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In Age of Disruption, What Is Insurance?

“Somehow we have created a monster, and it’s time to turn it on its head for our customers and think about providing some certainty of protection.” – Inga Beale, CEO, Lloyds of London

In an early-morning plenary session at this year’s InsureTech Connect in Las Vegas, Rick Chavez, partner and head of digital strategy acceleration at Oliver Wyman, described the disruption landscape in insurance succinctly: while the first phase of disruption was about digitization, the next phase will be about people. In his words, “digitization has shifted the balance of power to people,” forcing the insurance industry to radically reorient itself away from solving its own problems toward solving the problems of its customer. It’s about time.

For the 6,000-plus attendees at InsureTech Connect 2018, disruption in insurance has long been described in terms of technology. Chavez rightly urged the audience to expand its definition of disruption and instead conceive of disruption not just as a shift in technology but as a “collision of megatrends”–technological, behavioral and societal–that is reordering the world in which we live, work and operate as businesses. In this new world order, businesses and whole industries are being refashioned in ways that look entirely unfamiliar, insurance included.

This kind of disruption requires that insurance undergo far more than modernization, but a true metamorphosis, not simply shedding its skin of bureaucracy, paper applications and legacy systems but being reborn as an entirely new animal, focused on customers and digitally enabled by continuing technological transformation.

In the new age of disruption …

1. Insurance is data

“Soon each one of us will be generating millions of data sets every day – insurance can be the biggest beneficiary of that” – Vishal Gondal, GOQUii

While Amazon disrupted the way we shop, and Netflix disrupted the way we watch movies, at the end of the day (as Andy G. Simpson pointed out in his Insurance Journal recap of the conference) movies are still movies, and the dish soap, vinyl records and dog food we buy maintain their inherent properties, whether we buy them on Amazon or elsewhere. Insurance, not simply as an industry but as a product, on the other hand is being fundamentally altered by big data.

At its core, “insurance is about using statistics to price risk, which is why data, properly collected and used, can transform the core of the product,” said Daniel Schreiber, CEO of Lemonade, during his plenary session on day 2 of the conference. As copious amounts of data about each and every one of us become ever more available, insurance at the product level– at the dish soap/dog food level–is changing.

While the auto insurance industry has been ahead of the curve in its use of IoT-generated data to underwrite auto policies, some of the most exciting change happening today is in life insurance, as life products are being reconceived by a boon of health data generated by FitBits, genetic testing data, epigenetics, health gamification and other fitness apps. In a panel discussion titled “On the Bleeding Edge: At the Intersection of Life & Health,” JJ Carroll of Swiss RE discussed the imperative of figuring out how to integrate new data sources into underwriting and how doing so will lead to a paradigm shift in how life insurance is bought and sold. “Right now, we underwrite at a single point in time and treat everyone equally going forward,” she explained. With new data sources influencing underwriting, life insurance has the potential to become a dynamic product that uses health and behavior data to adjust premiums over time, personalize products and service offerings and expand coverage to traditionally riskier populations.

Vishal Gandal of GOQuii, a “personalized wellness engine” that is partnering with Max Bupa Insurance and Swiss Re to offer health coaching and health-management tools to customers, believes that integrating data like that generated by GOQuii will “open up new risk pools and provide products to people who couldn’t be covered before.” While some express concern that access to more data, especially epigenetic and genetic data, may exclude people from coverage, Carroll remains confident that it is not insurers who will benefit the most from data sharing, but customers themselves.

See also: Is Insurance Really Ripe for Disruption?  

2. Insurance is in the background

“In the future, insurance will buy itself automatically” – Jay Bergman

Some of the most standout sessions of this year’s InsureTech Connect were not from insurance companies at all, but from businesses either partnering with insurance companies or using insurance-related data to educate their customers about or sell insurance to their customers as a means of delivering more value.

Before unveiling a new car insurance portal that allows customers to monitor their car-related records and access a quote with little to no data entry, Credit Karma CEO Ken Lin began his talk with a conversation around how Credit Karma is “more than just free credit scores,” elucidating all of the additional services they have layered on top of their core product to deliver more value to their customers. Beyond simply announcing a product launch, Lin’s talk was gospel to insurance carriers, demonstrating how a company with a fairly basic core offering (free credit scores) can build a service layer on top to deepen engagement with customers. It’s a concept that touches on what was surely one of the most profound themes of the conference–that, like free credit scores, insurance only need be a small piece of a company’s larger offering. This may mean embedding insurance into the purchase of other products or services (i.e., how travel insurance is often sold) or it may mean doing what Credit Karma has done and layering on a service offering to deepen engagement with customers and make products stickier.

Assaf Wand, CEO of the home insurance company Hippo, spoke to both of these models in his discussion with David Weschler of Comcast about how their two companies are partnering to make insurance smarter and smart homes safer. When asked about what the future of insurance looks like, Wand put it plainly when he said: “Home insurance won’t be sold as insurance. It will be an embedded feature of the smart home.” Jillian Slyfield, who heads the digital economy practice at Aon, a company that is already partnering with companies like Uber and Clutch to insure the next generation of drivers, agrees: “We are embedding insurance into these products today.”

Until this vision is fully realized, companies like Hippo are doing their part to make their insurance products fade into the background as the companies offer additional services for homeowners, “Can I bring you value that you really care about?” Wand asked, “Wintering your home, raking leaves, these are the kinds of things that matter to homeowners.”

3. Insurance is first and foremost a customer experience

“The insurance industry has to redefine our processes… go in reverse, starting with the customer and re-streamlining our processes around them” – Koichi Nagasaki, Sompo

To many outside the insurance industry, the idea of good customer experience may seem unremarkable, but for an industry that has for so long been enamored by the ever-increasing complexity of its own products, redefining processes around customers is like learning a foreign language as a middle-aged adult. It’s hard, and it takes a long time, and a lot of people aren’t up to the task.

The insurance industry has been talking about the need for customer-centricity for a while now, but many companies continue to drag their feet. But customer-centricity is and remains more than a differentiator. It’s now table stakes. How this plays out for the industry will look different for different companies. Some will turn to partnerships with insurtechs and other startups to embed their products into what are already customer-centric experiences and companies. Chavez of Oliver Wyman would rather see the industry “disrupt itself,” as he believes it’s critical that companies maintain the customer relationship. In his plenary sessions, he cited the German energy company Enercity as a company that disrupted itself. Operating in a similarly regulated industry, rather than becoming just a supplier of energy, the company invested heavily in its own digital strategy to become a thought leader in the energy space, to be a trusted adviser to its customer and to deliver an exceptional digital experience that, among other things, leverages blockchain technology to accept bitcoin payments from customers. For Chavez, insurtech is already a bubble, and, “If you want to succeed and thrive in a bubble, make yourself indispensable.” The only way to do this, he believes, is to maintain ownership over the customer experience, because, in today’s digital economy, the customer experience is the product.

But to own the customer experience and succeed will require insurance companies to completely reorient their business practices and processes – to start with the customer and the experience and work backward toward capabilities. In the words of Han Wang of Paladin Cyber, who spoke on a panel about moving from selling products to selling services, “It’s always a questions of what does the customer want? How do they define the problem? And what is the solution?”

4. Insurance is trust

“The world runs on trust. When we live in a society where we have lots of trust, everyone benefits. When this trust goes away, everyone loses.” – Dan Ariely, Lemonade

During a faceoff between incumbents and insurtechs during one conference session, Dylan Bourguignon, CEO of so-sure cinched the debate with a single comment, calling out large insurance carriers: “You want to engage with customers, yet you don’t have their trust. And it’s not like you haven’t had time to earn it.” This, Bourguignon believes, is ultimately why insurtechs will beat the incumbents.

Indeed, the insurtech Lemonade spent a fair amount of stage time preaching the gospel of trust. Dan Ariely, behavioral economist and chief behavior officer at Lemonade, delivered a plenary session entirely devoted to the topic of trust. He spoke about trust from a behavioral standpoint, explaining how trust creates equilibrium in society and how, when trust is violated, the equilibrium is thrown off. Case in point: insurance.

Insurance, he explained, has violated consumer trust and has thrown off the equilibrium–the industry doesn’t trust consumers, and consumers don’t trust the industry, a vulnerability that has left the insurance industry open to the kind of disruption a company like Lemonade poses. As an industry, insurance has incentives not to do the thing it has promised to do, which is to pay out your claims. And while trust is scarcely more important in any industry as it is in insurance, save in an industry like healthcare, the insurance industry is notoriously plagued by two-way distrust.

What makes Lemonade stand out is that it has devised a system that removes the conflict of interest germane to most insurance companies – as a company, it has no incentives to not pay out customer claims. In theory, profits are entirely derived by taking a percentage of the premium; anything left over that does not go to pay out a claim is then donated to charity. The result: If customers are cheating, they aren’t cheating a company, they are cheating a charity. Ariely described several instances where customer even tried to return their claims payments after finding misplaced items they thought had been stolen. “How often does this happen in your companies?” he asked the audience. Silence.

And it’s not just new business models that will remedy the trust issues plaguing insurance. It’s new technology, too. In a panel titled “Blockchain: Building Trust in Insurance,” executives from IBM, Salesforce, Marsh and AAIS discussed how blockchain technology has the capacity to deepen trust across the industry, among customers, carriers, solutions providers and underwriters by providing what Jeff To of Salesforce calls an “immutable source of truth that is trusted among all parties.” Being able to easily access and trust data will have a trickle down effect that will affect everyone, including customers, employees and the larger business as a whole–reducing inefficiencies, increasing application and quote-to-bind speed, eliminating all the hours and money that go into data reconciliation and ultimately making it easier for carriers to deliver a quality customer experience to their customers.

See also: Disruption of Rate-Modeling Process  

While the progress in blockchain has been incremental, the conference panel demoed some promising use cases in which blockchain is already delivering results for customers, one example being acquiring proof of insurance for small businesses or contractors through Marsh’s platform. With blockchain, a process that used to span several days has been reduced to less than a minute. Experiences like these–simple, seamless and instantaneous – are laying the groundwork for carriers to begin the long road to earning back customer trust. Blockchain will likely play an integral role this process.

5. Insurance is a social good

“We need insurance. It is one of the most important products for financial security.” – Dan Ariely, Lemonade

For all of the the naysaying regarding state of the industry that took place at InsureTech Connect, there were plenty of opportunities for the industry to remind itself that it’s not all bad, and its core insurance is something that is incredibly important to the stability of people across the globe. Lemonade’s Schreiber called it a social good, while Ariely told his audience, “We need insurance. It is one of the most important products for financial security.” Similar sentiments were expressed across stages throughout the conference.

In fact, in today’s society, income disparity is at one of the highest points in recent history, stagnating wages are plaguing and diminishing the middle class, more people in the U.S. are living in poverty now than at any point since the Great Depression, the social safety net is shrinking by the minute and more than 40% of Americans don’t have enough money in savings to cover a $400 emergency, so insurance is more important than ever.

For Inga Beale, CEO of Lloyds of London, insurance has a critical role to play in society, “It goes beyond insurance–it’s about giving people money and financial independence,” she said during a fireside chat. She went on to describe findings from recent research conducted by Lloyds, which determined that, by the end of their lives, men in the U.K. are six times better off financially than women. When designed as a tool to provide financial independence and equality for everyone, insurance can play an important role in addressing this disparity. While this has been a focus in emerging markets, financial stability and independence is often assumed in more developed markets, like the U.S. and Europe. In reality, it is a problem facing all markets, and increasingly so. Ace Callwood, CEO of Painless1099, a bank account for freelancers that helps them save money for taxes, agrees that insurance has an important role to play. “It’s our job to get people to a place where they can afford to buy the products we are trying to sell,” he said.

You can find the article originally published here.

Now, Everything Can Be ‘As-a-Service’

Everything-as-a service is transforming the economics of establishing and running a company. Product-as-a-service will fundamentally change insurance product design and delivery.

Before recently joining insurance fintech start-up Instanda, I spent the last 15 years working within the insurance industry for U.K. FTSE 250 companies — such as Hiscox, Capita and, most recently, Xchanging. For the up-and-coming executive, there is something very comforting about working for a big, established company during the early part of your career. You are able to immediately plug in to a brand, revenue flow and customer base that is already well-established. There are lots of people with well-defined roles to support you, and you will undoubtedly benefit from a significant investment in physical infrastructure (whether that be a branch network of offices around the globe or big, heavy IT infrastructure sitting in your own data centers).

But that level of comfort comes at a price for the big corporation. There is an enormous amount of capital in the business tied up in “stuff” (office furniture, leases, servers, etc.), and there is an inevitable restriction in the ability to move quickly to respond to changing customer needs. We all know, when a company gets bigger, it becomes more unwieldly and bureaucratic. What has really struck me since joining Instanda is how technology and service provision have moved on to such an extent that you can gain access to the same benefits and capabilities of the infrastructure of big companies at a fraction of the cost — and without losing your agility and flexibility to respond to the needs of the business.

As a business, Instanda is a firm believer in consuming “everything-as-a-service.” We are a technology company that does not own a server; all of our IT infrastructure is procured from Microsoft Azure, which gives us access to almost instantaneous unlimited storage and processing power from our desktop dashboard. For office and email suite, we use Microsoft 365, where are able to tap into the many years and millions of dollars of Microsoft’s investment for a small monthly sum per employee.

“As-a-service” is often thought of as being a software service provided out of the cloud, but, of course, it can just as easily be physical infrastructure. The sharing economy is full of examples where physical infrastructure is available to be purchased at a fractional cost. Uber is “transport-as-a-service,” and through the good offices of property services firm wework, we are able to procure very high quality workspace as “property-as-a-service.” Our newly built offices are sitting on the edge of London, close to our customer base and fitted out to the highest standards.

In the past, for a small company like Instanda, these offices would have simply been beyond our means, but in the new “as-a-service” economy, we can purchase as many (or as few) desks as we like — with only a monthly notice period required to add seats or to exit the space, all while still benefiting from the full range of office facilities of a multimillion-pound company.

Similarly, our accounting, payroll and CRM systems are all consumed as cloud-based services where we only pay for what we consume. Yet it was not long ago when the idea of placing your key customer data on a system and servers you didn’t own or control would have been seen as a crazy business risk. Imagine going to your CEO today and saying, “I want to build our own bespoke CRM system, buy some physical servers and store them in our own operated data center.” You would soon be shown the door. So, what was considered risky and unthinkable in the past can very quickly move to business-as-usual when the competitive advantages become undeniable.

See also: How to Insure the Sharing Economy

So what all this means is that a relatively new business like Instanda can purchase all the key services it needs to operate as a business on-demand  with “everything-as-a-service” and, most importantly, at an incremental cost completely aligned to the size of the business. The ability to buy all these capabilities “as-a-service” fundamentally shifts the cost dynamics of operating a business and allows a much smaller business to effectively compete with much bigger, longer-established businesses on equal footing. In fact, it gives you a strong competitive advantage because you can operate at a price point and with a degree of flexibility that bigger companies cannot match because of their past significant investment in physical infrastructure.

In the insurance industry, capital is becoming increasingly commoditized as surplus capital seeks better returns in this sector. Underwriting and insurance products have become harder to differentiate because of increasing competition, so the battleground is now in distribution. Whether you are a reinsurer moving into insurance, an insurer opening new global offices or trying to dis-intermediate your broker channel by going direct, a broker establishing your own branded products or an MGA reaching into new markets, the overriding business challenge is: “How do I get my products out to my customer quickly and cost effectively?

So what we have done at Instanda is to take all the benefits and advantages of “everything-as-a-service” and applied the same concepts to “products-as-a-service,” establishing a platform to facilitate the manufacture and global distribution of insurance products. The benefit of this approach is that we can get our customers to market anywhere in the world — 10 times quicker and 10 times cheaper than the traditional approach of building products within an installed back office software system. Our configurable toolkit allows our customers to quickly assemble any type of insurance product and completely control the look and feel of the online and mobile product. Our customers can build their products themselves without the need to code or deploy IT staff — combined with a commercial model completely aligned with the success of the products on our platform.

See also: Is That Opportunity Calling in the ‘Sharing Economy’? (Part 2)

By fundamentally changing the cost dynamics of insurance product manufacture and distribution, “product-as-service” opens up new sales opportunities that simply were not possible or justifiable before.

Do you want to create a different look and feel for the same product for each of your agents or distribution channels? Do you want to launch a micro-insurance site for single items that are bought by the hour? Do you want to offer a short-term insurance product for a single event? Do you want to test the attractiveness of a new product before investing in worldwide distribution? All these become simple and cheap when utilizing a “product-as-a-service” platform.

Of course, the real test is whether this “product-as-a-service” approach delivers the tangible benefits promised to the customer. Already, large insurance organizations such as Sompo Canopius and U.K. retail insurer LV, are utilizing the benefits of “product-as-a-service” to shorten time and costs to get to market. The approach also works for smaller organizations like Compass Underwriting.