Tag Archives: Mark Fields

Voice of the Customer: They’re Not Happy

Early in November 2014, immediately following the release of the SMA research report Crowdsourcing and Open Innovation: Powering the Sharing Economy, which explored the shared economy and its implications for insurance, I received an interesting email from the CEO of a shared shipping start-up. The CEO stated, “I just wanted to let you know that I have found the hardest problem to solve as the CEO is that, after talking with 12 different insurance companies, I am still stuck on finding someone to write a policy for me! I am not sure you can overstate the tsunami of change that insurers are trying to avoid. It is frustrating to me as a CEO trying to get my company going.”

My instant reaction was … what a powerful voice, and what a compelling, if troubling, customer statement! I immediately reached out to him to discuss his predicament.

In our SMA research, we have written about how the shared economy is empowering individuals and businesses to access specialized skills, resources, goods or services from anyone, anywhere, at any time based on an instantaneous need. The change is spawning new business models and leveraging the combination of crowdsourcing, open innovation and technology. These new business models are challenging decades of business assumptions, models, pricing and growth that were based on the principle of ownership, rather than access or subscription. As a result, the fundamentals of insurance, from risk models to pricing, products and services, are feeling shockwaves. My discussion with the CEO about his business provides a great but jolting example of the need for these new business models, new risk models and (especially) new insurance products. He agreed to do a webinar to describe his needs and his frustrating experiences for our SMA Innovation Communities.

During the webinar, the CEO shared his experience and powerful insights for insurers:

It was easier to obtain $2 million for investment funding than to find insurance. The funding would likely be completed within 30 days. Contrast that with finding insurance coverage: After talking to more than 20 insurers, brokers or agents, over nearly 12 months, there is still no coverage. He found two companies, one of which works with Peers (the non-profit company backed by shared economy companies), that are bringing insurance to this market segment. But he is still awaiting confirmation.

Outdated insurance business models don’t fit today’s market needs. The old models are based on historical actuarial models, rather than real, point-in-time data (i.e. coverage when driving and shipping something). The lack of visibility into capabilities of insurers and independent agents and the language barrier (the coverage needed is inland marine, which implies the use of a boat rather than land surface shipping) make it especially difficult to find exactly the right coverage.

Finding the right independent agent is “tricky” because of referral chains, lack of skill sets, unclear representations, and agent incentives. In seeking coverage, he was told by many in the industry that, “Insurance has not updated the business model since the 1800s, so you won’t find anything.”

What does this mean for the insurance industry? Mildly put, listening to the voice of the customer should be a wake-up call. The lack of understanding and inability to respond rapidly to new market needs opens the door to new competitors and the potential loss of customers.

Just like many other industries that are being disrupted and transformed, insurance must reimagine its business models – from the mission to the customer to the product, pricing, operational and revenue models. Historically, insurance has been about the transfer of the risk of a loss from one entity to another in exchange for payment. In today’s fast-paced, changing world of emerging technologies, new business models and shifting industry boundaries, is that focus limiting our opportunities? This experience by a “could-be” customer clearly suggests we are at least limiting our future, if not risking it altogether.

Other industries (and companies) are noticeably redefining their visions and focus to compete in this new world. At the 2015 Consumer Electronics Show, the media noted that Ford CEO Mark Fields sees Ford as rethinking itself as a mobility company rather than being defined by its legacy as an automotive company, and Ford is delivering a wide array of new services and experiences via the auto. Even Google’s CEO, Larry Page, has acknowledged that its vision statement – “To organize the world’s information and make it universally accessible and useful” – is too narrow, as reported in a Nov. 13, 2014, Fortune magazine article, “Google’s Larry Page: The most ambitious CEO in the universe.” Page is creating a future by leveraging emerging technologies to reshape the business beyond the legacy as a search engine.

Yet the view that insurance vision and business models are shackled in decades or even centuries of tradition is, unhappily, very real. This notion is reinforced in a Jan. 21, 2015, Forbes article titled “Insurance: $7 Trillion Goliath” that compares banking with insurance relative to change and innovation. The article notes that 15 years ago banking was a lumbering, vertically integrated giant that was largely untouched by the technology revolution. Today, however, there are a group of “Davids” like CoverHound, Lending Club and Square that are challenging traditional banking “Goliaths” with some digital “slingshots.” The article further observes that insurance has also remained largely untouched by the technology revolution, but that we are beginning to see the emergence of “Davids” who will challenge the traditional “Goliaths,” leveraging the technology revolution to disrupt the traditional business assumptions and models of insurance.

Insurers must redefine their vision and reinvent their business model, taking into consideration the new and emerging technologies, the growing amount of real-time data, new market trends and much, much more. If they do not, they risk facing a disruption that will be devastating, when it could have been transformational, creating new relevance in a rapidly changing world.

The reimagination of businesses in the context of today’s world and tomorrow’s potential are already defining and revealing future market leaders and winners. Will insurance remain focused on risk transfer products? Or will we look more broadly toward offering products and services that provide much more, enhance the lives or businesses of our customers and meet the needs of a reimagined business model, like the shared economy?

The possibilities are significant. Are you reimagining your business, considering the impossible as the new possible? Insurers need ingenuity and outside-in thinking to reimagine their business as a Next-Gen Insurer and ignite a vision of possibilities.

If not you, then someone else will. So dream the impossible and become a Next-Gen insurer

2015: Pivotal Year for Emerging Technology

The Consumer Electronics Show (CES) has been the preeminent show for seeing, hearing and feeling what is emerging and hot in consumer electronics. It is the place to go to see new electronic games, mobile devices, TVs, home appliances and other electronics that will be coming to market to amaze and excite us. Remember Onewheel, a self-balancing, one-wheeled, motorized skateboard? Occulus Rift virtual reality? The curved HDTV? Or the best in laptops, tablets and smartphones?

The 2015 show may have been an inflection point, where CES also becomes the leading edge for emerging technology that should be of keen interest for businesses, especially insurance. It is the year where new products will go from science fiction and future thinking to Main Street reality and demand! Move over, George Jetson. For insurers, the future starts right now!

Emerging Technologies

The proliferation of emerging technologies seen at CES is considered by many to contain some of the greatest change agents since the introduction of the Internet, offering breakthroughs that will challenge businesses in many ways. In our 2014 research report, Emerging Technologies: Reshaping the Next-Gen Insurer, insight into the adoption, investment plans and opportunities for business of nine emerging technologies reveals the vast potential for transforming insurance. The research found that adoption is being led by the Internet of Things (IoT) followed by wearables, artificial intelligence (AI) and drones/aerial imagery, with driverless vehicles coming up quickly behind. In fact, five of the nine technologies are projected to arrive at or go well beyond the tipping point within three years, and all nine to surpass the tipping point within five years. CES has reinforced this view. Insurers that have not accepted as fact the fast-paced adoption and impact of these emerging technologies should take great pause. Here are a few reasons:

Autonomous vehicles became one of the hottest items during the show, and even before. Audi drove its autonomous vehicle from Silicon Valley to Las Vegas, generating pre-show buzz. Kicking off the show was Mercedes showing a concept car that looked more like a futuristic living room than a car. These and the other major automotive companies all demonstrated their acceptance, commitment and fast adoption of this new form of transportation introduced by Google just a couple of years ago. At this show, many of these automakers announced their plans to offer autonomous vehicles beginning in 2017! Note they did not make the announcement at the traditional Detroit Auto Show the following week. The future of autonomous vehicles will quickly be a reality, and so much sooner than most thought. So share the road, George J!

The Internet of Things (IoT) was everywhere, exemplified in the connected car, connected home and wearables … highlighting a fast paced market that is reinventing how we work, live and play in a connected world. Wearables with fitness and activity bands were prevalent, along with innovative devices like a pacifier that can monitor a baby’s health. Also included were wearables that were integrated with autos to enable the starting of parked cars. But it was the connected car and connected home that had the highest profiles.

The connected car was touted by many major car manufacturers. Ford, Volkswagen, GM, BMW, Toyota, Audi, Mazda, Daimler and others were showcasing their connected car capabilities and the growing array of services that come with them. The media noted that Mark Fields, Ford’s CEO, sees Ford as thinking of itself as a mobility company rather than an automotive company, delivering a wide array of services and experiences via the auto instead of the mobile phone. Added to this are Apple’s CarPlay and Google’s Android Auto systems that mimic and integrate the functions of smartphones on the auto dashboard touchscreen. Quite a reimagination of the automotive business!

All the devices and capabilities for the connected home added to the IoT’s momentum. Familiar tech companies like Google, Microsoft, Amazon and Apple, along with traditional companies like Cisco, GE, Bosch, Samsung and others, are powering ahead with innovative capabilities that will drive rapid adoption. In fact, Samsung Electronics CEO Boo-Keun Yoon indicated that, by 2017, 90% of all Samsung hardware (TVs, ovens, refrigerators, purifiers and more) will be connected, creating a home personalized to your unique needs. Many of the companies also announced the development of connected home hubs to integrate these wide arrays of devices from various manufacturers and third-party providers. Data from the connected home devices can be used to offer new services. The Jetsons’ home is finally here!

And drones were flying everywhere to demonstrate the high interest and potential for many businesses – from phone and video purposes to building inspections, surveying, delivery, weather data gathering, traffic and much more. The Federal Aviation Administration (FAA) had a booth at the event, announcing that it expects well over 7,000 drones in use by 2018. All of this indicated that, literally, the sky seems to be the limit for drones!

Insurance Implications

What does this all mean for insurers? The event emphasized the need for insurers to take these emerging technologies seriously and to quickly explore, experiment and consider their uses in the business. Why? Because traditional competitors like Progressive and USAA made announcements at the event concerning the connected car and connected home and the potential of new competitors that are looking at how they might leverage these new technologies.

The SMA 2014 emerging technologies survey indicated that these technologies would reach a tipping point in three to five years — or from 2017 to 2019. Based on the announcements at the CES about autonomous vehicles by 2017, home hardware being 90% connected by 2017 and large numbers of drones in use by 2018, the estimated arrival time at the tipping point is right on track, or could even come much earlier.

The results? New customer demands and expectations. Decreased risk. New insurance product needs. New service revenues. New competitors. Redefined customer relationships. Reimagined businesses and industries.

To stay in the game, let alone win it, insurers must aggressively find a way to embrace these technologies and uncover their potential. And, to do so, they must have modern core systems as the foundation to integrate the use of these technologies for innovation, as well as plans to pilot some of these technologies, because the future is coming fast.

The Consumer Electronics Show 2015 has foretold that 2015 will be a pivotal year for many businesses and industries, including insurance, for emerging technologies. Adoption of the emerging technologies is on track or accelerating toward the tipping point. It is no longer science fiction. It is science reality. Welcome to the future … today!

car insurance disruptive

Cars: What’s Driving Disruption and Change

The SMA research report The Next-Gen Insurer: Fueled by Innovation identified the major influencers within and outside the industry that are reshaping the business of insurance. It cautioned that if insurers chose to ignore, or even put off, the inevitable need to change along with the rest of the world, they would be taking a chance and creating risk for the survival of their businesses. Well, as it turns out, ignoring it is no longer an option.

The new SMA research report, The Changing Auto Insurance Landscape: Influencers Driving Disruption and Change, underscores that disruption to the auto insurance industry is inescapable. Multiple influencers have converged, primarily from outside the industry, and are in the early stages of transforming the automobile industry and subsequently the auto insurance business. The new examples like driverless/autonomous vehicles, the connected car, car apps and shared transportation are disrupting traditional business, risk, product, pricing and customer assumptions while setting off the first wave of a broader disruption that will challenge the industry. Together, they reveal a growing wave of disruption in the auto insurance segment. This was emphasized by the announcements made at the Consumer Electronics Show (CES) in Las Vegas in early January 2015.

Insurers reward customers with discounts for multiple auto policies, offer discounts for pay-as-you-drive (PAYD) or pay-how-you-drive (PHYD) programs and offer more discounts for additional coverage such as homeowners, umbrella, or others. The same is true for commercial insurance – business owners will look for a package of insurance that includes bundled discounts.

But consider what Mark Fields, Ford’s CEO, noted to the media at the 2015 CES show. Fields sees Ford as a mobility company rather than an automotive company, delivering a wide array of services and experiences via the auto instead of the mobile phone. This reimagined business model will have rippling effects across other industries, including insurance.

So how will insurance see itself going forward? How will insurance reimagine itself? The impact will drive insurers to think bigger and reimagine their businesses as they ride this wave of change toward becoming a Next-Gen Insurer.

The transformational potential of each influencer individually is great, but when combined they are game-changing. Each is individually beginning to disrupt insurance in varying degrees by redefining or reducing risk; redefining vehicle needs and uses; creating product and service needs; and affecting traditional revenue, pricing and operational models. Even more importantly, influencers are reshaping customer expectations by providing new experiences to create, retain and grow customer relationships and loyalty. Here are some potential implications for insurance:

  • Will insurance models move away from the driver to the vehicle or manufacturer?
  • What new services can be provided based on connected car or smartphone applications to engage with customers differently?
  • Will auto driver usage data come from Google, Apple and auto manufacturers rather than traditional industry data providers? Will this new data redefine risk, pricing and underwriting models?
  • Will insurers need to rethink partnership strategies to deliver new services?
  • How will risk models and ultimately pricing models be affected?
  • How will these affect operational, unit cost, revenue and profitability models?

The last two questions are especially significant based on the changes that are already happening in driverless/autonomous vehicles, the connected car, car apps and shared transportation. Using some of the statistics and projections from these examples featured in the new report, the hypothetical potential financial impact on auto premiums is profound. Collectively, the impact to the top 10 personal auto insurers that represent 70% of the direct written premium (DWP) could put 60% of existing DWP revenue into play. What’s more, this does not include potential lost revenue because of new products and services that may be offered by other companies and industries.

Even if the impact is only half of this, the operational and profitability models based on historical auto insurance assumptions are significantly disrupted. And those assumptions are starting to become irrelevant. Rather than waiting for automotive, technology and other industries to determine where this revenue will go, insurers must begin to plan today.

Another inevitable result will be felt in the traditional customer relationships that will be further challenged by the emergence of new services and providers around the shared economy, connected car and driverless vehicles. Opportunities to strengthen customer relationships will be strained and diminished as these companies redirect customer relationships and revenue away from traditional insurers.

The impact of these influencers; the emergence of new services; and their effects on customer relationships, old business models and revenue and profitability models are causing insurers to seriously consider these underlying, but very strategic questions: How are insurers going to recapture the disrupted revenue stream? Will it be through new products and services that generate new revenue in new ways? Will insurers become product manufacturers/underwriters for these emerging companies? Or will insurers adapt and become broader providers of insurance and service capabilities? How will you retain customer relationships and loyalty within this disruption? Are you preparing scenarios and plans to respond to these changes over the next three to five years?

These changes have uncovered a challenging new business landscape. The inevitable disruption of auto insurance is taking the industry in new and surprising directions. How you respond is strategically important for your companies’ relevance and competitiveness. So, fasten your seat belts! It is going to be a fast and interesting ride!