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5 Trends Changing Auto Insurance

Nearly every time you turn on a light switch today, you are witnessing the power of trends upon shifting markets. Though lighting isn’t going away, the types of bulbs we use and their supply chain has been in flux for the past two decades.

On May 27, 2020, General Electric stopped making light bulbs entirely (after 130 years), selling its lighting division to smart home company Savant Systems. All of the other major lighting players have also been negotiating a market and industry in the midst of change. Government mandates for lower energy bulbs have removed most incandescent bulb manufacturing operations from the market. LED bulbs not only use much less energy, but the bulbs last far longer — so the sales of bulbs will drop over time.

Philips Lighting, another stalwart industry player (125 years old), decided that instead of leaving the business it would develop Philips Hue, a connected lighting solution. Smart homes have now given rise to smart lighting, including smart bulbs — digitally driven bulbs that can adapt themselves to the experience that a customer wants. Many can be controlled via home networks and mobile phone apps. Philips also chose to spin off a whole new brand, Signify, that would embrace sustainability and energy-efficient lighting.

Auto insurers are going to have choices like this to make. Auto insurance, coincidentally, is also a 120-year-old “established” industry, based around a policy transaction. Will insurers continue to provide traditional insurance in traditional ways until they are forced down a dead-end path, or will they embrace new trends, new technologies, new services and perhaps a new mobility ecosystem approach? Will they reinvent themselves to become next-gen mobility customer experience providers?

In Majesco’s most recent thought leadership report, “Rethinking Auto Insurance: From a Transactional Relationship to a Mobility Customer Experience,” we use customer primary research and recent trend data from other sources to answer two pertinent questions:

  • What are the trends pushing auto insurers to adapt their business models?
  • Why should auto insurers begin creating mobility ecosystems and customer experiences that will transform their purpose and their profits?

We consider five trending points that are driving change, including:

  • The Auto Insurance Buyer – A Shifting Demographic
  • Vehicle Technologies
  • New Data Sources
  • Ownership vs. On-Demand Mobility
  • New Auto Insurance Sources and Providers

Let’s briefly consider these trends and how they may affect auto insurers.

Trend 1: The Auto Insurance Buyer

For purposes of simplifying analysis within the Mobility Survey, we created two generational “super segments” by combining two different age groups, Gen Z and millennials and Gen X and Boomers. As expected, the Gen X and Boomer segment is more active than their younger peers in buying or influencing purchases of household services, insurance and financial products. Three exceptions were in individual life insurance and voluntary benefits, where the segments purchased at equal rates, and Amazon account usage, where Gen Z and millennials have a slight lead.

The older super segment has sizable leads in personal lines P&C insurance (auto and home/renters), employee benefit health insurance, investments and annuities. All of these products are good fits for the 30- to 60-year-old “sweet spot” for insurance and financial products, given they are at a life stage with the greatest insurance and financial planning needs as they establish households and families and accumulate wealth and possessions that need protection.

See also: The End of Auto Insurance  

In 2021 – one year away – millennials, all by themselves, will meet and begin to surpass the older super segment. The young super segment’s dominance will accelerate four years later when the first members of the Gen Z generation also turn 30, vaulting this new generation to buying dominance. Providers of household services, insurance and financial products that have not adjusted their business models, products and customer engagement experiences to meet the needs of this new “sweet spot” buyer market will find themselves challenged and left behind.

The insurance industry will need to adapt to this new super segment of new customers.

Figure 1: Insurance buyer “Sweet Spot” populations by generation in 2000 vs. 2020

Trend 2: Advanced Technologies for Vehicle Safety

Nearly 60% of Gen Z and millennials and half of Gen X and Boomers who own or lease a car have at least one type of newer safety or convenience technology in their vehicle. Navigation systems and blind spot detection are the most popular among both segments. The Gen Z and millennial vehicles have higher rates of collision avoidance systems, surround view systems, automatic braking and automatic parking.

These technologies were expected to depress auto insurance premiums thanks to fewer accidents.  However, insurers’ experience to date has not matched this expectation. The cost of repairing or replacing these more sophisticated vehicles with advanced technologies is greater than the savings derived from lower frequency. Some of these technologies have indeed shown benefits, but the translation to lower premiums has been minimal. For example, NAMIC found that electronic stability control saves a customer an average of only $8 on the annual premium. And, “those who pay for blind spot warning, driver alertness monitoring, lane departure warning, night vision or parking assistance systems save nothing at all.”

Is it possible that eventually the impact of these technologies will overtake the cost of maintenance and repair? In theory, yes. The greater number of high-tech vehicles that are on the road, including the autonomous vehicles of the future, the greater the chance that vehicular accidents will drop. There are, of course, an unknown set of circumstances related to COVID-19 and auto use. Will a significant percentage of the workforce stop commuting? Will public transit commuters begin to use their vehicles to avoid exposure? Or, will technologies such as driverless vehicles create an entirely new commuting scenario?  Lilium, a German aviation startup “unicorn,” has plans for bringing flying taxis to the skies by 2025, which will further change the mobility options. The answers may lie in the rise of mobility ecosystems, which we’ll examine later.

Trend 3: New Data Sources

Connected devices (and other data sources) are enabling underwriting and pricing based on mileage, location and driving behavior, which could lower premiums, while also making them potentially less predictable. Surprisingly, there are very similar levels of interest in these new data sources between the two generational super segments.

The COVID-19 shelter-in-place actions slashed the number of miles driven – by an estimated 50% between mid-March and mid-April. This is spurring speculation and debate about the pandemic’s longer-term effect on mileage-based or usage-based insurance. Although streets and roads have fewer vehicles on them, numerous states and cities have reported increases in speeding and reckless driving and fewer but more severe accidents. From an insurer perspective, broader usage-based/UBI models would be the preferred approach post-COVID-19, rather than simply tracking miles driven.

Despite the growing acceptance of new data sources, with the potential for variable premium by the month, the traditional six-month term with a set premium is preferred by both generational groups. However, Gen Z and millennials have a higher interest in a usage-based model that is automatically triggered by sensing when the car is parked or being driven.

Within the Gen Z and millennial segment, 28% of respondents indicated they have used a device or app to record their mileage or driving behavior as compared with only 15% of the older super segment. Both generational super segments showed strong interest in a smartphone app that provides real-time alerts and advice about driving behavior and conditions. Interest is even higher if following the advice leads to discounts on the next insurance bill.

Trend 4: Ownership vs. On-Demand Mobility

There is growing popularity and use of non-owned vehicles and alternative mobility options like rideshare, rentals (traditional and shared economy) and other local or urban rental options like scooters and bicycles. With their increased usage comes the threat of an offsetting level of private vehicle ownership and leasing, leading to a declining need for personal auto insurance.  This declining ownership could accelerate if more people work from home, eliminating the need for the traditional “two-car family” and using alternative, on-demand mobility.

All-inclusive vehicle subscription services are a relatively new mobility option offered by several auto manufacturers (currently, most are luxury brands) and third-party services. Most allow the customer to switch vehicles on a periodic basis and pay a set monthly fee that covers the vehicle, maintenance and insurance. A surprisingly high number (30%) of Gen Z and millennials indicate they are using or have used a service like this – nearly four times higher than the older generation, indicating interest in different access to mobility options as compared with “owning” a vehicle. Some of these users likely correlated these experiences with micro-term car-sharing company’s such as Zipcar.

See also: Insurance Innovation — Alive and Kicking  

Nearly 26% of Gen Z and millennials and 20% of Gen X and Boomers indicate they would or definitely would consider a vehicle subscription the next time they go to purchase a vehicle. When you add in the “maybes,” these numbers jump to 71% and 61%, respectively.

Figure 2: Usage of mobility technologies and participation in mobility trends

Gen Z and millennials use car-sharing services more frequently than Gen X and Boomers. Over a third (35%) traveled this way for five or more days in the previous month, compared with only 18% of Gen X and Boomers. Clearly, this is an established mobility preference within the younger generation that will fuel a growing market for on-demand rideshare coverage and indicates, once again, the potential decrease in car ownership by this younger generation. 

Trend 5: New Auto Insurance Sources and Providers

Most of the consumers we surveyed said they still own or lease one or more vehicles. The traditional purchase methods for auto insurance are still the most preferred channels — agents/brokers or direct via an insurer’s website. This is consistent from the last couple of years from our consumer research.

However, Gen Z and millennials also indicate strong interest in insurance embedded in the purchase cost of a vehicle, or buying insurance from a vehicle manufacturer’s website, an affinity group, car dealership, or car shopping website – about 25% higher than the older generation. Interestingly, this group also showed strong interest in purchasing insurance from three of the “tech giants,” Amazon, Google and Facebook – a wake-up call for both insurers and those selling vehicles. For a better glimpse, see Fig. 3 below.

Figure 3: Interest in traditional and new sources of auto insurance

If we look at all five of these trends in aggregate, auto insurers are facing a light bulb moment. Many of these trends will likely accelerate as we reconsider our work lifestyles moving to the home coming out of COVID-19.  If changes are going to occur in demand levels, channel types and service offerings, can auto insurers compensate by bringing the right kind of change to the market? Can they invent their own supply chains of opportunity?

In our next mobility blog, we look at this supply chain in depth. Auto insurers are redefining themselves as mobility companies and in the future will be seeking to own the mobility experience using a vast mobility ecosystem, ideally building those ecosystems around their brands. Those who will lead the mobility shift are the ones who have prepared their business systems and models that will focus on the customer mobility experience and foster non-traditional products and services.

Now is the time to start this conversation within your organization! Use Majesco’s “Rethinking Auto Insurance” report as a kickstart for your internal brainstorming or view the replay of our webinar on the research. 

The Data Journey Into the New Normal

In the middle of a pandemic, no one seems argue that data isn’t essential. What many people don’t realize is that the same attributes that make data vital today won’t go away when the crisis ends. Data, effectively used, will always have ground-breaking, business-changing, mind-enlightening value.

Certainly, one of the benefits from the crisis is that data’s value is selling itself with a clear voice. While insurers were already on a dizzying pace of change, the pandemic has accelerated the need for adaptability.

But there is a hurdle. Without a very strong focus on data as a strategic corporate asset, insurers will struggle to keep up with the necessary changes in the “new normal.” The right philosophy is the foundation needed to design and implement a strong enterprise data strategy.

The Most Vital Data Philosophy — Data as an Enterprise Asset

Every insurance company believes that it knows the importance of data.  We say “believes” because if the company truly knew the value of data, there would be an enterprise data governance team that would: (1) treat all data as a true enterprise asset – as opposed to a department asset; (2) look at the data strategy and how the company plans to use data both internally and externally; and (3) have an organizational structure to fully support that strategy.

Most insurance companies have siloed data, owned by various departments, not the enterprise. The attempted solution has been to create a Huber data storage, master data management (MDM) or data lake solution. The company assumes that, once the data is in one of them, everyone would have full access to any type of analytics or reports that they desire from the data. Some insurers spent tens of millions of dollars, only to fail due to the sheer size and complexity of the effort. Too often, it was driven by the IT organization, relegating it to a technology exercise rather than a business-driven strategic project.

Data must be first viewed as a corporate asset, no different from the financial department.

Data Needs an Enterprise Strategy

But most companies do not have an enterprise strategy for data.  Many carriers leverage data for predictive analytics by the actuarial department, but these models can take four to six months to develop because, with each data set refresh, the data must be cleansed from scratch. Actuaries report that this cleansing takes 60% to 90% of the total effort depending on the quality of the data. Different departments, such as claims and marketing, have done analysis with their data with varied levels of success. Each instance somewhat resembles the actuarial example — the effort takes too long or the results are suspect due to the quality of the data supplied. In each case, we are still dealing with siloed data instead of integrated enterprise data.

It takes a visionary data leadership team to convince the organization that efficiency and accuracy can co-exist. Enterprises need a full enterprise data ecosystem model to establish and define both internal and external data flows and the business value associated with these efforts. When this happens, an insurer’s capabilities change overnight, but the strategy must come ahead of tactical data efforts.

The enterprise data strategy requires a very strong business focus on the use of data and data quality within the enterprise. Data is not an IT asset, it is a business asset. It is the lifeblood of the insurance business and, indeed, the entire insurance industry. It can no longer be an IT initiative to address the quality of the data and how to integrate it. At the enterprise level, there must be a thoughtful and concerted focus on the business value of data and how both internal and external data can be incorporated into the executive mindset.

This has proved too daunting for most insurers.

Why Is Data an Enterprise Asset and Not a Departmental Asset?

Most corporate assets are clearly considered an enterprise asset. Budgets always start from the top and are broken down into smaller organizations and departments. No company ever tries to start the budget process at the department level and consider it the department’s money that “we’ll share as a good corporate citizen to help the company” as applicable. This would be unthinkable. For each department or organization to decide what assets are theirs and what is worth sharing would never work. Why then is this approach used with respect to data? 

You hear statements like, “We need to bring in the claims division’s data or product team’s data or marketing data into a consolidated store.” People are referring to the department’s data as if the department owns it. This kind of thinking adds layers of redundancy and fosters siloed approaches, not to mention losing cross-departmental knowledge and an understanding of synergies.

See also: Getting Back to Work: A Data-Centric View  

While an insurer does want to integrate the company’s claims data with the company’s policy data, with the company’s marketing data, it is the enterprise’s data. 

The other part of this misaligned mindset is discovered when only the claims team “knows” the claims data, only the product team “knows” the product data and so on. 

Carriers must change their mindset about their data. It is the enterprise’s data and must be governed, understood and managed from the very top, no different than any other corporate asset.

Insurance Data Efforts Deserve a Data Management Organization (DMO)

Most insurers have a program management office, or PMO. The PMO’s purpose is to create and maintain a consistent world class project management methodology and process for all project engagements across the company. The PMO establishes policies, processes and best practices, plus standards, training and governance. Project managers are expected to execute against these best practices for each project. The PMO doesn’t get involved in individual projects unless they deviate from planned budgets or delivery timeframes, or fail to adhere to the standards.

A similar approach is required for an insurer’s data strategy. Adding a data management prganization (DMO) and a governance program can be a game changer for providing valuable, holistic data perspectives. Similar to a PMO, a DMO would:

  • Create and maintain a consistent, world-class data management methodology and process for all data management engagements across the company;
  • Train, certify (if possible), coach and mentor data stewards in not only data management but also in data delivery, to ensure skill mastery and consistency in planning and execution;
  • Manage corporate and data priorities, matching business goals with appropriate technology solutions and providing increased resource utilization across the organization — matching skills to data needs;
  • Provide centralized control, coordination and reporting of scope, change, cost, risk and quality across all data initiatives;
  • Increase collaboration across data efforts;
  • Provide increased stakeholder satisfaction with data-related work through increased communications, collaboration, training and awareness;
  • Reduce time to market by providing better coordination and the right resources with the right skills for the data projects;
  • Reduce data costs because common tasks and redundant data efforts could be eliminated or managed at the central level; and
  • Reduce corporate project risk.

While a PMO might be more focused on the internal execution of a project, the DMO must address both internal and external data services and projects. The crucial point of the DMO is that it must be governed and understood at the executive level.  It sets the corporate objectives for all data initiatives, and the business value of all data initiatives must be clearly understood at the executive level. The genius of the DMO is in its ability to translate data’s real, enterprise-wide potential, plus its day-to-day value, up to the executive level, where it can promote leadership buy-in. In other words, all of data’s chief users within an insurer gain an internal champion to lobby and lead them in ways they may never have been able to do otherwise. Instead of departments losing control by adding a DMO, they gain an enabler.

Data Needs a Map With Detail

The final step for insurers is to create their data ecosystem strategy and direction. This is more than just documenting the existing data flow. It must take into account where data can be applied to business processes for more effective decisions and business value. For example, one insurer is applying AI to its underwriting process, creating real-time updates to underwriting models. Another example is bringing an insurer’s own historical data on their customer and product experiences into renewal and underwriting decisions. The focus is now on the value of the data being brought into the decisions to improve them, then to make lower-level data corrections at this level.

Data Business Value Must Be Driven by Executives

Many organizations have created CDO (chief data officer) positions or aligned the data group under the CFO. Both of these are great first steps, but they still miss the need for an insurer’s data strategy, direction and projects to all be driven by the executive level and the data asset value understood at the executive level. A CDO should be at the executive table working closely with executives across the organization, eliminating the silos and managing the DMO for the company.

The CDO and DMO should create dashboards to understand the value achieved by data efforts, adherence to the processes and impact. This will ensure that data’s efforts are aligned to business goals and objectives, to help drive better decisions from a business perspective than from a data or IT perspective.

Market Boundaries Are Blurring

The year is 1959. Neuroscientist and psychologist Bela Julesz tests the ability of the brain to perceive images in 3D. With circular dots and a double image, subjects could begin to see a circle floating above a printed background. Fast forward 20 years, and two of Julesz’s students use a computer to accomplish the same feat in just a single image. By 1991, Magic Eye pictures used repeat patterns to control the depth of perception. A complete 3D image could be hidden inside a 2D pattern. The only way someone could see the image was to relax the eye, blur the pattern and let the brain do the rest. What looked out of focus, blurry and flat, was transformed into an image of stark clarity that leapt off the paper.

Is this a magic formula for considering today’s insurance? A jumble of patterns exist. Focus is difficult to maintain. Thousands of details and past assumptions threaten to distort what insurance executives need to decipher. But…if we relax just a bit and allow the blurriness to exist for a few moments, a certain clarity arises. Not only does the picture become clear, it jumps off the page in 3D. As market boundaries blur and evaporate, new answers to insurance technology, processes and business models are coming to life.

Which boundaries are reshaping the industry?

Four years ago, Majesco published its first Future Trends report that examined the converging “tectonic plates” of people, technology and market boundary changes that are redefining the world, industries and businesses — including insurance. Recently, we released the latest report, Future Trends: Looking Back and Leaping Forward, where we once again discussed shifting market boundaries under six trending categories:

  • Insurtech
  • Channels
  • Blurring Boundaries (between industries)
  • New Competition
  • New Products
  • Competition for Talent

From the start, we recognized that insurers were going to begin competing in a new paradigm beyond their brand, product, price and distribution. This new paradigm required insurers to compete also on the customer experience and to move from vertical market boundaries to porous market boundaries, or ecosystems.

Ecosystems are fluid, porous and operate across and within verticals and multiple channels. The first platform companies like Amazon, Google, Apple, Netflix and Uber disrupted multiple industry verticals and demonstrated why market boundaries limit revenue generation, customer value and market valuations. By bursting the boundaries, they lost predictability, but they gained market reach.

The boundary lesson for insurers is that the industry isn’t simply being reshaped, it is being “unshaped.” 

It’s no wonder, then, that many insurers are finding themselves and their strategies adrift — no longer safely anchored to traditional assumptions. Insurers now have to wrap their heads around a new image that will allow them to escape 2D frameworks and find answers in new dimensions.

See also: Insurtech 2020: Trends That Offer Growth  

Can we find clarity among the blurriness of market boundaries? 

With traditional market and product assumptions (and constraints) evaporating before our eyes, clarity has to be found in a whole new definition of insurance products and services. From ecosystems to technologies, some picture has to emerge that will allow our brains to think “outside the page.”

In words, this image might be, “Escape linear thinking. Embrace the idea of plug and play, partners, networks and ecosystems.”

What is affecting our boundaries and how can we use an ecosystem approach to take advantage of these boundary shifts? We can find out by considering four of the boundary-breaking areas — Insurtech, Channels, Blurring Boundaries and New Products.

Insurtech

If you have been keeping an eye on insurtech, then you’ll know how volatile and substantial investment has been. Based on Venture Scanner data, insurtech investment in 2015 was $1.78 billion as compared with $3.37 billion in 2018 (89% growth) and just over $5 billion through Q3 2019.

Even more interesting are the top funding areas. From the recent Venture Scanner report, Q3 2019 showed the largest influx of funding was in the Insurance Infrastructure/Backend category, with $1.12 billion.

This is a major flip given that channels/front-end were originally the top priority. This flip in focus recognizes the criticality of next-gen technology platforms for insurers that provide flexibility, agility, speed and scale. What does this mean for insurers that are looking for clarity?

First, insurers can take advantage of insurtech investments without making direct investments in insurtech. This is the one of the major takeaways. Insurtech capabilities are now ready as plug-and-play, ecosystem-based, cloud-available services such as Majesco’s Digital1st Insurance,

Channels

Today’s customers have introduced new time requirements and pressures into the insurance equation because they are looking for solutions that meet their needs on their terms (when and how they need it), and with speed. There is the time to quote, time to underwrite and time to purchase, which are all opportunities to lose or to gain the sale.

In this new era of insurance, nearly every insurance process is rapidly becoming frictionless, including buying. If distribution channels are easy to use with products that are easy to understand, then insurance has the opportunity to grow through a friction-free, multi-channel distribution system.

The industry is now exploding with new concepts in distribution, including new distribution channel options from marketplaces like Bold Penguin and digital MGAs like Slice Labs. We have also seen the shift from portals to digital experience platforms like Majesco Digital1st Insurance, which has allowed companies like Burns & Wilcox, a major wholesaler, to bring innovative specialty insurance solutions to brokers and agents. Ecosystems can rewrite channel strategy and open the windows to allow for unprecedented levels of channel partnership.

Blurring Boundaries (between industries)

Embedded insurance is an example of boundaries becoming invisible. There is a “hidden channel,” connecting insurance with another ecosystem, such as rental properties, auto manufacturers or even baby gift registries – and embedding the opportunity to purchase within the existing process.

To capture the opportunity, insurers must create an ecosystem of partnerships with a range of digital capabilities and channels to reach new and existing customers. How do insurers recognize the opportunities that exist within the flow of the current of buyer needs, events and lifestyles, to fit the product to the flow of life instead of trying to sell “upstream”?

Majesco Consumer and SMB research has found that customers are very interested in innovative channels like embedding insurance. The answer boils down to alignment. Clear strategies will align the right channels, technologies and partnerships, considering the synergies of partner organizations and the expectations of today’s and tomorrow’s customers. In many cases, insurers will need to quickly build relationships and cross industry verticals. In most cases, strategic clarity will be found through rapid test-and-learn cycles.

New Products

Over the last four years, we have seen a growing proliferation of new products and value-added services. These products use new data sources, offer new customer experiences, leverage new technologies and, most importantly, are focused on meeting a new set of risk needs and expectations, particularly for millennials and Gen Z.

The most important change, driven by startups and greenfields, is the unbundling of “one-size-fits-all” insurance into products based on specific needs at specific times. Unbundling, coupled with the growth in the sharing and gig economy has powered the development of micro-insurance or on-demand products across all insurance segments and lines of business.

See also: Future of Insurance Is Clear (but Hard)  

Initially, unbundling was best accomplished by a range of small and agile insurance or MGA startups. As traditional insurers and reinsurers have begun to re-envision their responses to blurring industry and market boundaries, they have begun forming clear approaches to on-demand product development. Fast forward to today, and we are now seeing the emergence of on-demand voluntary benefits, life insurance, rideshare, cyber and so much more.

These four boundary-breaking trends are proving that insurers of all sizes can now find an alternate picture within a blurring universe — clear answers rising above the background of tradition and disruption.

Are You Innovating, or Chasing the Leader?

It’s the relay runner’s nightmare: You just can’t seem to catch up. Maybe you’re in the lead, but you can’t shake the person on your shoulder. How do you get ahead and stay ahead?

In insurance, whether you’re looking over your shoulder or trying to catch up, you need to know as much as possible about the market and the competition. That’s why Majesco helps insurers assess their technology positioning with our Strategic Priorities surveys. Here are some highlights from this year’s report:

Competitive Position — Recognizing Leaders, Followers and Laggards

Too often, strategic planning does not yield the bold changes needed because insurers do not rapidly move into a leading position by going from knowing to doing. This year’s research shows an ever-widening gap that is defining a new era of leaders.

The June 2019 McKinsey article, “How to win in insurance: Climbing the power curve,” emphasizes the gap between leaders and followers or laggards. McKinsey’s research shows that the capital allocated to each business unit from one year to the next is nearly identical – rather than reallocating capital to make bold changes for the future.

Capital shifts indicate priority shifts. They also point to investment strategies. This is consistent with the growing Knowing-Doing Gap emerging in the industry, highlighted by our Strategic Priorities research over the last five years, a gap that is putting some companies at risk given the pace of change and limited resources. Investments aren’t necessarily being made where they are most needed. Many insurers still aren’t recognizing that investments today may result in long-term reductions in the need for technology investments due to platform efficiencies. 

See also: Insurance Innovation’s Growth Challenge  

Taking decisive action around strategy is crucial, particularly with the pace of change and rapidly evolving competitive landscape. As the McKinsey article points out, strategy is about playing the odds, increasing the amount of “doing,” even if some plans fail, to ensure overall success. Insurers must focus on both optimizing today’s business and boldly creating tomorrow’s business – a two-speed strategy.

Strategic Priorities Report Highlights

This year’s research highlights how leaders have replaced legacy, expanded their channels, introduced products and business models and produced higher growth. Even more important, they see greater growth over the next three years. 

If your organization isn’t currently in the leadership position, you CAN catch up. If you know where leaders’ investments have been paying off, you have a guide for transformation, optimization, innovation and growth.

Here are some key insights from this year’s report:

  • When we asked insurers about the state of their business (growth, systems, products, models and channels), last year was challenging for laggards, which had a 41% gap to leaders, and for followers, which had a 15% gap.
  • Leaders are laser-focused on both speed of operations and on speed of innovation. This is reflected in their work on legacy replacement, channel expansion, new products and new business models; followers and laggards are primarily concerned with speed of operations.
  • Leaders’ replacement of legacy core is greater by 75% than laggards, and by 20% than followers – putting leaders at a clear advantage
  • Leaders are creating products and business models nearly 55% faster than laggards and 20% than followers – enabling leaders to capture market share and revenue more quickly.
  • Leaders are expanding channels at a staggering rate of 19% higher than followers and 88% higher than laggards – expanding leaders’ market reach and their ability to acquire and retain customers and revenue.
  • Over the next three years, laggards and followers will drop even further behind leaders.

Bold moves to optimize today’s business and create the future business substantially increase an insurer’s potential for success.  Leaders are blazing trails with new business models, channel expansion, new products and core system replacement while followers are attempting to do a few things and laggards are primarily watching.

Platforms, Production and Products

One of the most fascinating portions of the Strategic Priorities report is what Majesco found regarding platform planning, development and use. We wanted to understand where insurers were in their core system transformation, defining four answers within two simple concepts: Platform and Non-Platform.

  • Platform was defined as cloud-enabled, API and SaaS-based solutions or next-gen that were cloud-native, API and microservices solutions.
  • Non-Platform was defined as old, monolithic, legacy and modern on-premise solutions.

Consider these two, related findings.

  • P&C and L&A and group insurers are operating with Non-Platform core solutions at a staggering 60%, affecting their ability for innovation, speed and agility.
  • Insurers introducing new products and services are more likely using Platform-based solutions in the range of 60%-70%, a complete flip from the existing business and reflecting the growing focus on greenfields and startups.

So, many insurers are missing out on agile product development processes that can be found through platform vs. traditional core systems.

Response to Regulatory and Rating Agency Developments

This year, Majesco added an area of focus to cover insurer responses to the rapid advancements in the regulatory arena during 2019. The adoption of the AM Best innovation rating and the introduction of sandboxes by state regulators to test new products in a more rapid, managed manner, are certain to have a growing impact on insurers’ innovation timelines. The question we asked was, “How actively is your company responding to these recent regulatory developments?”

For the most part, we found a lack of understanding and planning around these highly important changes within certain market segments. For example, L&A and group insurers lag significantly behind P&C and multi-line insurers in preparation for the AM Best innovation rating, with a gap of nearly 30%. Multi-line insurers outpace both P&C and L&A and group insurers by upward of 35% in the use of sandboxes. For more insight, check out the replay of this webinar, titled, “The Future of Insurance and Regulation:  Optimization, Growth and Innovation” that features individuals from AM Best, Ohio Insurance Department of Insurance and a former first deputy commissioner for Iowa. Their insights highlight the growing need for insurers to be innovating.

See also: How to Innovate With an Agency Partner  

In Summary

Insurers must gain clarity on how to succeed in the future of insurance, which is coming faster than most realize. Insurers must lay the groundwork of a new digital insurance business model that embraces customer, technology and market boundary changes with vision, energy and speed.

How do your strategies align to what leaders are doing? What specific plans can you take to improve your odds of success? How can you rapidly move from knowing to doing?

Your answers will determine your readiness in a new decade and the future of insurance.

To Be or Not to Be Insurtech

It is probably a bit presumptuous to liken the insurtech startup movement to Hamlet’s famous “To be or not to be” soliloquy. It is, after all, a well-known and historical Shakespearean reference. However, the similarity is in the questions asked, and such a question has probably been asked prior to many defining moments. And just as Hamlet pondered many questions, there are many questions that revolve around the state of the insurtech movement. At this juncture, some five years into this movement, the one question that has most likely gone by the board is – Is it real?  You can debate whether we are at the beginning of the insurtech cycle or at the end. However, there are several strong points in favor of the fact that it is real.

See also: Convergence in Action in Insurtech  

SMA has been following the insurtech startup trends since 2013. Currently, we track approximately 1,200 insurtechs. It is definitely a fluid number. Some startups go out of business, and others come in to fill the void at a regular pace. In the 2013-2015 timeframe, the insurtech startup landscape was a tsunami of activity – it was difficult to get one’s arms around what was happening. In the latter half of 2017, some strong realities emerged. SMA’s recently released research findings have revealed several major insurtech trends or themes that are specific to insurance and have meaningful implications for the industry. In response to the “is this real” question, three of the 10 themes anchor the insurtech movement firmly in reality.

  • Insurtech has spread to all tiers and lines of business – Originally, most of the activity was in personal lines and health. Now, of the P&C contingent, which SMA data indicates is 39% of all the activity, a little over half is personal lines; 35% is commercial lines; 13% is workers’ comp. Historically, technology providers have targeted particular tiers for their sales efforts. The startup community targets insurance business problems without a specific tier focus. What this means is that insurers of all sizes are able to adopt insurtech-provided technology. SMA partnering data shows that there are insurtechs with customers ranging from top 10 insurers down to single-state insurers. The bottom line: The fact that insurtech is not focused on the top echelon of global players but rather on business problems across the insurance ecosystem lends itself to the “it’s real” theme.
  • Live implementations are increasing – Not surprisingly, in the beginning of the startup movement, most of the activity was around fundraising and proofs of concept. In 2017, and continuing at an accelerating pace in 2018, insurer “go lives” are happening. Some insurtechs have 10, 12 or more insurer logos on their websites. These are not investor listings; they are the names of insurers that are rolling out capabilities in the marketplace. In particular, drone usage, smart home/connected property and connected vehicle initiatives are common and growing. The “it’s real” indicator is that insurers are not going to roll out technology that affects their customers just for the fun of it – customers are not guinea pigs. Insurers are seeing the value in insurtech offerings and are executing.
  • Insurtechs are partnering – While there is nothing wrong with a technology provider staying in their space, a long-standing trend within the insurance industry has been partnering for greater value. This has not escaped the attention of a number of insurtechs. For example, Bold Penguin and Ask Kodiak have partnered, as have Elafris and Hippo and Betterview and Understory. Mature technology providers also see the value of startup partnering; for example, Willis Towers Watson and Roost, Verisk Analytics and Driveway. Majesco partners with a network of insurtechs. The “it’s real” factor is that insurtechs are not simply attempting to see what they can do just for today – but, rather, what they can do for the long haul, to become strategic contributors within the insurers they work with.

While there are still questions about the insurtech movement, one of them should not be – Is it real? Business value is being generated by many startups – and no insurer is going to walk away from that. New channels and service opportunities are emerging that are generating interest and execution. New products are sprouting up at a regular pace. Not every startup and every idea is going to be a winner, but many will be. And some already are. Bottom line? Both Hamlet and Shakespeare would be proud of the insurance industry for seeing the possibilities and not just the questions.

See also: 4 Key Qualities to Leverage Insurtech