Concept: To sell insurance without asking applicants any questions.
Quote: “What’s our long-term goal? To go from Ask it Once to Ask it Never – so customers don’t have to answer any questions at all.”
Observation: How about a long-term goal of protecting individuals and families from catastrophic financial ruin? I just had my annual physical. My doctor said his new concept was to not ask me any questions and to get me in and out of his office in two to three minutes. That’s the kind of “customer experience” I want when my life is on the line. How about you?
This article is the fifth in a series on key forces shaping the insurance industry. Parts One, Two, Three and Four/Five can be found here,here,here and here.
Trend #6: Delivering on the customer promise is the key
The ability to dynamically innovate (new risk pools, new segments, new channels) and deliver on the customer promise will become the most important competitive advantage as known risks continue to get commoditized and move to the direct channels.
One of the key forces driving the growth of insurtech is the current lack of engagement and, in some instances, the lack of trust between consumers and the industry. In our view, the ability to combine innovation with a model that improves the way individuals perceive and interact with insurance is critical in driving value creation.
Claims is at the heart of the customer promise
At the heart of the customer promise is the claims process. In many ways, it’s surprising that innovation in this area has been relatively modest given its economic importance (representing 60% to 70% of the overall cost base) and its importance in driving customer satisfaction. Our analysis has shown that the impact on renewals rates between a poor or positive claims experience is as high as 50%.
In most cases, claims acceptance rates are very high (often more than 90%). Despite this, individuals are skeptical. This is driven, in part, by the approach taken by the industry. As a minor example, often while you wait for your call to a claims center to be answered, you are reminded of the consequences of making a fraudulent claim. The insurance company seems to imply the most likely scenario is a fraudulent one. The interaction is off to a bad start before it’s even properly begun.
We have positioned claims innovation as one of our four key pillars with a solution built around a customer-managed claims platform called RightIndem. RightIndem allows an inefficient analog process to be converted into a digital one, resulting in significant cost savings for the insurer — both in claims handling costs and cost of claim. More importantly, though, the platform significantly enhances customer satisfaction by placing him or her at the heart of the process and by being easy, mobile-enabled, transparent and quick. (As an example, total loss motor claims were settled in a matter of days rather than the 21-day average that exists in the U.K.).
New models, new channels, new risk pools
Customer engagement is another important area of innovation, with several new approaches being tested. It’s important that insurance becomes more relevant and tailored to individuals’ needs and circumstances. As this happens, insurance moves from being a “sell” decision to a “buy” decision. Our earlier article on just-in-time insurance explored some of these trends in more detail.
Innovation is also allowing new ways to interact with customers, and we see potential in solutions that enable insurance at point of sale or point of demand.
In addition, new risk pools that allow niche or tailored solutions make insurance more relevant to individuals.
Finally, there are a number of models that are looking to change the nature of the customer promise. Insure A Thing (IAT), for example, has turned the traditional insurance process on its head. Rather than pay an upfront premium, customers are placed in affinity groups where cost of claims is shared among members, with a safety net provided by an insurance carrier. All parts of the value chain are aligned; IAT only earns fees when it pays claims.
Innovation, if insurers embrace it, will allow them to fundamentally change the customer dynamic and to create a new value proposition that is truly appreciated and valued by the customer.
We hope you enjoy these insights, and we look forward to collaborating with you as we create a new insurance future.
Next article in the series: Trend #7: Internal innovation, incubation and maturing of capabilities will no longer be the optimal option; dynamic innovation will require aggressive external partnerships and acquisitions.
This article is the third in a series on key forces shaping the insurance industry. Parts One and Two can be found here and here.
Trend #3: Just in time: The majority of the simple covers will be bought in standard units through a marketplace/exchange, permitting just-in-time, need and exposure-based protection through mobile access.
Why can’t insurance work in the same way as Amazon, easy, seamless, one-click, no hassle, managed through your mobile and regular updates?
Actually, this is starting to become a reality. Insurers and start-ups have already taken up this challenge and significant progress is being made.
Aviva, for example, are piloting a home insurance product where customers won’t need to answer any questions and Digital Fineprint will autofill your insurance policy application form for you by using your social media information.
Data availability and technology are enabling ‘blind rating’ of risks by insurance companies, providing guaranteed acceptance and prices to customer through direct or broker-assisted channels.
Insurance still has many consumer challenges to overcome, from a lack of understanding, lack of trust and lack of perceived benefits. If it’s considered at all, it’s often as a grudge purchase. The comment that insurance is sold not bought remains true in many instances.
As the digital economy evolves, the opportunity to change this dynamic will multiply.
The key drivers of this change are:
Ability to interact with the customer through their mobile in real time
Ability to offer insurance at the point of sale or time of need
Ability to tailor the offering to the individual’s specific circumstances (location, time, activity, risk)
Ability to leverage available information to simplify the process
Innovative start-ups like Insure-A-Thing (IAT)are reinventing the insurance ecosystem by improving customer trust & transparency, and encouraging improved behavior through retrospective premium payments, based on actual claims.
Democrance is revolutionizing the distribution and servicing of micro-insurance products at POS through telcos and Uber-like shared economy technologies.
Other examples of where this is already happening include, Kasko which enables consumers to purchase insurance at the point of sale/demand – it’s relevant, it’s easy and it’s digital. Similarly, Spixii, an insurance focused chatbot knows if you’re in a ski resort and willout and let you know that your travel insurance doesn’t cover extreme sports and then allow you to purchase the additional protection – again it’s relevant, it’s easy and it’s digital.
Our view is that many relatively simple personal lines products will evolve over time to these types of interactive model. Rather than standard policies covering fixed periods of time, these new products will switch on and off for the period they are needed and will cover the specific circumstances/risk. This will encourage adoption at more affordable prices and importantly demonstrate that insurance is providing real value when it’s most needed.
The sharing economy is a further example of how innovative insurance solutions are being developed to meet new and emerging consumer needs. Start-ups like Slice and Oula.la are looking to provide tailored insurance protection for Airbnb property owners that switch on and off to cover the period when the property is rented.
We also expect to see market place or exchange platforms being developed to help facilitate the process. Again, this is already happening. As an example, Asset Vault allows customers to log their physical and financial assets in a secure online repository and can then help customers find and tailor optimal insurance coverage based on their specific circumstances.
We hope you enjoy these insights, and look forward to collaborating with you as we create a new insurance future.
Next article in the series: Trend #4: Solutions will continue to evolve from protection to behavioral change then to prevention – even across complex commercial insurance
This article is the first in a series on key forces shaping the insurance industry.
Trend #1: In the future, insurance will be bought, sold, underwritten and serviced in a fundamentally different way, and that creates opportunities for industry leaders and problems for industry laggards.
We are still in the initial stages of what Gartner terms the Hype Cycle, with an ever-increasing amount of noise and expectation without clear impact and results.
Have we reached the peak of inflated expectations? We expect not. Certainly, valuations continue to rise with relatively new businesses still at the effectively pre-revenue stage commanding valuations in the tens of millions. Hard to justify on any fundamental level.
However, at the core of insurtech, we continue to see a huge opportunity to innovate in a sector that is ripe for change – lack of customer engagement, lack of customer trust, outdated and legacy infrastructure combined with traditional and unpopular products all highlight the need for change and the underlying potential.
Ignore Insurtech at Your Own Risk
Eos has talked with dozens of insurance companies, and there is a wide range of responses from the insurance community about when, where, if and how to engage with insurtech.
The top insurance companies have, for the most part, followed a two-phased approach combining an innovation team with a corporate venture initiative. These carriers see the impending disruption clearly and want to be able to shape and influence the impact. The results so far have been mixed, as some large incumbents have found it difficult to circumvent legacy mindsets, governance, organizational structures and technology.
Other carriers have yet to agree/settle on an approach to deal with these disruptive forces.
Eos calculates that the impact of insurtech is at least 40% to the average carrier. We calculate that by looking at a 20% upside, and a 20% downside scenario:
On a conservative basis, insurers may risk losing at least 20% of their business to disruption. On the flip side, for those that embrace innovation there is an opportunity to grow their business by 20%.
Stated another way, the net present value (NPV) of insurtech is $100 million for every $1 billion of premium on the downside and $285 million on the upside, assuming a top-line and profitability improvement.
Timing is also key, as the scale of adoption and impact is not linear. The upside opportunity by investing now in the right opportunities is likely to give an insurer a lead that others can’t catch — essentially a “first-mover” advantage. At the same time, the lost opportunity by delaying is exponential, not linear.
There are many ways to create and capture value
The positive momentum is further driven by the growth of insurtech into all areas of the value chain and across multiple product lines. We see two broad types of innovator: the “enabler” and the “disruptor.”
The enabler is a business that significantly improves an existing part of the value chain driving efficiency, improved customer satisfaction or better customer outcomes. A great example is RightIndem, which is transforming the claims process by creating an end-to-end, customer-managed claims process.
The disruptor is a business that has developed a new approach to fulfilling part, or all, of the value chain. This is illustrated by Insure A Thing, an insurtech startup that has created a way of providing insurance without the need for an upfront premium.
On face value, the disruptors may appear more exciting, but the enablers perhaps better illustrate the underlying potential of insurtech, as there are an abundance of opportunities for most insurance companies to hit “the low-hanging fruit” and do things better, more cheaply and more aligned with the customer.
Insurtech is not an overnight revolution, and there are many ways to create and capture value that combine different elements of the above, for example:
Low-hanging fruit — these are mostly your enablers,
True differentiators — a combination of enablers and disruptors
Measured bets for the future — all pure disruptors
At Eos, we continue to adapt and evolve our investment strategy to take advantage of these opportunities, with an initial focus on our three core platforms:
Artificial intelligence for risk selection, underwriting, pricing and capital optimization
All of the above underpin our first trend and belief that the future of insurance will look very different than today, with all areas of the value chain from distribution, underwriting, products, claims and customer engagement changing fundamentally:
Bought differently: As asset ownership (cars, homes, etc.) mobility and crossborder employment evolve with the shared economy, insurance covers (at least personal lines initially) will be bought on a just-in-time, on-demand, needs basis. Greater information transparency on the buyer and seller side will enable direct interaction with lower cost of intermediation/brokerage. We see this starting with simpler personal line covers and gradually evolving to more complex risks.
Sold differently: Insurance will be quoted, bound and issued at points of transaction/sales/service enabled by ubiquitous IoT, telematics and external data availability. Selling will become increasingly distributed and linked to companies with strong customer engagement across both B2C and B2B sectors.
Serviced differently: End consumers will choose how to be serviced and made whole via a channel, time and a manner of their choice. Servicing, especially claims, will focus on “delivering on the customer promise” as an integral part of the policy.
InsurTech Week 2016 hosted by the Global Insurance Accelerator in Des Moines was a great experience. It is quite interesting to see the energy, excitement, new ideas and investment in the insurance industry. Brian Hemesath and his team at the GIA have done a great job of harnessing this activity and being a positive force for change in the industry.
There are two themes I would like to highlight. The first is that the ingenuity and sheer variety of the startups is astounding – and will ultimately be a great thing for the industry. The second theme, and perhaps the more subtle one, is that there is a collegial atmosphere and a common sense of purpose about the role of insurance in society and business.
The 11 insurtech startups participating in this InsurTech Week are a microcosm of the larger movement. A few examples are illustrative.
Abaris – an innovative, direct-to-consumer solution for retirement planning, starting with income annuities.
Insure A Thing – an idea for a revolutionary new business model for insurance that includes making payments in arrears (post-claim).
Denim – a social media ad platform for insurance with a vision to ultimately reimagine marketing and distribution.
ViewSpection – a mobile app for DIY property inspections to help to inexpensively provide more information to agents and underwriters.
The other participants also had innovative solutions for various lines of business and addressed key business issues in insurance today. They are: Ask Kodiak, Gain Compliance, Montoux, InsureCrypt, Elagy, CoverScience and Superior Informatics.
Some are in the early stages. Some originated outside North America and may or may not enter the market here. Some may not even be approved by regulators in their current form. But that is true of the broader set of the hundreds of insurtech companies that are active today.
The main point is that there is a great deal of innovation here, and many of these companies will play a role in the evolution of insurance, one way or another.
The founders and investors in insurtech companies certainly desire to make money. Insurers that are engaging with these firms hope to gain competitive advantage. But in keeping with the culture of the insurance industry, there is also a great atmosphere of collaboration and even a sense that there is a higher purpose.
I don’t want to sound too dramatic, but there is a sense of altruism here – a sense that there are great opportunities to make the world a better place. Many of the insurtech companies see opportunities to improve safety in homes, in businesses, in factories and on the roads. The potential to significantly reduce accidents and deaths is tangible. Providing new services and capabilities to enhance lifestyles, improving individual well-being and just making it easier for customers to do business with the industry are also common purposes.
There is a spirit of cooperation among insurers, insurtech and other industry players, even in cases where companies are competitors. Not to criticize other industries, but insurance is about a lot more than selling a widget and making a buck.
Overall, I believe this is cause for optimism for the insurance industry. It is not easy to transform from today’s business models, processes and systems into a future that embraces all the new ideas coming from insurtech. But many in the industry are now actively involved in building strategies, experimenting with new ideas and technologies, launching ventures and generally being willing to think differently.
While many industries are being disrupted, insurance is more likely to morph into a better version of itself, with incumbent players learning from and partnering with new players.