It is not a secret that I’m an insurtech enthusiastic; I have shared my view about the need for any insurance player (insurer, reinsurer, distributors, etc.) to become an insurtech-player during the next several years. This will mean: organizations where technology will prevail as the key enabler for the achievement of the strategic goals.
It was only 12 months ago when I published my four Ps to assess the potential of each insurtech initiative. My approach is based on four axes related to the fundamentals of the insurance business:
Productivity: Impact on client acquisition, cross-selling or additional fee collection for services;
Proximity: What an insurtech approach can do to enlarge the relationship frequency, by creating numerous touch-points during the customer journey — a proven way to increase the customer’s satisfaction;
Profitability: What can be done to improve the loss ratio or cut costs without an increase in volumes; and
Persistence: Increasing the renewal rate, and, thus, stabilizing the insurance portfolio.
The insurtech ecosystem has shown terrific growth in the last 20 months, after many VCs complained about the absence of insurtech startups. The updated Venture Scanner’s map shows more than 1,000 initiatives, with more than $17.5 billion invested. The needs for a pragmatic approach, the ability to prioritize the initiatives and a stronger focus on innovation have become more and more relevant.
I strongly believe in the effectiveness of the aforementioned four axes to evaluate a business. In the last few months, I followed this view to make investment and career choices.
Several months ago, I invested in Neosurance, an insurtech startup currently accelerated by Plug & Play in Silicon Valley, and I’m supporting the company as a strategic adviser. This company developed a platform to enable incumbents to sell the right product with the right message at the right time to the right person. By using artificial intelligence, Neosurance aims to become a virtual insurance agent with the ability to learn and improve how it sells. I fell in love with its model because of its productivity angle, the first of the four Ps.
Let’s consider all the non-compulsory insurance coverages. The large part of the purchases have been — and still are — centered on a salesman’s ability to stimulate awareness and to show a solution. In a world that is getting increasingly more digital and is becoming less about human interaction, I’m skeptical about the ability to cover the risks with the current approaches of online distribution, comparison websites and on-demand apps. All three of these approaches require a rational act and a lot of attention. But many customers look like more to Homer Simpson than to Mr. Spock.
Those are the reasons I’m optimistic about Neosurance’s business model. On one hand, its B2B2C model aims to be present where and when it matters most for the customer. And, its “push” approach is able to preserve underwriting discipline, which is the only way to continue in the middle term and distribute a product that keeps a promise to the customers. My investment choice was based on the business model evaluation, the company’s pipeline and the quality of its team. I hope to be able make more investments.
I also decided it was time for a job change at the end of 2016. After 11 years, I left my career with Bain & Company, where I advised the main insurers and reinsurers on the European market. I had focused my activity on the insurtech trend, because I’m passionate about connected insurance. In the last several years, I have advised more than 50 players on this topic — from insurers to reinsurers and from service providers to investors. I consider the use of sensors for collecting data on the state of an insurable risk and the use of telematics for remote management of the data collected to be a new insurance paradigm. For years, many of the use cases we have seen globally have only somewhat used the potential of this technology to support an insurer and achieve his or her strategic goals.
My belief could be well understood by observing the best practices of auto insurance telematics and their performance regarding the other three Ps:
Let’s start with the proximity angle. Insurers have provided telematics-based services that have reinvented a driver’s journey. More and more players are focusing on this opportunity to create an ecosystem of partners to deliver their suite of services. Discovery Insure is one of the best at doing this because it is able to reward clients with a free coffee or smoothie for each 100 kilometers they drive without speeding or braking hard. Is there a way for you to be closer to your client?
The Italian market shows the potential benefits in terms of persistency. There are more than 6.5 million cars with a device connected to an insurance provider in Italy, and the telematics penetration reached 19% in the last three months of 2016. On average, the churn rate on the insurance telematics portfolio is just 11%, which is lower than the 14% churn rate on the non-telematics portfolio.
Last — but definitely not least — is the profitability side. The Italian telematics portfolio shows a claims frequency that, risk-adjusted, was 20% lower in comparison with the non-telematics portfolio, as I mentioned in a paper last year. The best practices were able to achieve an additional 7% average claims cost reduction by acting as soon as a claim happened and by reconstructing the claims dynamic. These savings let insurers provide an up-front discount to the clients. This makes the product attractive and achieves higher profitability.
My day job is now to run an international think tank focused on connected insurance. More than 25 companies have joined the European chapter since the beginning of the year, and eight players have joined the North American chapter since March. This initiative is developing the most specialized knowledge on insurance IoT, which is based on a multi-client research. I personally deliver the contents through one-to-one workshops dedicated to each member. Throughout the rest of the year, I will host plenary meetings with all the players to discuss this innovation opportunity.
I felt honored and privileged last spring when former Iowa insurance commissioner Nick Gerhart invited me to present my four Ps at the Global Insurance Symposium 2017 in Des Moines, but I did not realize how this framework would so deeply influence my life decisions.
It is definitely an interesting time to be in the insurance sector.
When it comes to scrutinizing costs, most insurance companies can say, “Been there, done that. Got the T-shirt.” Managers are familiar with the refrain from above to trim here and cut there. The typical result is flirtation with the latest management trends like lean, outsourcing and offshoring. However, the results tend to be the same. Budgets reflect last year’s spending plus or minus a couple of percent.
Meanwhile, managers attempt to develop strategies to capitalize on the trends reshaping the industry – customer-centricity, analytics, digital platforms and disruptive delivery and distribution models. Yet, after all of the energy companies exert to reduce expenses, there is often little left over to spend on these strategic initiatives.
Why do you need to look at your expense structure?
A variety of pressures have led carriers to improve their cost structures. In all parts of the market, low interest rates and investment returns are forcing carriers to scrutinize costs to improve return on capital, or even to maintain profitability to stay in business.
After all of the energy that companies exert to reduce expenses, there is often little energy left over to spend on strategic initiatives.
P&C carriers with lower-cost distribution models have been able to channel investments into advertising and take share, forcing competitors to reduce costs to defend their positions. Consolidation in the health, group and reinsurance sectors have forced smaller insurers to either a) explore more scalable cost structures or b) put themselves up for sale. For life and retirement companies, lower interest rates have taken a toll on the competitiveness of investment-based products.
This spells trouble for companies that have not adequately sorted out their expense structure. And a shrinking insurance company sooner or later will run afoul of regulators, ratings agencies, distributors and customers. Even if expenses are shrinking, if revenue is declining more quickly then the downward spiral will accelerate. It is virtually impossible to maintain profitability without growth. Expenses increase with inflation, tick upward with each additional regulatory requirement and can spike dramatically when attempting to meet customer and distributor demands for improved experiences and value-added services.
The reality is that companies have to grow, and that’s difficult in a mature market, especially in times when “the market” isn’t helping. What’s the key to success, then? In short, growth comes from better capabilities, service, customer-focus and products – all of which require continuing investment in capabilities.
The math doesn’t work unless you’re finding ways to spend less in unimportant areas and allocate those savings to more important ones. If your answer to any of the following questions is “no,” then it’s important that you look at your allocation of resources for capital, assets and spending:
Are you making your desired return on capital?
Are your growth levels acceptable?
Do you have an expense structure that lets you compete at scale?
The transformation of insurers from clerk-intensive, army-sized bureaucracies to highly automated financial and service operations has been a decades-long process. The industry has invested heavily enough in standardization and automation that one would expect it to be a well-oiled machine. However, when we look under the covers, we see an industry with a considerable amount of customization and one-offs. In other words, the industry behaves more like cottage industry than an industrial, scalable enterprise.
We know that expenses are difficult to measure, let alone control. But why are they so intractable?
The industry’s poorly kept secret is that insurers, even larger ones, have sold many permutations of products with many different features. All of these have risk, service, compensation, accounting and reporting expenses, as well as coverage tails so long the company can’t help but operate below scale.
Why are expenses so intractable? The issue is scale.
What defines operating at scale for you? A straightforward way to answer this question is to consider whether you’re operating at a level of efficiency on par with or better than the best in the marketplace. Where do you draw the line? The top 10% to 15%? The top 20% to 25%? Next, ask yourself if you, in fact, are operating at scale. Remove large policies and reinsurance that disguise operating results, then sort out how many differentiated service models you are supporting. Are you in the bottom half of performers? Are you in the top 50% but not the top quartile? Are you in the top quartile but not the top decile?
Every insurer needs a more versatile and flexible expense structure to fully operate at scale and be more competitive.
Competition is changing
Customers now have access to a wealth of information and are increasingly using it to make more informed choices. New market entrants are establishing a foothold in direct and lightly assisted distribution models that make wealth management services more affordable for more market segments. Name brands are establishing customer mind-share with extensive advertising. FinTech is shifting the way we think about adding capabilities and creating capabilities in near real time. Outsourcers are increasingly proficient and are investing in new technologies and capabilities that only the largest companies can afford to do at scale.
The competitive landscape will continue to change. More products will be commoditized – after all, consumers prefer an easy-to-understand product at a readily comparable price. As they do now, stronger companies will go after competitors with less name recognition and scale and lower ratings. Customer research and behavioral analytics will more accurately discern life-long customer behavior and buying patterns for most lifestyles and socio-demographic groups. The role of advisers will change, but customers of all ages will still like at least occasional advice, especially when their needs – and the products they purchase to meet them – are complex.
Table stakes are greater each year and now include internal and external digital platforms, data-derived service (and self-service) models, omni-channel distribution models and extensive use of advanced analytics. The need to improve time-to-market has never been more important. Scale matters. Because they can increase scale, partners also matter even more than in the past. If they have truly complementary capabilities, new partners can help you improve your cost curve because you can leverage their scale to improve yours (and vice-versa).
In conclusion, all companies – regardless of scale – need to ensure that their capital and operating spending aligns with their strategy and capabilities and the ways they choose to differentiate themselves in the market. In this transformative time, the ones that can’t or won’t do this will fall increasingly behind the market leaders.
Implications: Leave no stone unturned
Managing expenses is a job that is never finished. Even if you’ve already looked at expenses, it doesn’t mean that you get a pass from scrutinizing them afresh. You will always have to keep rolling that particular boulder up the hill. Acknowledging that you could always manage expenses better is the first step to doing it well.
Identify and commit to the cost curves that get you to scale. This may require new thinking about sourcing partners and which evolving capabilities hold the most promise for the future of the company. How transformative do your digital platforms need to be? Can the cloud help you operate more efficiently and economically? How constraining is your culture, management and governance?
Every company needs to invest. Every company needs to be “fit for growth.” You will need to increase expenses where it helps you compete and decrease it where it doesn’t. Admittedly, this is hard to do, but the companies that don’t do it successfully will be left by the wayside.
Do I really mean survival? I do. There’s not a bit of exaggeration there.
I firmly believe—based on extensive qualitative and quantitative research and the many interviews and discussions I’ve conducted with insurance industry leaders—that analytics represent the industry’s best path to success and survival in a rapidly transforming world.
Certainly, virtually every insurance carrier is using analytics in one or more parts of the enterprise—but it is not nearly being used to its full potential. Very few carriers can honestly claim to have a data-conscious culture or say they are applying innovative modeling techniques.
What the industry needs now are well-defined strategies and tactics for immediate implementation to enhance the customer experience (including claims), increase accuracy in underwriting and pricing, optimize operations and boost profitability. Simply put, insurers need to immediately implement a meaningful and robust analytics strategy.
That is why we are holding the 3rd Annual Insurance Analytics USA Summit (March 14-15, Chicago), to provide insights into how to transform the way an organization uses analytics. The lessons from experts about how to prepare the organization for analytics success include:
Become an analytics powerhouse: Gain executive buy-in for analytics implementation, build a team to use effective analytics to solve critical business challenges and create a culture of data-centricity throughout the organization.
Keep all eyes on the customer: Develop a 360-degree view of the customer; integrate data from disparate sources across the organization to develop a more thorough view of the customer; glean insights for application through underwriting, pricing, marketing, claims, resource management and fighting fraud; design and deliver an exceptional customer experience; and effectively use segmentation and personalization to improve customer lifetime value.
Effectively use new and external data: Drive actionable insights from the explosion of big data and new data sources, including telematics, social media and texts.
Transform your product lines using analytics: Embed analytics throughout underwriting and pricing to optimize products and improve profitability at each stage of the value chain through accurate risk assessment.
This summit is a must-attend event for executives who are responsible for insurance analytics strategies from insurance carriers (P&C, commercial, specialty, health and life) as well as executives and others responsible for virtually any part of the insurance enterprise.
The way people and companies interact with each another is tremendously different from the way they conducted business just 10 years ago. Technology is pushing the boundaries of how and when business is conducted between businesses and their customers. That being said, the insurance industry’s customer journey over the last 100 years has not evolved or diverted from its basic business model: Brokers and agents are still the primary means for insurance companies to market and sell their products. This broker-dependent model served the industry well and remained the same while other industries have evolved their delivery channels. While there are some exceptions—such as Progressive and Geico, which use direct channels quite successfully—the industry’s most prevalent delivery channel remains with agents and brokers.
Given the insurance industry’s stability and profitability over time, the notion of a distribution chain realignment or agent disintermediation seems quite unlikely. This is bolstered by the fact that many large and successful companies played by the old business model quite profitably. Accordingly, there had been little incentive in the past to alter this business model. Today, however, insurance distribution is ripe for technological disruption, and carriers that ignore this trend are doing so at their own peril. We are on the verge of the perfect storm; the magnitude of technological availability and shifting demographics in the U.S. has the potential to disrupt and reorganize almost all aspects of the insurance customer journey.
Technology’s Adoption and Diffusion: Its effects on the general population
During earlier periods of technological growth, technology created more efficiency within the brick-and-mortar framework. Businesses were able to cut costs, automate design and streamline processes. The ultimate consumer did not necessarily enjoy lower prices or a better buying experience as a direct function of improving economies of scale. Moreover, consumers did not have additional access to pricing information, product research, reviews or product promotion pieces in real time. Instead, the average consumer bought through the retail channel that businesses sold through without any alternative.
Today, access to information is widely available in real time. If you want a product review on something you are interested in at your local store, you Google it. Then, if the review is satisfactory to you, you can go to a brick-and-mortar location and purchase it, or you can log on to an online store and purchase it from your sofa. The average consumer has more information and power at his disposal than ever before. He can search for prices at no cost to him and then make purchases. According to the U.S. Census in 2013, 84% of U.S. households reported computer ownership, with 79% of all households having a desktop or laptop computer and 64% having a handheld computer. 74% of all households reported Internet use, with 73% reporting a high-speed connection.
Complementing this growth in computer home ownership is the increasing popularity of tablets. In just three short years (between 2010 and 2013), tablet ownership increased from 3% to 34%. With this advance in personal technology there comes access to information.
All these statistics raise the question, “Why is technology growth at the individual level important to the insurance industry?” Because many products offer information on the web just by clicking, there is a fundamental shift in buying behavior because of the speed of information. There is a certain convenience factor individuals currently enjoy by using digital channels for research. Convenience is a key factor along the customer journey. As an example, when buying an airline ticket, do you call the airline or simply log on to a travel site to research options and make a purchase?
Many in the insurance industry state that insurance products’ complex nature will require that consumers use agents and specialty advisers to assist with product selection. Many would agree with that statement, with some qualification. For large commercial and other extremely complicated risks, the agent and broker channel will exist, but for small commercial and personal lines the delivery channels will blur.
Some consumers will always pick up the phone or meet with someone to get a better understanding of risk products. That preference, however, may be a generational one. People born in the 1960s and 1970s did not have computers and tablets from a young age. The millennial generation is used to the convenience and the speed that digital technology affords.
As an example, a 24-year-old told the story of his first experience purchasing automobile insurance. He called a national firm’s local office to inquire about a policy. The agent was friendly but was not available to meet with him for several days. Thinking that was ridiculous, he declined the appointment and used a website to research, evaluate and price a policy. Following that, he spoke to a customer service representative who explained coverages and what they were. At the conclusion of the phone call, he paid for the policy and was done. His primary goal was to 1) get information quickly, 2) evaluate the coverages, 3) determine that the price was fair and 4) purchase his policy. This was also accomplished after business hours when it was convenient for him, not the agent. All told, using digital channels first and later interacting with a call center was the optimal delivery channel path for him.
Technology and New Channel Formation
With the widespread growth of personal computing devices in the U.S. increasing each year, insurance companies have begun to take notice. It’s not uncommon to see websites that outline the company’s products. As a general rule, however, when it comes to pricing policies, insureds are still referred to agents. Consumers of insurance products demand information on multiple channels. Many want the ability to research and evaluate products on their own, without an agent (this is an evolutionary change), but this does not mean they might not want to BUY insurance from the agent. The agent will be there to answer any final questions and to fit the product into the overall financial situation of the consumer. The real challenge for most agents is remaining relevant and finding a way to create value within the digital customer journey. To that end, agents must find a way to help expedite how information is distributed and consumed. If agents relegate themselves to becoming just order-takers, they will quickly become irrelevant and will add very little value to the process. In other words, the agent’s role must evolve to avoid obsolescence. The agency distribution channel is not dead.
While there will always be agents representing insurance companies, their roles and their interactions with the industry and insureds will change over time as new distribution channels manifest themselves. The questions of “where” and “how much value” are what is changing. Some customers will use channels differently, but it is up to agencies and brokers to understand their target market’s preferences for channel selection. Agencies who do not use an omni-channel strategy will lose business to other agencies that do. Also, agencies need to create value through content, creating a clearly defined holistic- and flexible-guidance value that resonates with customers. Those who are able to evolve will continue to thrive, but those who do not will either continue to lose business or will close their doors. If you look at the travel agent industry, the number of travel agents has declined markedly, but there are still agencies in business that provide value to their customers. These agencies simply evolved and realigned their value proposition and targeted their customer segments quite successfully. The result is that there are far fewer agencies than there were 10 years ago. The same will occur with the agency channel.
The Rise of Omni-Channel Delivery
Under the old insurance distribution model, consumers were expected to shop for insurance with their agent, who would also be there for their subsequent questions or for submission of claims. Today, consumers increasingly expect to interact with their insurance provider on the consumer’s schedule through omni-channels. Subsequently, the agency delivery channel’s role is changing.
Perhaps, spoiled by a streamlined customer experience in other industries, consumers now want to research their purchases online and then decide whether to buy online or through brick-and-mortar stores. Blogs and consumer reviews are also important to today’s consumer. The way people shop is evolving at a rapid rate, and insurance companies need to recognize that. Carriers like Plymouth Rock, for example, are experimenting with an “option direct” delivery strategy. It allows prospective insureds to quote policies and, at their option, bind the business directly with the company. If the prospective insured does not purchase the policy online, it is released to an “agent exchange” where an agent purchases the lead and then follows up to cross-sell, up-sell or quote other companies. Using this approach, Plymouth Rock allows for a direct distribution channel with an option to work with an agent for coverage advice.
Time will tell if Plymouth’s model is successful, but, given the demands for omni-channel availability, it certainly makes sense that the company tests the model’s efficacy. This test presents an interesting business practice. Testing new distribution channels is a must. No one person—or expert—truly knows how distribution channels will evolve over the next few years. What is widely known, however, is that these channels exist and that they are viable alternatives with lower cost structures to insurance carriers. Also, what doesn’t work this year may work quite well five years from now. These new channels may just be a step in the customer journey, or they may turn out to be the point in the customer journey where purchases are made: i.e. the moment of truth. Either way, understanding target customer preferences is critical in an omni-channel world. Successful insurance companies will constantly test their channels to determine what the most effective strategy is for sales conversions.
Omni-Channel and Commoditization
With the proliferation of multiple distribution options, insurance companies are increasingly forced to compete on price instead of features. The growth of price comparison sites and aggregators makes buying insurance based on price even easier for the consumer. These channels provide a list of insurance policies ranked in ascending price order. On the surface, this presents challenges. From the carriers’ perspective, this is not the optimal solution because price alone does not explain the value of a policy or a company’s ability to pay claims. From the consumers’ perspective, buying solely on price potentially subjects them to improper or incomplete coverage. Yet, despite these challenges, over the last decade insurance product commoditization has occurred (e.g. personal auto).
To counter commoditization, insurance companies need to position themselves effectively to differentiate their product offerings. Evaluating the demographic preferences and buying habits allows insurance companies to more effectively target their customer base and not rely on price alone as the distinguishing factor. Deciding on a differentiation framework is even more important today given the changes in the market. Companies can compete on service (e.g. fast, no hassle claims), 24/7 accessibility, customer experience, unique product offerings, speed to market, leadership in the industry, etc., but they must fight to make sure these differentiators are made known in the midst of increasingly commoditized interfaces, distribution and thinking. To counter commoditization in the digital era, it might behoove insurers to select strategies other than price to compete and stand out from the competition and, secondly, to make sure these strategies are obvious and well understood by the consumers who might tend to look first at price.
The Importance of Millennials and their Preferences
The demand for omni-channel customer journeys is in its infancy. Consequently, there are fundamental differences in Internet use and shopping behavior by millennials, as compared with other generations. As baby boomers and Generation X age out, millennials and the subsequent generations who have experienced technology from an early age are going to drive market behavior on a larger scale. They are comfortable with an omni-channel approach and expect to find information available on the Internet so they can research their purchases. These consumers have skills, beliefs and requirements that previous generations did not have. (How many children help their parents and grandparents with their online challenges?) If one were to summarize some of the millennials’ characteristics and their digital preferences, a number of the following points deserve mention:
Based on their familiarity with technology, they are open to using digital channels as an option for purchases;
Millennials currently make up 25% of the population but will make up 75% of the population in 2025. Some of them are going to rise to the management level;
Convenience and ability to purchase goods and services 24/7 is important to them;
Online reviews and blogs are widely used in their decision making;
Millennials interact with brands on Facebook and other social media sites;
Opinions of others—particularly friends and family—influence buying decisions.
The power of insurance customers to voice their opinion is particularly strong with digital channels. A dissatisfied customer has the ability to vent his negative experiences to a massive audience. Online reviews and blogs are a powerful information source for current and potential customers, and these
sources can—and do—influence customer behavior. This shift in power drives home the importance of customer experience. With today’s social media, a negative experience could go viral and give a company a public relations nightmare. Conversely, publishing success stories that prove alignment with customer needs is an excellent way to demonstrate a company’s core values and reinforce its positioning as an insurer that fosters an excellent customer experience.
As stated earlier, over time, millennials’ buying preferences will become more and more important to numerous industries, including insurance. Because the millennials’ demographic will make up 75% of the workforce in 2025, many insurers will need to evolve their distribution channels and their customer interaction strategy to better serve this demographic. As far as personal lines are concerned, this demographic group will influence distribution channels more immediately because millennials are now at the age where they need to purchase insurance products. What is not clear today is which omni-distribution channel is the most effective for insurance distribution. Recognizing that, providing omni-channel delivery ensures that all options are covered and that marketing opportunities for customer touch are available.
It is the prevailing wisdom that the more an insurance company interacts with its customers, the more likely it is that customers will renew their coverage. In the old agency model, the only touch points for an insurance company are the claims and billing processes. To accomplish additional touch points, publishing content works quite well. Today, content- and information-sharing is one of the main avenues for adding value to customers. As an example, some homeowners insurance companies send out text warnings to areas in the path of a hurricane or tornado to guard against loss of life and property. Others use content quite differently. Topics that are relevant to a customer base (that are not insurance-related) work equally well. As another example, one insurance company sends out gardening suggestions based on demographic data.
Because insurance is a low-interest category to most consumers, insurers that publish content that interests their customers will create engagement and, consequently, develop a connection with their insureds. Only a small percentage of consumers actually file claims, and most insureds have little or no contact with their carrier. As a result, a content strategy allows insurers to interact with the majority of their customers other than just in claims or billing situations. This greatly increases customer touch and provides the opportunity to improve the customer experience. In the near future, however, content will become commonplace and expected, while user experience will determine the winners and losers in the marketplace.
Additional Demographic Shifts
The U.S. of 2050 will look very differently from that of today: Caucasians will no longer be the majority. The U.S. minority population, currently 30%, is expected to exceed 50% before 2050. No other advanced country will see such diversity. In fact, most of the U.S.’s net population growth will be among its minorities, as well as in a growing mixed-race population. Latino and Asian populations are expected to grow threefold, and the children of immigrants will become more prominent. Today in the U.S., 25% of children under five years old are Hispanic; by 2050, that percentage will be almost 40%. As a direct consequence, insurance companies need to start their long-term planning for these demographic shifts and must have strategies to serve these segments. In addition, the number of women in the workplace is increasing. As women grow in the management ranks, their influence on buying decisions will increase accordingly. Currently, women are responsible for 85% of all consumer purchases, including everything from autos to healthcare. Farnaz Wallace—the founder of Farnaz Global, a strategic consulting firm—said, “In the New World Marketplace, women, youth and multiculturalism are shaping our future economically and culturally, and companies must find ways to stay relevant in a world different than the one taught in textbooks.” He also said, “Millennials are the most racially and ethnically diverse generation in American history—gender-neutral and colorblind—transforming business norms.”
Throughout business history, products have fulfilled human needs. Think about how the automobile, air travel and the microwave oven changed the way we live. All these innovations took place on the company side of the value chain. In the past, these products disrupted other products. What makes disruption more likely in the insurance industry today? The major shift in the customer journey. Today, information is available to consumers on a massive scale and is virtually free. The agent is no longer the sole channel for information and product delivery. This disruptive cycle is substantially different because it empowers customers to use different channels during the purchase journey, channels that never existed before. Additionally, a generation of insurance purchasers are coming online with a major predisposition for utilizing omni-channel approaches. Companies that ignore these shifts are taking a major risk with their future viability because these shifts have already occurred and will continue with tremendous momentum.
Though the U.S. insurance industry is entering 2016 well-capitalized and profitable, too much capital capacity does not bode well for pricing as new capital flows in, seeking opportunities and driving pricing competition. Against this backdrop, insurers will be juggling priorities: modernizing their core systems, maintaining profitability within existing portfolios, accelerating their digital transformation and cultivating new products and services.