Tag Archives: slice

On-Demand Insurance: What’s at Stake

Now that we can itemize what we insure, a shift to value in the cloud is taking shape. We don’t have real numbers to crunch yet, but let’s take a stab at the issue.

If I have 10 major items in my home with an average cost to insure of $10 to $20 each, on-demand each year, does this represent a paradigm shift in the making from traditional underwriting?

If I sell two of those in the next six months, why am I still paying premium on them?

We just bought all new kitchen appliances, so are we to alert State Farm about our purchases; can we? We have a new bicycle and new flat screen less than a year old, and, like most, the list continues. If we’re paying $1,059 a year for both structure and personal property, what if we were to go on-demand?

See also: Insuring a ‘Slice’ of the On-Demand Economy  

What if over the past 10 years our property fluctuated in value by $30,000 or more, can on-demand keep pace?

Yes there are more questions than answers, but the fact is that the difference between real property and personal property is fading as we move personal lines to the cloud. Anyone care to examine that point further?

How are traditional insurers working toward evaluating, managing and tracking the things they insure in the cloud? If disruptors believe millennials feel strongly enough to insure major items in their home or apartment one by one, is there still time for traditional insurers to shift gears?

If in the next 10 years on-demand takes off and we have 10 major players, will they compete on price differences for the same items cataloged?

Example: Mike desires insurance for his new Trek bike valued at $2,300. So he goes to a site comparing prices for those 10 new players. Do you think, over time, there would be a few cents difference for a $2,300 bike to insure on-demand? One insurer may say $13 a year, another $12, and soon on-demand may be competing for less than a dollar difference, which raises the question: “Will individual items become a commodity in pricing over time?”

If you manage, track, update and possibly link on-demand goods in the cloud… will value-added services become more important than price? What will those services look like?

From a perspective of someone on the outside looking in for the past 20 years, I keep harping on this from a number of points, this one in particular: Customizable, on-demand insurance could take agents out of the equation.

Legacy insurers: You have something that Lemonade, Slice and TROV will never have up close and personal for your customers, but you’ve failed to make the necessary changes. Should there be change?

See also: On-Demand Economy Is Just Starting  

On-demand could be the Achilles heel more so than any other disruption for the insurance industry! Traditional carriers: Combat disruption with disruption!

In Search of a New ‘Dominant Design’

There is little in the world of insurtech happening today that insurers couldn’t arguably choose to do for themselves if they were motivated to do it. They have the capital to invest. They have resources and could hire to fill gaps in any new capabilities required. They understand the market and know how to move with the trends. And yet insurers readily engage with the startup community to do the things that arguably they could do for themselves.  Why is that?

In Making the Most of the Innovation Ecosystem, Mike Fitzgerald observes the main cultural differences between insurers and the startups they court. These differences give us a strong clue as to why insurers engage with startups, even though on paper they do not and should not need them.

Alongside these deep cultural differences, I believe that there is another angle worth exploring to help answer the question. That’s the market’s maturity stage and, with it, the strategies required to succeed.

One model that helps explain this relates to the work of Abernathy and Utterback on dynamic innovation and the concept of the “dominant design.” To accept the argument, you first need to believe that we’re on the cusp of a shift from an old world view of the industry based on a well-understood and stable design toward one where substantial parts of the insurance proposition and value network are up for grabs. You also need to believe that, for a period at least, these two (or more) worlds will co-exist.

See also: Insurtech Has Found Right Question to Ask  

So, here’s a quick overview of the model (in case you’re not familiar with it)…

Settling on a ‘dominant design’

First introduced way back in the mid-1970s and based on empirical research (famously using conformance toward the QWERTY keyboard as an example), Abernathy and Utterback observed that when a market (or specifically a technology within a market) is new, there first exists a period of fluidity where creativity and product innovation flourishes. During this period, huge variation in approaches and product designs can co-exist as different players in the market experiment with what works and what does not.

In this early, “fluid” stage, a market is typically small, and dominated by enthusiasts and early adopters. Over time, a dominant design begins to emerge as concepts become better understood and demand for a certain style of product proves to be more successful than others. Here, within an insurance context, you’d expect to see high levels of change and a preference for self-built IT systems to control and lower the cost of experimentation.

Once the dominant design has been established, competition increases and market activity switches from product innovation to process innovation – as each firm scrambles to find higher-quality and more efficient ways to scale to capture a greater market share. This is the “transitionary” stage.

Finally, in the “specific” stage, competitive rivalry intensifies, spurred on by new entrants emulating the dominant design; incremental innovation takes hold; and a successful growth (or survival) strategy switches to one that either follows a niche or low-cost commodity path. Within an insurance context, outsourcing and standardization on enterprise systems are likely to dominate discussions.

Applying the ‘dominant design’ concept to the world of insurance and insurtech

Building on the co-existence assumption made earlier, within the world of insurtech today there are broadly (and crudely) two types of firms: (1) those focused on a complete proposition rethink (such as TrovSlice and Lemonade); and (2) those focused on B2B enablement (such as Everledger, Quantemplate and RightIndem). The former reside in the “fluid” stage (where the new dominant design for the industry has not yet been set and still may fail) and the latter in the “transitionary” stage (where the dominant design is known, but there are just better ways to do it).

Figure: Innovation, Insurance and the ‘Dominant Design’

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(Source: Celent – Adapted from Abernathy and Utterback (1975))

Outside of insurtech, within the “specific” stage, there is the traditional world of insurance (where nearly all of the world’s insurance premiums still sit, by the way), which is dominated by incumbent insurers, incumbent distribution firms, incumbent technology vendors and incumbent service providers.

So what? 

What I like about this model is that it starts to make better sense of what I believe we’re seeing in the world around us. It also helps us to better classify different initiatives and partnership opportunities, and encourages us to identify specific tactics for each stage – the key lesson being “not to apply a ‘one size fits all’ strategy.”

See also: 8 Exemplars of Insurtech Innovation  

Finally, and more importantly, it moves the debate from being one about engaging insurtech startups purely to catalyze cultural change (i.e., to address the things that the incumbent firms cannot easily do for themselves) toward one begging for more strategic and structural questions to be asked, such as: Will a new dominant design for the industry really emerge? What will be its timeframe to scale? A what specific actions are required to respond (i.e. to lead or to observe and then fast-follow)?

Going back to my original question: What does insurtech have to offer? Insurers can do nearly all of what is taking place within insurtech as it exists today by themselves…but, as stated at the start of this article, if, and only if, they are motivated to do so.

And there’s the rub. Many incumbents have been operating very successfully for so long in the “specific” stage, optimizing their solutions, that making the shift required to emulate a “fluid” stage is a major undertaking – why take the risk?

This is not the only issue that is holding them back. For me, the bigger question remains one of whether there is enough evidence to show the existence of an emerging new dominant design for the industry in the “fluid” stage that will scale to a size that threatens the status quo. Consequently, in the meantime, partnering and placing strategic investments with insurtech firms capable of working in a more fluid way may offer a smarter, more efficient bet.

In a way, what we’re seeing today happening between insurers and insurtech firms  is the equivalent of checking out the race horses in the paddock prior to a race.  Let the race begin!