Tag Archives: insurers

Do We Even Need Insurers Any Longer?

Voltaire once said that “if God did not exist, it would be necessary to invent him.” Could you say the same about insurers today, I wonder?

It is striking that, as organizations have sought to come to terms with the pace and scale of change now confronting them, the story of Kodak’s rapid decline from controlling 90% of U.S. film sales and 85% of camera sales to eventual bankruptcy has emerged as the cautionary tale of what can happen when you fail to keep pace with technological change. The corporate equivalent of the man who failed to sign the Beatles.

However, what many people forget is that Kodak actually invented the world’s first digital camera — in 1975. Far from being some sort of industrial dinosaur, therefore, Kodak was an innovation-driven company operating right at the cutting edge of photographic technology. And while endless books and articles have been written about the reasons for Kodak’s demise, in my view, the principal issue was less the failure to keep pace with change and more a lack of imagination.

See also: Matching Game for InsurTech, Insurers  

Kodak could not imagine a world where a digital camera would be for anyone but the dedicated professional, given its (at the time) prohibitive cost. Kodak could not imagine a world where processing speeds, image resolution, battery life and storage capacity would increase exponentially, at a fraction of the cost. Kodak could not imagine a world where people would not wish to take rolls of film down to the chemist to get them developed, pick them up a few days later and then diligently stick that “Kodak moment” in an album. Kodak could not imagine a world where everyone would carry a mobile phone that contained a camera that allowed images to be instantly shared on vast online networks.

If Kodak hadn’t been helping invent this new world, the failure would have perhaps been more understandable. At the time, such a world must have seemed to have been drawn from the pages of a science fiction novel. And executives’ lack of imagination was compounded by a fatal cocktail of arrogance — Kodak famously saw little point in sponsoring the Los Angeles Olympics in 1984 given its dominant position, allowing Fuji to gain a foothold in the U.S. market and grow its market share from almost nothing to 17% by 1997 — and a complete failure to articulate and execute a plan once the scale of the threat to the core business had become clearer. Fuji, faced with the same market dynamics and yet without the benefits of Kodak’s pioneering R&D, did not fall into the same trap.

To my mind, there is a clear read-across to the financial services industry, right now.

There is no shortage of activity. Market commentators and the media are lining up to sell their vision of both the El Dorado that lies just over the horizon and the sixth circle of Hell (heresy, for those of you who don’t know you Dante!) that awaits those who fail to convert to this new religion based on innovation. Every large player has got some sort of incubator or lab or chief innovation officer, whatever that is. Joint ventures are being formed. Data scrubbed. Analytics teams hired. Digital strategies unveiled. Billions of dollars is pouring into fintech and insurtech startups, most of which will likely not survive the first round of funding.

But does the innovation go far enough? Are the incumbents correctly reading the signs but merely agitating the surface in response, while deep down changing nothing? Are they like Kodak, incapable of imagining what tomorrow’s world could look like, because to do so conjures up an image so terrifying that it implies that they should torch their existing business so as to give birth to a new one from its ashes?

This question is of particular relevance to the insurance market, an industry whose often-archaic business practices and antiquated operating models, not to mention huge frictional costs and under-investment in IT systems, must have the financiers and techies in Silicon Valley licking their chops in anticipation. Show me another industry where a U.S. client, say, will find its risk placed via a local broker, via a U.S. wholesale broker, via a London wholesale broker, via an MGA, into a Lloyd’s syndicate, only to be reinsured via a FAC reinsurance broker to a reinsurer and then potentially via another treaty reinsurance broker to another reinsurer, with each stage of the chain clipping the ticket.

How much of every dollar of premium goes to providing the actual cover versus feeding a serpent in danger of swallowing its own tail?

It doesn’t take much imagination to see the huge potential for eliminating or automating steps in this chain, creating value for the disruptor and hugely improving client outcomes in terms of cost and service levels. But the real winners here will be those who have the scale, firepower and smarts to invest in the analytics and systems to drive not just marginal efficiency improvements in discrete parts of the value chain but to challenge the very basis of the way things are done. Traditional small to medium-sized players, therefore, unless they are operating in very specific niches, may find themselves at a long-term, structural disadvantage to larger and smarter players with more access to data and more ability to invest in the people and systems required to drive insight from it.

More critical than ever, however, will be client relationships and access. Improved analytics and slick systems is all fine, but if you don’t have the customer or the products and marketing skills to get to them, you’re wasting your time. That, at least, has not changed. In fact, if anything, in a more clinical, automated, digital world, client contact and warmth is set to become more important than ever.

This, is turn, raises an interesting question, though. While for years, brokers have operated under the somewhat existential threat of disintermediation, is the boot not now very firmly on the other foot? Unlike the insurers, who only know what they underwrite, the larger brokers, in particular, potentially have access to vast swathes of client and claims data across every single class of business and geography. Armed with this and the client relationships, and with a wall of capital looking to be deployed in the market (the rise of the ILS market bears potent witness) why do they need the insurers at all? Why not just rent the capital, underwrite the best business themselves and use the traditional market for the rest and to reinsure out the peaks? And if the brokers can do that, why not Google or Amazon, which have huge client reach and brand loyalty, unmatched analytical ability and the firepower to build, buy or hire in whatever insurance expertise they might need?

See also: 3 Ways to Improve Agent/Insurer Links  

Of course, the situation is not that simple. The market has not evolved in the way it has by accident. Large, complex and long-tail risks require huge balance sheets and often syndicated underwriting and reinsurance towers, to be written at all. Shareholder returns vary massively between brokers and insurers for a reason. In the rush to embrace the new, we risk ignoring all that works and that is good about the old. And because of this, change, when it comes, is likely to be more gradual and evolutionary.

But change it will, and, as the Kodak story shows, the key risk may well not be that people fail to recognize that the change is coming — I believe most do — but that they fail to imagine quite how radical that change could be and therefore fail to plan accordingly.

Henry Ford famously said that, “If I had asked people what they wanted, they would have said faster horses.”

The danger is that many risk now falling into the same trap.

Brexit Brings Some Opportunities in U.K.

The recent vote for Brexit will by no means destroy the U.K. insurance industry – if managed properly, the industry can emerge more resilient and competitive than ever. While insurers in the U.K. proceed with caution as they prepare for the country’s exit from the European Union, we at EY see this “Brexit moment” as an opportunity to foster innovation and transformations in the industry.

See also: Thoughts on Insurance After Brexit  

Insurers agree that Brexit does present a number of challenges, including instability and legal uncertainty that may arise from a delayed exit. However, we believe that with diligence and imagination, the U.K. insurance industry can use Brexit to secure its future and maintain preeminence as a leader by:

  • Investing in developing expertise in emerging areas such as big data and the Internet of Things
  • Creating attractive product lines that stand out from potential rivals in Europe
  • Developing services and products that will be attractive to growing regions beyond the EU

The industry should use the opportunities created by the Brexit vote to help London remain the best place in the world to conduct business and take steps to make London insurers the most innovative and customer-focused.

For more information, read EY’s new report.

3 Ways to Improve Agent/Insurer Links

As a lover of all things tech, I also love science. Recently, while thinking about the future of the insurance industry, I was taken back to something I learned about in my sixth grade science class: the concept of mutualism, where two species “work together” and each benefits from the relationship. For instance, an oxpecker (a kind of bird) eat ticks off the bodies of large mammals, such as a hippo, zebra or giraffe.

The concept of mutualism is being embraced by some of the world’s most successful companies. In fact, perceptive leaders at P&G, Nestlé and GE Digital have all recognized that mutuality and interdependence with partners fuels growth.

So how does mutualism apply to the independent insurance channel?

While huge efficiencies have been gained by insurers and independent agents who are using digital technology for internal process automation, this alone is simply not enough to grow and thrive. We live in digitally driven, hyper-connected times. Thus, it is critical for agents and insurers to extend their use of technology beyond their own offices and form an insurance ecosystem whereby everyone involved — agents, insurers, MGAs, wholesalers and, ultimately, insureds — wins.

Digitally connected agents and insurers can exchange accurate data for quoting, market identification, underwriting, billing and customer service. Agents can work more efficiently with insurers to provide access to advice, product range, insurer choice and localized personal service. Ultimately, there are better, mutually beneficial relationships between agents and insurers, which increases the value of their service to insureds.

As key business partners in the insurance lifecycle, agents and insurers have an irrefutable interdependence on one another and therefore have a stake in each other’s success. To fully capitalize on this mutualism and fuel growth, agents and insurers must increase their connections by using automated data exchange technologies such as download and real-time and market search tools that will reduce expenses, speed service and strengthen business relationships.

See also: Why the Agent Will NOT Be Disrupted  

The good news for agencies and carriers is that all of these connectivity services are available today:

  1. Download: This data exchange solution enables insurers to automate delivery of information from their systems directly into an agency management system. Download eliminates the need to rekey data into multiple insurer web portals to verify information. Recent research indicates 60% of agents save at least one hour per day using ACORD eDocs and ACORD Messages download services. With more than 1.8 million download connections available and only 41% activated, there is immense opportunity for agencies to take advantage of the time-saving and customer service benefits of receiving all available download services from your insurers.
  2. Real-time rating, service inquiry and claims: An automated data exchange can provide instantaneous lookup of data in an insurer system from within an agency management system or comparative rater, enabling agencies to quote; inquire on a policy, bill or claim; submit a First Notice of Loss; obtain loss runs; and more in real time. By making these requests through the management system, agencies can reduce duplicate keystrokes and respond to clients quickly and easily, without having to log into an insurer web portal or waste an insurer’s time responding to one-off requests. This not only saves time and effort by eliminating manual entry, it also minimizes errors, provides an E&O trail within the agency management system and enables agencies to deliver rapid, more efficient service to meet the expectations of today’s consumers. According to the 2013 Agency & Brokerage Technology Survey, agents recognize 53 minutes of time savings per employee per day when using real-time tools. With more insurers adopting real-time technology for comparative rating and service, they can increase the opportunity to showcase the advice and value of working with an independent agent by providing clients and prospects the best policy options and overall improved customer service.
  3. Market search tools: These can enable you to find more and better markets for an insured’s risk. A long-time industry challenge has been identifying and easily communicating insurer appetite for commercial risks. The process has historically been costly both in time and money, and nearly 60% of commercial submissions are declined by insurers. Automated technology available today matches insurers and agents based on appetite for new risks and renewals using a Google-like search. Market search tools increase insurers’ in-appetite submissions and improve an agency’s productivity by reducing time spent on traditional ways of identifying market appetite, such as referencing outdated insurer risk guides, accessing insurer websites, historical agent experience or directly contacting individual underwriters.

See also: Find Your Voice as an Insurance Agent

As key business partners in the insurance lifecycle, agents and insurers depend on one another and, therefore, have a stake in each other’s success. To fully capitalize on this mutualism and fuel growth, agents and insurers must increase their connections.

To further explore how insurer connectivity can drive greater business success, download Applied’s Insurer Connectivity ebook now.

What Is the Business of Workers’ Comp?

At the risk of alienating most people within the workers’ comp world, here’s how things look from my desk:

Most workers’ comp executives – C-suite residents included – do not understand the business they are in. They think they are in the insurance business – and they are not. They are in the medical and disability management business, with medical listed first in order of priority.

That statement is bound to lead more than a few readers to conclude I’m the one who doesn’t know what I’m doing. For those willing to hear me out, press on – for the rest, see you in bankruptcy court.

Twenty-five years ago, the health insurance business was dominated by indemnity insurers and Blues plans; big insurers like Aetna, Travelers, Great West Life, Met Life and Connecticut General and smaller ones including Liberty Life, Home Life, Jefferson Pilot, Time and UnionMutual. Where are those indemnity insurers today?

With the exception of Aetna, none is in the business; the only reason Aetna survived is it took over USHealthcare, or, more accurately, USHealthcare took over Aetna. The Blues that became HMO-driven flourished, as did the then-tiny HMOs – Kaiser, UnitedHealthcare, Coventry. Why were these provider-centric models successful while the insurers were not? Simple: The health plans understood they were in the business of providing affordable medical care to members, while insurers thought they were in the business of protecting insureds from the financial consequences of ill health.

The parallels between the old indemnity insurers and most of today’s workers’ comp insurers are frightening. Senior management misunderstands their core deliverable; they think it is providing financial protection from industrial accidents, when in reality it is preventing losses and delivering quality medical care designed to return injured workers to maximum function.

That lack of understanding is no surprise, as most of the senior folks in top positions grew up in an industry where medical was a small piece of the claims dollar. Medical costs were considered a line item on a claim file or number on a loss run, and not “manageable” – not driven by process, outcomes, quality.

Think I’m wrong?

Then why is the industry focused almost entirely on buying medical care through huge discount-based networks populated by every doc capable of fogging a mirror (and some who can’t)? Even with those huge networks, why is network penetration barely above 60% nationally? Why has adoption of outcome-based networks been a dismal failure? Why do so few workers’ comp payers employ expert medical directors, and, among those who do, why don’t those payers give those medical directors real authority? Why do non-medical people approve drugs, hospitalizations, surgeries, often overriding medical experts who know more and better?

Because senior management does not understand that success in their business is based on delivering high-quality medical care to injured workers.

At some point, some smart investor is going to figure this out, buy a book of business and a great third-party administrator (TPA) for several hundred million dollars, install management who understand this business is medically driven and proceed to make a very healthy profit. Alas, the current execs who don’t get it will be retired long before their companies crater, leaving their mess behind for someone else to clean up.

Insurance at a Tipping Point (Part 1)

Since the start of the decade, we’ve encouraged insurers and industry stakeholders to think about “Insurance 2020” as they formulate their strategies and try to turn change into opportunity. Insurance 2020’s central message is that whatever organizations are doing in the short term, they need to be looking at how to keep pace with the sweeping social, technological, environmental, economic and political (STEEP) developments ahead.

Now we’re at the mid-point between 2010 and 2020, and we thought it would be useful to review the developments we’ve seen to date and look ahead to the major trends coming up over the next five years and beyond.

Where are we now?

Insurance is an industry at the tipping point as it grapples with the impact of new technology, new distribution models, changing customer behavior and more exacting local, regional and global regulations. For some businesses, these developments are a potential source of disruption. Those taking part in our latest global CEO survey see more disruption ahead than CEOs in any other commercial sector (see Figure 1), underlining the need for strategic re-evaluation and possible re-orientation. Yet for others, change offers competitive advantage. A telling indication of the mixed mood within the industry is that although nearly 60% of insurance CEOs see more opportunities than three years ago, almost the same proportion (61%) see more threats.

The long-term opportunities for insurers in a world where people are living longer and have more wealth to protect are evident. But the opportunities are also bringing fresh competition, both from within the insurance industry and from a raft of new entrants coming in from outside. The entrants include companies from other financial services sectors, technology giants, healthcare companies, venture capital firms and nimble start-ups.


How are insurers feeling the impact of these developments?

Customer revolution

The insurance marketplace is becoming increasingly fragmented, with an aging population at one end of the spectrum and a less loyal and often hard to engage millennial generation at the other. The family structures and ethnic make-up within many markets are also becoming more varied and complex, which has implications for product design, marketing and sales. This splintering customer base and the need to develop relevant and engaging products and solutions present both a challenge and an opportunity for insurers. On the life, annuities and pensions side, insurers could design targeted plans for single parents or shift from living benefits to well-being or quality of life support for younger people. On the property and casualty (P&C) side, insurers could create partnerships with manufacturers and service companies. Insurers could also offer coverage for different lifestyles, offering flexible, pay-as-you-use insurance or providing top-up coverage for people in peer-to-peer insurance plans.

As the nature of the marketplace changes, so do customer expectations. Customers want insurers to offer them the same kind of easy access, show the same understanding of needs and provide the sorts of targeted products that they’ve become accustomed to from online retailers and other highly customer-centric sectors. Digital developments offer part of the answer by enabling insurers to deliver anytime, anywhere convenience, streamline operations and reach untapped segments. Insurers are also using digital developments to enhance customer profiling, develop sales leads, tailor financial solutions to individual needs and, for P&C businesses in particular, improve claims assessment and settlement. Further priorities include the development of a seamless multi-channel experience, which allows customers to engage when and how they want without having to relay the same information with each interaction. Because the margins between customer retention and loss are finer than ever, the challenge for insurers is how to develop the genuinely customer-centric culture, organizational capabilities and decision-making processes needed to keep pace with ever-more-exacting customer expectations.


Most insurers have invested in digital distribution, with some now moving beyond direct digital sales to models that embed products and services in people’s lives (e.g., pay-as-you drive insurance).

A parallel development is the proliferation of new sources of information and analytical techniques, which are beginning to reshape customer targeting, risk underwriting and financial advice. Ever greater access to data doesn’t just increase the speed of servicing and lower costs but also opens the way for ever greater precision, customization and adaptation. As sensors and other digital intelligence become a more pervasive element of the “Internet of Things,” savvy insurers can – and in some instances have – become trusted partners in areas ranging from health and well-being to home and commercial equipment care. Digital technology could extend the reach of life, annuities and pension coverage into largely untapped areas such as younger and lower-income segments.

Information advantage

Availability of both traditional and big data is exploding, with the resulting insights providing a valuable aid to customer-centricity and associated revenue growth. Yet many insurers are still finding it difficult to turn data into actionable insights. The keys to resolving this are as much about culture and organization as the application of technology. Making the most of the information and insight is also likely to require a move away from lengthy business planning to a faster and more flexible, data-led, iterative approach. Insurers would need to launch, test, obtain feedback and respond in a model similar to that used by many of today’s telecom and technology companies.

A combination of big data analytics, sensor technology and the communicating networks that make up the Internet of Things would allow insurers to anticipate risks and customer demands with far greater precision than ever before. The benefits would include not only keener pricing and sharper customer targeting but a decisive shift in insurers’ value model from reactive claims payer to preventative risk advisers.

The emerging game changer is the advance in analytics, from descriptive (what happened) and diagnostic (why it happened) analysis to predictive (what is likely to happen) and prescriptive (determining and ensuring the right outcome). This shift not only would enable insurers to anticipate what will happen and when, but also to respond actively. This offers great possibilities in areas ranging from more resilient supply chains and the elimination of design faults to stronger conversion rates for life insurers and more effective protection against fire and flood within property coverage.

Two-speed growth

These developments are coming to the fore against the backdrop of enduringly slow economic growth, continued low interest rates and soft P&C premiums within many developed markets. Interest rates will eventually begin to rise, which will cause some level of short-term disruption across the insurance sector, but over time higher interest rates will lead to higher levels of investment income.

On the P&C side, reserve releases have helped to bolster returns in a softening market. But redundant reserves are being depleted, making it harder to sustain reported returns.

The faster growing markets of South America, Asia, Africa and the Middle East (SAAAME) offer considerable long-term potential, though insurance penetration in 2013 was still only 2.7% of GDP in emerging markets and the share of global premiums only 17%. Penetration in their advanced counterparts was 8.3%. Rapid urbanization is set to be a key driver of growth within SAAAME markets, increasing the value of assets in need of protection. Urbanization also makes it harder for those from rural areas to call on the support of their extended families and hence increases take-up of life, annuities and pensions coverage. The corollary is the growing concentration of risk within these mega-metropolises.

Disruption and innovation

Many forward-looking insurers are developing new business models in areas ranging from tie-ups between reinsurance and investment management companies to a new generation of health, wealth and retirement solutions. The pace of change can only accelerate in the coming years as innovations become mainstream in areas ranging from wearables, the Internet of Things and automated driver assistance systems (ADAS) to partnerships with technology providers and crowd-sourced models of risk evaluation and transfer.

At the same time, a combination of digitization and new business models is disrupting the insurance marketplace by opening up new routes to market and new ways of engaging with customers. An increasing amount of standardized insurance will move over to mobile and Internet channels. But agents will still have a crucial role in helping businesses and retail customers to make sense of an ever-more-complex set of risks and to understand the trade-offs in managing them. On the life, annuities and pension side, this might include balancing the financial trade-offs between how much they want to live off now and their desired standard of living when they retire. On the P&C side, it would include designing effective aggregate protection for an increasingly broad and valuable array of assets and possessions.

Companies can bring innovations to market much faster and more easily than in the past. These companies include new entrants that are using advanced profiling techniques to target customers and cost-efficient digital distribution to undercut incumbent competitors. It’s too soon to say how successful these new entrants and start-ups will be, but they will undoubtedly provide further impetus to the changes in customer expectations and how insurers compete.

In the next two articles in this series, we look at how all these coalescing developments are likely to play out as we head toward 2020 and beyond and outline the strategic and operational implications for insurers. While we’ve set a nominal date of 2020, fast-moving businesses are already assessing and addressing these developments now as they look to keep pace with customer expectations and sharpen their competitive advantage.

What comes through strongly is the need for reinvention rather just adjustment if insurers want to sustain revenue and competitive relevance. As a result, many insurers will look very different by 2020 and certainly by 2025. As new entrants and new business models begin to change the industry landscape, it’s also important to not only scan for developments within insurance but also maintain a clear view of the challenges and opportunities coming from outside the industry.

For the full report from which this article is excerpted, click here.