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4 Insurers’ Great Customer Experiences

McKinsey research has found that insurance companies with better customer experiences grow faster and more profitably. In 2016, 85% of insurers reported customer engagement and experience as a top strategic initiative for their companies. Yet the insurance industry continues to lag behind other industries when it comes to meeting customer expectations, inhibited by complicated regulatory requirements and deeply entrenched cultures of “business as usual.”

Some companies–many of them startups–are setting the gold standard when it comes to customer experience in insurance, and are paving the way for the industry’s biggest insurers to either fall in line, or risk losing out to smaller competitors with better experiences. Through a combination of new business models, clever uses of emerging technology and deep understanding of customer journeys, these four companies are leading the pack when it comes to delivering on fantastic experiences:

1. Slice – Creating insurance products for new realities.

Slice launched earlier this year and is currently operating in 13 states. The business model is based on the understanding that, in the new sharing economy, the needs of the insured have changed dramatically and that traditional homeowners’ or renters’ insurance policies don’t suffice for people using sites like AirBnB or HomeAway to rent out their homes.

According to Emily Kosick, Slice’s managing director of marketing, many home-share hosts don’t realize that, when renting out their homes, traditional insurance policies don’t cover them. When something happens, they are frustrated, angry and despondent when they realize they are not covered. Slice’s MO is to create awareness around this issue, then offer a simple solution. In doing so, Slice can establish trust with consumers while giving them something they want and need.

Slice provides home-share hosts the ability to easily purchase insurance for their property, as they need it. Policies run as little as $4 a night! The on-demand model allows hosts renting out their homes on AirBnB or elsewhere to automatically (or at the tap of a button) add an insurance policy to the rental that will cover the length of time–up to the minute–that their home is being rented. The policy is paid for once Slice receives payment from the renter, ensuring a frictionless transaction that requires very little effort on the part of the customer.

See also: Who Controls Your Customer Experience?  

Slice’s approach to insurance provides an excellent example of how insurers can strive to become more agile and develop capacities to launch unique products that rapidly respond to changes in the market and in customer behavior. Had large insurance companies that were already providing homeowners’ and renters’ insurance been more agile and customer-focused, paying attention to this need and responding rapidly with a new product, the need for companies like Slice to emerge would have never have arisen in the first place.

2. Lemonade – Practicing the golden rule.

In a recent interview, Lemonade’s Chief Behavior Officer Dan Ariely remarked that, “If you tried to create a system to bring about the worst in humans, it would look a lot like the insurance of today.”

Lemonade wants to fix the insurance industry, and in doing so has built a business model on a behavioral premise supported by scientific research: that if people feel as if they are trusted, they are more like to behave honestly. In an industry where 24% of people say it’s okay to pad an insurance claim, this premise is revolutionary.

So how does Lemonade get its customers to trust it? First, by offering low premiums–as little as $5 a month–and providing complete transparency around how those premiums are generated. Lemonade can also bind a policy for a customer in less than a minute. Furthermore, Lemonade has a policy of paying claims quickly–in as little as three seconds–a far cry from how most insurance companies operate today. When claims are not resolved immediately, they can typically be resolved easily via the company’s chatbot, Maya, or through a customer service representative. But perhaps the most significant way that Lemonade is generating trust with its customers is through its business model. Unlike other insurance companies, which keep the difference between premiums and claims for themselves, Lemonade takes any money that is not used for claims (after taking 20% of the premium for expenses and profit) is donated to a charity of the customer’s choosing. Lemonade just made its first donation of $53,174.

Lemonade’s approach to insurance is, unlike so many insurers out there, fundamentally customer-centric. But CEO Daniel Schreiber is also quick to point out that, although Lemonade donates a portion of its revenues to charities, its giveback is not about generosity, it is about business. If Lemonade has anything to teach the industry, it is this: that the golden rule of treating others as you want to be treated, holds true, even in business.

3. State Farm – Anticipating trends and investing in cutting-edge technology.

The auto insurance industry has been one of the fastest to adapt to the new customer experience landscape, being early adopters of IoT (internet of things), using telematics to pave the path toward usage-based insurance (UBI) models that we now see startups like Metromile taking advantage of. While Progressive was the first to launch a wireless telematics device, State Farm is now the leading auto insurer, its telematics device being tied to monetary rewards that give drivers financial incentives to drive more safely. The company also has a driver feedback app, which, as the name suggests, provides drivers feedback on their driving performance, with the intent of helping drivers become safer drivers, which for State  Farm, equals money.

By anticipating a trend, and understanding the importance of the connected car and IoT early on, State Farm has been able to keep pace with startups and has reserved a seat at the top–above popular auto insurers like Progressive and Geico–at least for now. If nothing else, unlike most traditional insurers, auto insurance companies like State Farm and Progressive have been paving the way for the startups when it comes to innovation, rather than the other way around. For now, this investment in customer experience is paying off. J.D Powers 2017 U.S Auto Insurance Study shows that, even as premiums increased for customers in 2017, overall customer satisfaction has skyrocketed.

4. Next Insurance – Automating for people, and for profit.

Next Insurance believes that a disconnect between the carrier and the customer is at the heart of the insurance industry’s digital transformation problem. In essence, it’s a communication problem, according to Sofya Pogreb, Next Insurance CEO. The people making decisions in insurance don’t have contact with the end customer. So while they are smart, experienced people, they are not necessarily making decisions based on the actual customer needs.

Next Insurance sells insurance policies to small-business owners, and the goal is to do something that Next believes no other insurer is doing–using AI and machine learning to create “nuanced” and “targeted” policies to meet specific needs.

An important aspect of what makes the approach unusual is that, instead of trying to replace agents altogether, Next is more interested in automating certain aspects of what agents do, to free their expertise to be put to better use:

“I would love to see agents leveraged for their expertise rather than as manual workers,” Pogreb told Insurance Business Magazine. “Today, in many cases, the agent is passing paperwork around. There are other ways to do that – let’s do that online, let’s do that in an automated way. And then where expertise is truly wanted by the customer, let’s make an agent available.”

See also: Smart Things and the Customer Experience  

While innovative business models and cutting-edge technology will both be important to the insurance industry of the future, creating fantastic customer experiences ultimately requires one thing: the ability for insurance companies–executives, agents and everyone in between–to put themselves in their customers’ shoes. It’s is a simple solution, but accomplishing it is easier said than done. For larger companies, to do so requires both cultural and structural change that can be difficult to implement on a large scale, but will be absolutely necessary to their success in the future. Paying attention to how innovative companies are already doing so is a first step; finding ways to bring about this kind of change from within is an ambitious next step but should be the aim of every insurance company looking to advance into the industry of the future.

This article first appeared on the Cake & Arrow website, here. To learn more about how you can bring about the kind of cultural and institutional change needed to deliver true value to your customers, download our recent white paper: A Step-by-Step Guide to Transforming Digital Culture and Making Your Organization Truly Customer Focused.

How Sharing Economy Can Fuel Growth

In our last blog of our two-part series on the gig and the sharing economy, we looked closely at how the gig or “on-demand” economy will open up new markets to group and commercial insurers. You can read that blog here.

In today’s blog, we look at the sharing half of the gig and sharing economy. How will a radically shifting market, where borrowing and lending are more prevalent, open doors for commercial and specialty insurers? More importantly, how can insurers fuel the growth of this market by making borrowing and lending more palatable?

Is the Sharing Economy real?

The sharing economy is not only real — it has enormous potential for insurers. RVs make a great example. Recreational vehicle owners use their RVs an average of 28 days per year. With 8.9 million U.S. households owning an RV, that’s nearly 2.9 billion unused RV days per year. RVs are remarkably underutilized, making them a prime market for sharing. RV sharing sites, such as Outdoorsy, help owners to profit from their RV, while helping non-owners to gain access to RV use.

Multiply this idea many times over. ATVs are underused. Boats, chainsaws and generators are underused. Cars, homes, cabins, campsites, hunting property, musical instruments, bicycles, hockey rinks and electronics are all commonly underused. The only thing standing in the way of sharing them all is… insurance to cover a new type of risk.

See also: Opportunities in the Sharing Economy  

While some personal lines insurers are making a case for insuring some of these risks by adapting their personal lines products, it is commercial insurers that may have a leg up when it comes to understanding how to price risk for niche risks or groups and how to offer innovative products to these “small – medium” business owners.

Majesco’s forthcoming consumer research report finds that the consumption of ridesharing and home- and room-sharing services has a strong and growing appeal. The year-on-year growth of these activities was between 5% and 15% depending on the activity, highlighting a growing interest and use across all generations due to the digitally enabled capabilities driving ease of use. (For a further look at sharing economy trends, read Changing Insurance for the Digital Age, a collaboration between Majesco and Global Futures & Foresight.)

Experience is a factor

The sharing economy is related to the experience economy. As millennials enter the middle class, they are owning less “stuff” and putting more emphasis on having greater experiences. The sharing economy is fostering their desire to do more by owning less. With less of their income tied up in ownership and maintenance, they have more to spend on borrowing and renting. They are concerned about risk, but they don’t want a confusing transaction to sit in the way between them and the experience. So, insurers must find ways to build simple insurance experiences into the front end of the overall experience, or hide purchase experiences within the usage itself.

Insurance is the answer to some of the sharing economy’s most pressing issues.

Before “sharing economy” was even a term, sharing was at the heart of insurance. So, it would make sense that insurance would fit well into the sharing economy. Insurance, however, has had a product focus, reflected in the organizational silos based on risks and products, by separating personal versus commercial, rather than a customer focus that shifts between different risks (i.e. personal vs. commercial) based on the behaviors or use.

This is why sharing economy insurance incumbents may find themselves disrupted by Slice, Cover Genius and Metromile and similar entities that are popping up everywhere. Optimistically, however, the sharing economy is igniting an insurance renaissance with traditional insurers like Geico, Admiral, AXA and others asking themselves how they can serve people in the on-demand sharing economy … both personally and as a “business.”

In the sharing economy, it’s all about protection for the shorter timeframes and meeting the uncommon, on-demand need … allowing the customer to fluidly switch back and forth from personal to “commercial” needs. And, it’s all about giving owners and businesses incentives to lend property or assets. Insurance can answer these issues.

Insurance will fuel the sharing economy if insurers can build compelling value propositions

Rental companies are familiar with the risk of lending. They understand what is at stake, and they price insurance into their products or create contracts to handle damage. A new round of entrepreneurs is arising, however, who are using technology to match peer-to-peer lending. Websites such as MyTurn are enabling anyone to launch asset-sharing organizations. These types of companies are unfamiliar with how insurance can offer them protection and how coverage should be handled for a broader segment of products and users. This is an area where insurers can fill a growing gap.

The insurance value proposition in the sharing economy is to make both the lender and the borrower comfortable that the transaction can occur without the threat of loss. All that remains for insurers, then, is to determine where sharing is creating insurance gaps and how they can build, sell and service sharing products.

Data is critical

Consider how data is currently used in underwriting most products. For the most part, insurers pull from traditional data sources for underwriting purposes, and, though they may have reduced underwriting time, it is rarely real-time data. The sharing economy is different. It will require hyper-short underwriting loops based on real-time data because many aspects of sharing happen quickly and in a non-uniform pattern. The whole concept of on-demand insurance assumes the flip of a switch between being uninsured and insured.

On-demand insurance products should have the capability to score based on evidence analyzed from many reliable sources. Sharing economy insurers may want at least some scoring related to social profiles and common pastimes and behaviors. These aren’t easy data points to collect, but the further down the road on-demand insurance progresses, the greater the demand will be for every type of character-based data.

Cloud platforms are necessary

In essence, sharing economy insurance requires on-demand micro duration insurance coverage and blurs the boundaries between personal and commercial insurance.  But insurers face challenges including: creating a micro-duration insurance business model; real-time pricing determination based on micro-segmentation and varied factors; mobile-first user experience; low transaction value but high transaction volume; and low-touch, end-to-end operations.

See also: 4 Mandates for Agents in Sharing Economy  

To support these new coverages requires a next-generation core platform that is a complete architecture redesign with an alchemy of data, analytics, digital and processing components; customer-journey-focused solutions; significant reliance on AI for pricing and underwriting; and a light footprint and auto-scale capabilities for high volume support on cloud.  Furthermore, there has to be a strong “find and bind” integration architecture to tap into an ecosystem of innovative services. As we highlighted in our Cloud Business Platform: The Path to Digital Insurance 2.0 thought leadership report, many of the new insurers providing these innovative products have such core platforms in the cloud to allow them agility, speed and innovation in a continuously changing market.

Agility is (no surprise) highly necessary

For insurers to grab the opportunities as they arise, they will need to understand what new technologies can do to facilitate sharing relationships. They will need to use a next-generation core platform that is scalable and allows for real-time data and agile product development. Cloud platforms will lend themselves to many of the necessary features, but expert data integration and “find and bind” ecosystems will also be vital.

For a better look at growth opportunities within the sharing economy, don’t miss Majesco’s report, A New Age of Insurance: Growth Opportunity for Commercial and Specialty Insurance in a Time of Market Disruption.

The Industry’s New Dynamic Duo

Insurers are full of economy-speak these days. We have the gig economy, the digital economy, the data economy and the sharing economy. There is the economy of one, the economy of the many, the service economy and, of course, the experience economy. These concepts are all real and vital considerations for insurers, yet most deal with the implications of external impact, asking, “How will the world affect our business?”

In one striking case, however, we are faced with an alternative question: How will our operations affect our world? We are in the midst of the digital age race where survival and winning will require rapid adaptability and innovation. The digital age represents a seismic shift in the insurance industry, pushing a sometimes slow-to-adapt industry by challenging the traditional business models and assumptions of the past 30-50 years. The business models of the past will not meet the needs or expectations of the future for digital insurance. So insurers will be drawing upon the strengths of a new type of economy that will provide internal energy to the organization and competitive drive to the industry.

This economy is the platform economy.

Cloud platforms are the future because they are the core of revolutionized business models. They are proven. They are intelligent. They combine sought-after technologies. Best of all, they fit an industry that has been trying to become consumer-centric.

Of course, there is an issue. The cloud-based, digital-ready platforms within the platform economy are easiest to plant in uncultivated environments. Most established insurers are in the thick of modernization of a different type and scale. When faced with the options, many will choose digital answers that are painted over modernized frameworks. At the same time, they will be flirting with the idea that a real platform shift may represent a hyper-jump into insurance’s agile future.

The Rise of the Platform Economy

In our new thought leadership, Cloud Business Platform: The Path to Digital Insurance 2.0, we note that the use of big data, artificial intelligence and cloud computing is changing the nature of work and the structure of the economy. Companies such as Apple, Amazon, Netflix, Facebook, Google, Salesforce and Uber are creating online structures that enable a wide range of activities. They have opened the doors to radical changes in how we work, socialize, create value in the economy and compete for profits. This is why a digital platform economy is emerging.

See also: Busting Myths on the Cloud (Part 2)  

Cloud business platforms represent a new era of impact and industry upheaval. A cloud business platform is one that can run key business applications and services to match the reality and requirements of the current business environment. That environment is characterized by constant disruption, heavy competition and growing market demands. Insurtech entrants are embarking upon business and technology initiatives that exploit untapped markets and address under- or un-met needs. Incumbents with outdated technologies are at a huge disadvantage because they are unable to respond with the flexibility, agility and speed that has become the hallmark of companies that are digital natives.

With investments in this market subset being tracked at just under $16 billion since 2010, insurers need to immediately take notice. Successful companies across all industries leverage technologies such as mobile, social and cloud to make better decisions, automate processes, strengthen their connection with customers/partners/channels and pursue innovation. They do all of this at an increasingly rapid pace, positioning them as “digital first” companies. The acceleration in the uptake of digital technologies and cloud foundations is a crucial first step to entering into the platform world and the shift to a new era of insurance we call Digital Insurance 2.0.

The implication from all this is that the digital age economy is powered by the platform revolution.

Digital Insurance 2.0

Traditional insurers must have digital daydreams now and then. What if we could have started like Amazon instead of like a traditional insurer? What if we had a digital native architecture like Netflix? Why couldn’t we have turned an app into a multi-billion-dollar business as Uber did? Google was disruptive because its framework and model were created to meet the future head on. How do we do what they have done while we are shackled to the constraints of insurance? The advantages these companies enjoy compared to the challenges faced by insurers can make digitalization of insurance seem like an impossible task. The reality is, however, that insurers now have every opportunity for freedom within traditional insurer constraints utilizing a Digital Insurance 2.0 framework.

What are the attributes of Digital Insurance 2.0? In every aspect, digital platforms are driving toward business models with fewer barriers and greater data access with improved flow. Digital insurance  platforms share these traits:

  • Maximized effectiveness across the entire customer journey with deeper, personalized engagement;
  • Process digitization that improves operational efficiencies and customer experience;
  • The ingestion and use of digital data-driven insights for better decision-making and to actively identify customer needs;
  • The ability to rapidly roll out new products and capabilities while expanding into new markets or geographies; and
  • Quick adaptation to rapid changes.

The crucial technology underpinning digital insurance platforms is cloud-based. The idea that a 10-year old technology like cloud computing could provide new opportunities for insurers seems far-fetched.

Cloud platforms, however, have become the option of choice for Greenfield or startup operations that are offering digitally-enabled traditional insurance products — like Lemonade, Slice and TROV. Cloud platforms are the basis of a new generation of core systems based on a micro-services architecture that is needed for innovative new insurance products like on-demand and micro-insurance offerings.

Shifting from Products to Platforms

Since the beginning of automation, the insurance industry has seen fundamental design, architecture and technology shifts in insurance core software solutions. First, we had the monolithic solutions running on the mainframe from the 1960s to early 2000s. This was followed with the best of breed components in early 2000s for policy, billing and claims based on J2EE and service-oriented architecture — but with each still using different business, data and technology architectures. Next, beginning in the early 2010s, came the loosely coupled “suites,” inclusive of the policy, billing and claims components but with a consistent and common business, data and technology architecture.

Yet, through these transitions, they maintained a product-focused business architecture view, emphasizing policy and billing and claims capabilities and with implementation primarily on-premise or in a private hosted environment, often a “pseudo cloud environment.”

Today’s digital shift will require cloud-based platforms that provide a great promise to address new challenges and opportunities that enable insurers to disrupt their markets before they are disrupted. This requires a new thinking of our solutions… one that makes the transition from products to platforms and is underpinned by three key attributes: ecosystem-friendly, centered on customer experience and enabled by cloud computing.

Unfortunately, too many insurers are taking a page from their old business transformation playbooks and are expecting it to work in today’s digital age. They are forging a new path by “paving the old cow paths,” which is simply creating greater complexity while moving in a direction that will not serve them well in the future. Instead, insurers need to look outside their companies to a new cadre of digital leaders and imagine the art of the possible. What can insurers do now that they could not do before because of technology, customer and market boundary changes?  Today’s emerging new competitors are answering these questions ahead of traditional insurers, positioning themselves as the new generation of market leaders in a time of significant disruption and change.

See also: ‘Core in the Cloud’ Reaches Tipping Point  

Fundamentally, to succeed in the digital age, an insurer’s strategy must focus on the following attributes:

  • Customer experience and engagement is priority No. 1 (People)
  • Business innovation is mandatory (Technology)
  • Ecosystems extend value (Market Boundaries)
  • Speed-to-value is the differentiator

For an effective digital transformation, it is important that core, data and digital capabilities are broken out into micro-services. They are then integrated back into the platform to provide a digital experience. Innovative, “digital-first” companies like Google, Amazon, Salesforce, Workday, Uber, Airbnb and Netflix have successfully used this architecture and technology that is disrupting industries. In the case of insurance, digital experiences are enabled by cloud economies of scale — an advantage that many digital-first companies do not have.

Why is this important? Because it will allow insurance companies to more rapidly position themselves in the digital era of Insurance 2.0 and enable them to:

  • Accelerate digital transformation to become digital era market leaders;
  • Accelerate innovation with new business models and products;
  • Accelerate ecosystem opportunities and value; and
  • Avert disruption or extinction by new competition within and outside the industry.

At the heart of this disruption is a shift from Insurance 1.0 to Digital Insurance 2.0 and a growing gap where innovative insurtech or existing insurers are taking advantage of a new generation of buyers with new needs and expectations and are capturing the opportunity to be the next market leaders in the digital age.

The path to a cloud business platform will evolve differently for each insurer undertaking it. Being open to operationalize around the cloud platform’s promise as a new business model paradigm acknowledges the role innovation will continue to play as insurers encounter future insurance ecosystems. The time for plans, preparation and execution is now — recognizing that the gap is widening and the timeframe to respond is closing.

Will established insurers suffer at the hands of tech-savvy, culture-savvy competition, or will they turn their digital daydreams into dynamic realities?

In a rapidly changing insurance market, new competitors do not play by the traditional rules. Insurers need to be a part of rewriting the rules, because there is less risk when you write the new rules.

Insurtech: How to Keep Insurance Relevant

In the age of the fourth industrial revolution, risks are changing. The advent of technology has made digital assets more valuable than physical ones.

In this scenario, the insurance sector has been increasingly left to deal with technological change and disruption and is having to reconsider the way it defines itself. Having had the opportunity to discuss this transformation in more than 15 countries, I have seen that insurtech is helping to redefine the way the insurance industry is perceived.

Insurance is about providing protection for people in life and in employment. It is about providing a contract where someone promises to indemnify another against loss or damage from an uncertain event, as long as a premium is paid to obtain this coverage – the concept has been around since 1347.

It’s unthinkable for an insurer today not to ask how to evolve its business architecture by thinking which modules within the value chain should be transformed or reinvented via technology and data usage. I believe all the players in the insurance arena will be insurtech – that is, organizations where technology will prevail as the key enabler for the achievement of the strategic goals.

See also: Core Systems and Insurtech (Part 1)  

Insurtech startups have received more than $18 billion in funding to date, according to Venture Scanner data. Fantastic teams and interesting new insurance cases have been grabbing the attention of analysts.

Full-stack insurtech startups are generating a lot of excitement in the investor community and attracting relevant funds, and some have achieved stellar valuations, with Oscar, Lemonade, Sonnet, Alan, Element, Zhong An some of the most fascinating players. It looks like the aim of disrupting the status quo, combined with a skepticism about the incumbents’ ability to innovate, is focusing the attention on players to create new insurance products.

A business model adopted by more and more players is the MGA/MGU approach (Managing General Agents/Managing General Underwriter), a way to satisfy investor appetite for players covering a large part of the activities in the insurance value chain and partnering only with an incumbent for receiving underwriting capacity. Trov, Slice, so-sure, Insure the Box, Root, Bought By Many and Prima are some examples of this approach.

I am positive about the ability of the incumbents to innovate, and about the potential for incumbents and insurtech startups to collaborate. This view is based, for example, on the impressive international success of players such as Guidewire and Octo Telematics. I believe service providers for the insurance sector will be more successful in scaling at an international level than the other models described above. This kind of collaboration is leveraging on the incumbents’ technical knowledge and their customers’ trust, which has frequently been underestimated by insurtech enthusiasts. The most relevant opportunity is the collaboration between incumbents and specialized tech players capable of enabling the incumbents’ innovation in the different steps of the business model.

Denim for the awareness, Digital Fineprint for the choice, Neosurance for the purchase, MotionCloud for the claims, Pypestream for the policy management – these are a few players innovating on each step of the customer journey, based on my map to classify the insurtech initiatives.

For insurtech startups to outperform traditional insurance companies, they need to have their business models concentrated in what I call the four axes (4 Ps): productivity, profitability, proximity and persistency.

An excellent example is Discovery Holding, with its Vitality wellbeing program. This has been replicated in different business lines and countries with different business models – they are carriers in some countries, operate joint ventures with local insurers in other regions and are a service provider in other nations. They are using state-of-the-art technologies such as wearables and telematics to create a model based on value creation outperforming on all the four Ps, enabling them to share value with their customers through incentives and discounts.

See also: What’s Your Game Plan for Insurtech?  

Insurtech adoption will make the insurance sector stronger and in that way more able to achieve its strategic goal: to protect the way people’s lives and organizations work.

How to Move to the Post-Digital Age?

We are in the midst of the shift from the information age to the digital age, which is realigning fundamental elements of business that require major adjustments to thrive, let alone survive.

As we noted in our new report, Greenfields, Startups and InsurTech: Accelerating Digital Age Business Modelsnew greenfield and startup competitors are rising from within and outside of every industry, including insurance, to capture the post-digital age business opportunities of the next generation of buyers. By shifting to meet the forces of change, these companies are positioning themselves to be the market leaders in the post-digital age. Those that do not make the shift risk not only the loss of customers but also market share and relevance in the coming new age of insurance.

See also: 6 Charts on Startups, Greenfields, Incubators  

Sometimes, the next big thing isn’t easy to spot. The disruption of the insurance industry is in the early days, so predictions are difficult. Will the new greenfields and startups become the next market leaders? If history is a guide, the answer is yes … some will. Just consider Progressive and how many dismissed it early on. Now it is a top 10 insurer in the U.S. Or consider what has happened in other industries with companies that are defunct because they missed the shift:

  • Streaming video: Blockbuster failed to see this trend. It filed for bankruptcy in 2010 and Netflix is now worth more than $61 billion.
  • Mobile games: In 2011, the president of Nintendo North America suggested that mobile game apps were disposable from a consumer perspective. Today, Pokemon Go has 65 million users. Is that disposable?
  • Apple iPhone: Former Microsoft CEO Steve Ballmer reportedly commented that the first Apple iPhone would not appeal to business customers because it did not have a keyboard and would not be a good email machine. Apple iPhone single-handedly disrupted and redefined multiple industries and continues to do so.
  • Autonomous vehicles: In 2015, Jaguar’s head of R&D stated that autonomous vehicles didn’t consider customers’ cargo. Since then, Jaguar Land Rover has invested $25 million in Lyft to join the autonomous trend.
  • On-premise enterprise software vs. cloud-based SaaS platforms: In 2003, Thomas Siebel of Siebel Systems said Microsoft would roll over Salesforce in the CRM market. In 2005, Oracle acquired Siebel Systems for $5.85 billion. Salesforce’s market cap, in contrast, is more than $60 billion.

Insurance Industry Change and Disruption

At no time in the history of insurance can we find as many game-changing events and a rapid pace of advancement occurring at the same time. At the forefront is the increased momentum for insurtech, and the greenfields and startups within, creating high levels of activity, excitement and concern on the promise and potential of insurance disruption and reinvention.

When you add it all up, the insurance industry has many characteristics that make it an attractive target for aggressive investments in innovation. First, its size is enormous – based on industry data, it is estimated that premiums written are more than $4.7 trillion globally. Second, it faces multiple challenges that offer opportunities for exploitation by nimble, efficient and innovative competitors.

Insurtech advancements and the forces of change see no significant slowdown. The momentum for change that has been building is unstoppable. Industry advancements, cultural trends and IT reactions are gaining speed as they gain strength and a framework for stability and growth. It is pushing a sometimes slow-to-adapt industry by challenging the traditional business assumptions, operations, processes and products, highlighting two distinctively different business models: 1) a pre-digital age model of the past 50-plus years based on the business assumptions, products, processes and channels of the Silent and Baby Boomer generations and 2) a post-digital age model focused on the next generation including the Millennials and Gen Z, as well as many in Gen X.

Greenfields and Startups Make the Boardroom Agenda

The market landscape is rapidly changing. During 2016, Lemonade launched. Metromile decided to become a full-stack insurer, leaving its MGA days behind. New MGAs entered the picture, including Slice, TROV, Quilt, Hippo and Figo Pet Insurance, to name a few.  Existing insurers made market debuts with new startups including Shelter’s Say Insurance with auto insurance for millennials, biBerk from Berkshire Hathaway for direct small commercial lines and Sonnet Insurance as the digital brand from Economical Insurance in Canada, among others.

Add to this the projected shrinking of insurable risk pools due to the emergence of autonomous vehicles, connected homes and wearables and the domino effect of these on other industries, and it’s not hard to imagine a future with traditional carriers fighting over a much smaller pool of customers where only the most efficient, effective and innovative will survive.

As a result, discussion surrounding greenfields, startups and insurtech moved into the board room of every insurer and reinsurer trying to understand how to leverage the shift to the digital age and develop strategies and plans to respond. Yet some insurers have a blind spot in recognizing the competition both from outside and within the industry, and the critical need to begin planning a new post-digital age business model. The result is a growing gap between knowing, planning and doing among leaders and fast followers or laggards, which is rapidly becoming insurmountable due to the pace of change.

Closing the Gap with Greenfield and Startup Business Models

Assuming that most insurers grasp the need for a greenfield and startup mentality to grow, what remains is to aim all efforts toward accomplishing an organizational shift. How do you move your company from the pre-digital age to the post-digital age and close the gap?

It requires leadership to build consensus. It requires vision to aim in the most market-ready direction. And it requires a new business paradigm that will allow for change. We must redefine and re-envision insurance to enable growth and remain competitive.

While many have made progress in replacing legacy systems and traditional business processes, this is not enough. These systems, while modern, were built around pre-digital age business assumptions and models, not to support the range of needs in a post-digital age model driven by a new generation of customers. Like other industries, today’s insurance startups and greenfields need and want options that do not require investment in significant infrastructure or upfront costs and therefore seek a cloud business platform solution to maximize options and minimize costs and capital outlay.

See also: How to Plant in the Greenfields  

A modern cloud business platform provides an advantage for greenfields and startups, breaking down traditional boundaries, IT constraints and age-old business assumptions about doing business, while building up the ability to rapidly develop and launch new products and services. The platform is a robust set of technology, mobile, digital, data and core capabilities in the cloud with an ecosystem of innovative partners (many insurtech technology startups) that provides the ability to launch and grow a business rapidly and cost effectively.

Will established insurers suffer at the hands of tech-savvy, culture-savvy competition? Some may, but only if they allow themselves to. There will be constant pressure from greenfields and startups to outdo each other in the race to better meet the needs and demands of a new generation of buyers in a post-digital age for insurance.

For traditional insurance companies, the need to re-invent and transform the business is no longer a matter of if, but of when.  Insurance leaders should ask themselves: Do we have a strategy that considers transformation of both the legacy business and creation of a new business for the future? Who are our future customers and what will they demand? Who are our emerging new competitors? Where are we focusing our resources…on the business or on the infrastructure?

A new generation of insurance buyers with new needs and expectations creates both a challenge and an opportunity that a greenfield and startup business model can capitalize on to incubate, launch and grow. The time for plans, preparation and execution is now — recognizing that the gap is widening and the timeframe to respond is closing.