation. The industry will reward the players, not the spectators. For those who are watching — the pundits, the experts, the researchers and the industry — they are likely to see that the thirst for reality is simply a small step in a gigantic shift from a focus on indemnity to a focus on prevention.  Someday, perhaps, prospects will search for companies with the fewest claims — knowing that those insurers are the ones who actively turn their knowledge of reality into increased safety, reduced loss and improved lives.

The Insurance Renaissance, Part 4

This is part 4 of a 4-part series. Part 1 can be found here. Part 2 can be found here. Part 3 can be found here. 

In 1494, Luca Pacioli, a Venetian friar and mathematician, published a textbook that described the use of double-entry bookkeeping. Drawing upon his knowledge of Venetian merchants, Pacioli showed how this type of accounting kept an accurate record of accounts. This gave merchants a much clearer picture of their financials and business. With the clearer picture, merchants would both avoid loss and feel more confident in the use of funds to grow.  Double-entry bookkeeping was a tool for improving earnings and profitability.

Today, earnings and profitability are still a priority. Earnings keep insurers in business. Just as merchants during the Italian Renaissance were looking for any way they could get ahead, today’s insurers are seeking new methods and tools that will power their growth, earnings and profitability. The questions remain the same: What will cause us to lose less of what we have earned? What will affect our growth and profitability? As we explore the new Insurance Renaissance, we are finding that many of yesterday’s answers are apropos to today’s questions.

A matter of models

For insurers, one model has worked for years; it centers on claims. If we keep claims loss ratios healthy within product portfolios by reducing the claims cycle time and keeping expenses under control, then insurers meet their obligations and regulatory mandates and can make a profit. This model has been effective. It has incrementally improved over time, with experience.  But taking an alternative model for claims in light of new tools and methods can radically improve the claims environment and financials.

Why should insurers look at alternative models? Like Pacioli sketching out the best “new” methods of bookkeeping, we can also sketch out the best ways to think about new insurance models.  For insurers, the best new models will have a positive impact on claims and expenses — and, more importantly, enhance the customer relationship and experience. We can start with the assumption that claims on any of our products are higher than they could be and that the cost of administering the business is also higher than it could be. These concepts are basic and are nothing new, but innovative models often begin with the most mundane truths.

See also: The Coming Renaissance

New business models will lower claims

No matter what form of insurance you sell, technology-led opportunities for risk prevention (and even elimination) have never been better. Connected devices in cars, in homes, on wrists and in pockets are giving insurers data that will allow them to know their customers and push them toward safer and healthier behaviors. New data streams will supplement insurer knowledge with outside evidence. The organization that places its focus on prevention and elimination (instead of payouts) will grow very adept at using data to enhance the customer relationship and experience, while fundamentally changing the claims model. It will provide greater event predictability and proactive management. Fraud will decline. Costs will decrease. Risks will grow much clearer.

How low can claims go? Zero is certainly not attainable, but dramatic claims reductions are likely to occur as homes, cars, buildings, fleets, people and much more grow more connected. Insurer branding may shift to the point where insurers are considered prevention and elimination companies — providing real and valuable risk management services and capabilities. Their value proposition will be less about claims support and more about customer risk management and experience. This kind of business model will require a new financial model to accompany it — not unlike paying for a home or property security system. The offering will be in prevention and elimination, not in payout.

New business models will lower expenses

The sharing economy has arrived. Office space, server space, vacation space, tools and rides are all sharable. It makes sense, then, that the new models of business and technology will find the reusable and the sharable and put them to good economic use. Insurers have existed as operational islands for decades, in some cases to protect the company’s proprietary information, and in other cases just to maintain control. Today, it is possible to have greater control, more flexibility and greater security while operating in a shared cloud environment. The cloud lowers expenses and gives insurers greater investment capability, often while improving speed to market, decreasing total cost of ownership and providing greater agility to respond to change. Creating an insurance model with the use of cloud services will allow for agility to adapt with ease, innovation to reimagine the possibilities and speed to seize the opportunities for entrepreneurial testing and long-term success.

See also: Data Science: Methods Matter

New business models will open new revenue streams

Cable television had a high hurdle to surmount when it proposed to charge households for TV service — a service that was still available for free. It had to prove its value before the return on investment would be clear. It had to show it could realize income from both advertisers and subscribers. Today, cable providers, internet companies and phone and mobile providers have entered a perpetual model flux where following consumer trends and providing new offerings are the only sure path to steady revenue, growth and customer satisfaction.

Insurers may be on the cusp of a similar model flip, where models are continually in flux and unstable. An insurer’s outside income may not always be premiums. An insurer’s stability will be found in its capacity to adapt quickly, mining the opportunities to be found in value-added services, relevant partnerships and innovative offerings. These new revenue streams MAY lower the need to focus on claims ratios, or they may simply improve combined ratios overall. Will people pay their auto insurer for deeper automotive care that may extend the life of the vehicle? Will they pay their home insurer for connected home monitoring if it lowers their insurance premium and manages their risk? Could a life insurer offer variable premium products based on data gathered through an individual’s mobile phone regarding lifestyles, travel, activity and perceived stress levels?

Anything is possible —and that’s the point. For insurers, new models are on the rise that will help them enjoy their own Insurance Renaissance. Preparing to meet the new economy with a Renaissance-ready infrastructure will turn the opportunities into real solutions … and real customer value.

The Insurance Renaissance, Part 2

A few weeks ago, in our opening blog series on the Insurance Renaissance, we discussed how the climate of change we saw in the Renaissance of the 1400s holds lessons for the current state of insurance. In both periods, we see the epicenters of change and innovation.

For insurers, the Renaissance is more than an analogy. It represents a real pattern of cultural shift with insurance business implications. Its hallmarks are now repeating themselves. For example, today we see digital use and globalization as potent business drivers. If global barriers to communication hadn’t fallen, and new technologies hadn’t become so prevalent, it is unlikely that we would be in the midst of such groundbreaking change. The lowering of barriers during the Renaissance brought about similar change.

During its beginnings, Florence was in the midst of a trading boom that brought new money, goods and ideas into the region from Western Europe, Greece, Arabia, Egypt, Persia and China. Banks grew. Florence became the financial center of Italy and the broader region. Trade routes reduced provincial barriers. Shipping improved. A system of insurance was even in practice, protecting Italian cargoes on their voyages as early as 1300.

These cultural crossings (networks!) resulted in leaps forward in art and science. Ideas were currency just as important as textiles and spices. Innovations in practical sciences, such as mathematics and architecture, benefited from broader thinking. It was funded and driven by the new wealthy — a trading class that hadn’t previously existed in quite the same way. Today, we are seeing a similar influx of money and a new class of insurance technology investment. The Sydney Morning Herald, covering a report on disruption by PwC, recently stated it this way:

“The insurance industry has largely remained the same in the past 100 years, but the sector is in for its biggest shakeup as investors continue to pump billions of dollars into ‘insurtech,’ fueling sweeping changes through technology.

“Insurance is the second-most disrupted industry today thanks to a growing number of start-ups and technology companies eyeing slices of the insurance pie.”

So, where insurers previously may have had great ideas, they now have ideas + technology (InsurTech) + financial resources + people/talent to pursue their ideas. At the same time, with no barriers to access, no legacy systems to hold them back and access to robust insurance cloud platforms, start-ups and greenfields from within and outside the industry are becoming new, innovative players. For organizations that wish to remain competitive, the questions then become:

How do we adapt with ease to the change and disruption?
Can we reimagine the possibilities of doing things differently?
What do we need to do technologically to seize the opportunities in a shifting market?

The new pursuit of agility, innovation and speed

Business innovation and digital readiness is a real, palpable, bankable asset. Organizations that plan to fuel their own growth, create partnerships and generate innovative products need to quickly consider and shift gears to transform to the digital age, highlighted in our Future Trends: A Seismic Shift Underway report. Simplifying environments to bring consumers closer to service and closer to the point of sale will help. Modernizing environments to generate and test products faster is vital. Transforming business operations, using data for continual improvement and opening every available channel are goals worth setting. To thrive, large or small, the new organization needs agility so that it can quickly capitalize on the innovative ideas found by mixing itself in the marketplace.

Insurance, once somewhat isolated, is now becoming part of the digital mix. Like adding an Indian voice track to a French pop tune with a rap beat, the results can be pretty hip. Where can insurers find inspiration in the cross-industry digital mix? How do they spontaneously get inspired?

The short answer is, “Look around.” But the real answer is, “Look nearly anywhere, and you will find innovation.” Genius moments happen most often in environments where groups of people are in touch with industries, geographies, technologies and groups outside of their own environments. Those groups include, of course, consumers. Looking at consumer purchase patterns across all industries will give insurers a new view of how to reach them.

For example, recent Google research found that nearly 20% of smartphone users research or purchase products while they are in bed in the morning or evening. Mix this fact with the idea that consumers are also looking for multiple quotes and good information on insurers and you can understand how mobile-ready aggregators (such as PolicyGenius) are on the rise.

Urbanites who seldom drive don’t want to pay high auto premiums. They might rather opt out of driving altogether. Mix that trend with telematics capabilities, and a pay-per-mile insurance product (such as MetroMile) makes tremendous sense. It doesn’t take real genius to see genius opportunities. It just takes time spent observing customer and market trends and marrying those trends to technological capabilities.

Customers are also increasingly moving their retail purchases to online purchases. That’s great news for insurers who have never been terrifically suited for retail-type sales anyway. What insurers need is face time at the right time, when someone recognizes his or her need for it. Hence, we see insurers increasingly partnering with companies that can buy them face time with products that match up with timely needs. Digital capabilities, integrated data capabilities and agile administration will all assist insurers as they reach into the mix to find their unique niche of opportunities. The same InsurTech that is causing the formation of insurance start-ups and is funded by venture capital is available to traditional insurers. In many or most cases, established insurers are in a better position to capitalize on it by simply prioritizing their need for innovation — deciding that their organizations will be centers of innovation.

See Also: The 5 Charts on Insurance Disruption

Insurers can tap into further ideas by looking at product trends in foreign countries, tapping into the expertise of technology partners, working cooperatively with universities to hold innovation days, partnering with companies outside the industry like automotive, retail and more and spending concerted time looking at the road ahead. In all these cases, insurers will find innovative encouragement by inviting ideas from outside the organization to transform the culture and ultimately the business. After all, it is the Renaissance within each individual insurance company that will provide innovation, excitement and opportunity to compete. So pursue agility, innovation and speed … and join the Insurance Renaissance rapidly unfolding.

The Insurance Renaissance (Part 1)

It was in 14th century Florence that an epic awakening happened. It was all-pervasive. It wasn’t just art that began to thrive. Philosophy, economics, culture and science began rapid change, too.

Education, technology and literature were thrown into a cauldron of modernization, and world-shaking disruption and advancements spread rapidly. Fast-forward to today, and the comparison is striking. As we enter a new era of disruption and change underpinned by new technologies, business models and more (see Future Trends: A Seismic Shift Underway), the past offers an opportunity to guide and inform our future. The insights may help us see opportunities from a new perspective.

We’ve identified dozens of parallels and lessons from the Renaissance that can give insurers and technology experts food for thought as they prepare for this journey. Over the coming months, we will be taking a look at the renaissance unfolding in insurance and reflecting on when the world was shifting from the “dark ages” to a future of opportunities, possibilities and enlightenment.

See Also: The Five Charts on Insurance Disruption

As a preview, consider the original Renaissance and these modern parallels to today’s:

Focus on People

In the dark ages, individuals didn’t matter on the level they did during the Renaissance, when individual thought was cultivated and education encouraged. People gained freedoms to act and create in ways they hadn’t thought of before.

Today, technology and connectivity have brought a new level of individualism to insurance. We are moving from mass standardization to hyper-personalization for everything from marketing to product pricing. The individual voice, rather than groups, matters more than ever.

Universal Access

The Renaissance changed communication. Moveable type and printing allowed communication to be more widely disseminated to the larger population.

In today’s world, we can reach nearly everyone, any time, anywhere and in any way.  Transactions take place on mobile devices. Social media has made it so customer thoughts and decisions are not hampered by distance or hours of operation. The enlightened and prepared insurer has nothing standing between it and its customer. “Trade” has blossomed in the city of the internet.

Reality and Empiricism

Art and science in the Renaissance shared a trait — the drive for a “real view.” Artists approached painting and sculpture from the standpoint of realism, while science began to revisit the idea of research and empirical evidence.

In our era, at least for the last several decades, insurers have also attempted to operate from a standpoint of mathematical certainty — pricing products based on historical data trends. Yet the digital era is bringing with it an entirely new set of real-time data streams and, with those, real-time, personalized analysis, pricing and decision-making. Our new perspectives will soon allow us to see into individual lives and habits with striking clarity. (For more on this, see John Johansen’s blog series on Data Symmetry.) We will enjoy enhanced levels of insight to engage and service customers as never before.  And all of this reality will be brought to us with dramatic speed. Insurers that are prepared with the agility to consume and analyze data in real time will have the advantage over their competitors to better serve their customers.

Money-Driven Innovation

The Renaissance didn’t happen overnight. It was spurred by a convergence of factors, the greatest of which was increased wealth. Trade in Florence had produced a new class of financier who was willing to fund artistic and scientific endeavors. Wealth created ease; ease allowed time for thought and innovation.

Our modern businesses are also the beneficiaries of affluence. Population and economic growth have created a culture where even many of the economically disadvantaged have access to digital and mobile technologies. Those technologies provide online access to insurance to protect them against a growing array of risks.

Likewise, investments in the 20th century helped insurers become more efficient and more accessible, fueling an improved product and service landscape within the traditional insurance business model.

Today’s renaissance, however, is moving well beyond the traditional model. Significant capital investment in new insurance greenfield or start-up companies is fueling massive innovation in products, services and business models. For reference, simply consult the CB Insights Periodic Table of Insurance TechCB Insights has indicated that Q1 2016 has already topped the record for most early-stage insurance tech deal activity (Seed/Series A). This includes two start-ups: a peer-to-peer insurance company, Lemonade, and a small business insurance start-up, Next Insurance. Interest and investment is also expanding beyond venture investors to carriers and reinsurers such as Guardian Life’s GIS Strategic Ventures investment in health benefits startup, Maxwell Health and many more. For the 130-plus start-ups and private companies in the insurance tech space, CB Insights indicates that more than $3.5 billion in aggregate funding has been raised.  Money is the seed and the fuel for the massive innovation taking hold in insurance.

In the coming weeks, we will dig deeper into the details of the insurance renaissance. We will uncover some of the philosophy behind modernization, while also thinking about the practical aspects of improved operations, digital capabilities and customer service. In each case, we’ll be keeping our focus on agility, innovation and speed so that we won’t just be learning about the renaissance, but we’ll be living out its lessons within our organizations.