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New Era of Commercial Insurance

Despite a generally soft market for traditional P&C products, the fact that so many industries and the businesses within them are being reshaped by technology is creating opportunities (and more challenges). Consider insurers with personal and commercial auto. Pundits are predicting a rapid decline in personal auto premiums and questioning the viability of both personal and commercial auto due to the emergence of autonomous technologies and driverless vehicles, as well as the increasing use of alternative options (ride-sharing, public transportation, etc.).

Finding alternative growth strategies is “top of mind” for CEOs.  Opportunities can be captured from the change within commercial and specialty insurance. New risks, new markets, new customers and the demand for new products and services may fill the gaps for those who are prepared.

Our new research, A New Age of Insurance: Growth Opportunities for Commercial and Specialty Insurance at a Time of Market Disruption, highlights how changing trends in demographics, customer behaviors, technology, data and market boundaries are creating a dramatic shift from traditional commercial and specialty products to the new, post-digital age products redefining the market of the future.

See also: Insurtechs Are Pushing for Transparency

Growth Opportunities

New technologies, demographics, behaviors and more will fuel the growth of new businesses and industries over the next 10 years. Commercial and specialty insurance provides a critical role to these businesses and the economy — protecting them from failure by assuming the risks inherent in their transformation.

Industry statistics for the “traditional” commercial marketplace don’t yet reflect the potential growth from these new markets. The Insurance Information Institute expects overall personal and commercial exposures to increase between 4% and 4.5% in 2017 but cautioned that continued soft rates in commercial lines could cause overall P&C premium growth to lag behind economic growth.

But a diverse group of customers will increasingly create narrow segments that will demand niche, personalized products and services. Many do not fit neatly within pre-defined categories of risk and products for insur­ance, creating opportunities for new products and services.

Small and medium businesses are at the forefront of this change and at the center of business creation, business transformation and growth in the economy.

  • By 2020, more than 60% of small businesses in the U.S. will be owned by millennials and Gen Xers — two groups that prefer to do as much as possible digitally. Furthermore, their views, behaviors and expectations are different than those of previous generations and will be influenced by their personal digital experiences.
  • The sharing/gig/on-demand economy is an example of the significant digitally enabled changes in people’s behaviors and expectations that are redefining the nature of work, business models and risk profiles.
  • The rapid emergence of technologies and the explosion of data are combining to create a magnified impact. Technology and data are making it easier and more profitable to reach, underwrite and service commercial and specialty market segments. In particular, insurers can narrow and specialize various segments into new niches. In addition, the combination of technology and data is disrupting other industries, changing existing business models and creating businesses and risks that need new types of insurance.
  • New products can be deployed on demand, and industry boundaries are blurring. Traditional insurance or new forms of insurance may be embedded in the purchase of products and services.

Insurtech is re-shaping this new digital world and disrupting the traditional insurance value chain for commercial and specialty insurance, leading to specialty protection for a new era of business. Consider insurtech startups like Embroker, Next Insurance, Ask Kodiak, CoverWallet, Splice and others. Not being left behind, traditional insurers are creating innovative business models for commercial and specialty insurance, like Berkshire Hathaway with biBERK for direct to small business owners; Hiscox, which offers small business insurance (SBI) products directly from its website; or American Family, which invested in AssureStart, now part of Homesite, a direct writer of SBI.

The Domino Effect

We all likely played with dominoes in our childhood, setting them up in a row and seeing how we could orchestrate a chain reaction. Now, as adults, we are seeing and playing with dominoes at a much higher level. Every business has been or likely will be affected by a domino effect.

What is different in today’s business era, as opposed to even a decade ago, is that disruption in one industry has a much broader ripple effect that disrupts the risk landscape of multiple other industries and creates additional risks. We are compelled to watch the chains created from inside and outside of insurance. Recognizing that this domino effect occurs is critical to developing appropriate new product plans that align to these shifts.

Just consider the following disrupted industries and then think about the disrupters and their casualties: taxis and ridesharing (Lyft, Uber), movie rentals (Blockbuster) and streaming video (NetFlix), traditional retail (Sears and Macy’s) and online retail, enterprise systems (Siebel, Oracle) and cloud platforms (Salesforce and Workday), and book stores (Borders) and Amazon. Consider the continuing impact of Amazon, with the announcement about acquiring Whole Foods and the significant drop in stock prices for traditional grocers. Many analysts noted that this is a game changer with massive innovative opportunities.

The transportation industry is at the front end of a massive domino-toppling event. A report from RethinkX, The Disruption of Transportation and the Collapse of the Internal-Combustion Vehicle and Oil Industries, says that by 2030 (within 10 years of regulatory approval of autonomous vehicles (AVs)), 95% of U.S. passenger miles traveled will be served by on-demand autonomous electric vehicles owned by fleets, not individuals, in a new business model called “transportation-as-a-service” (TaaS). The TaaS disruption will have enormous implications across the automotive industry, but also many other industries, including public transportation, oil, auto repair shops and gas stations. The result is that not just one industry could be disrupted … many could be affected by just one domino … autonomous vehicles. Auto insurance is in this chain of disruption.

See also: Leveraging AI in Commercial Insurance  

And commercial insurance, because it is used by all businesses to provide risk protection, is also in the chain of all those businesses affected – a decline in number of businesses, decline in risk products needed and decline in revenue. The domino effect will decimate traditional business, product and revenue models, while creating growth opportunities for those bold enough to begin preparing for it today with different risk products.

Transformation + Creativity = Opportunity

Opportunity in insurance starts with transformation. New technologies will be enablers on the path to innovative ideas. As the new age of insurance unfolds, insurers must recommit to their business transformation journey and avoid falling into an operational trap or resorting to traditional thinking. In this changing insurance market, new competitors don’t play by the rules of the past. Insurers need to be a part of rewriting the rules for the future, because there is less risk when you write the new rules. One of those rules is diversification. Diversification is about building new products, exploring new markets and taking new risks. The cost of ignoring this can be brutal. Insurers that can see the change and opportunity for commercial and specialty lines will set themselves apart from those that do not.

For a greater in-depth look at the implications of commercial insurance shifts, be sure to downloadA New Age of Insurance: Growth Opportunities for Commercial and Specialty Insurance at a Time of Market Disruption.

Can You Leapfrog the Competition?

In business, the gap between “knowing what to do” and “doing it” is of increasing concern. Why? Because in a world of rapid change, the gap between leaders and fast followers or laggards will at some point become insurmountable. The forces of change are shifting the status quo. New competitors are rising within and outside the insurance industry.

Last month, Majesco published a research report, Strategic Priorities 2017 — Knowing vs. Doing, that highlighted how insurers are responding to changes in the marketplace. We followed that up with two blogs ­explaining the Knowing — Planning — Doing Gap, and how Habits Stifle Strategy. Today we are focusing on what’s really important…catching up or even leapfrogging! How do we close the gap between where we are and where we need to be to stay competitive?

Recognize the gap. Seize the opportunity.

Insurers are, at their core, risk averse. With today’s pace of change, however, the path of least risk will include taking some risks. The risk to invest in new business models, new products, new markets and new channels can, at minimum, keep insurers competitive. Even better, taking these risks could allow insurers to leapfrog the competition. Because the new competition does not play by the traditional rules of the past, insurers need to be a part of rewriting the rules for the future. There is less risk in a game where you write the rules. Are we acting upon our knowledge of the insurance industry, regulatory requirements and market trends to create a game that plays to our strengths in meeting changing customer and market needs? Or, are we simply educated observers waiting to see if it works, then follow?

See also: A Manufacturing Risk: the Talent Gap  

“Fail fast” is more than a technology, product, service or business model development mantra — it’s a directive to do ANYTHING that will place the organization out on the edge of change. A position of knowledgeable risk — risk with an opportunity for differentiation and growth — is the new normal for insurers. Ask your organization…is it riskier to jump into the gap with uncertainty about the potential of new ideas, or to sit still and accept the certainty of dramatic changes to the insurance industry as we know it?

Bridge the gap in logical phases.

To move from thinking to doing requires a new business paradigm in how we define and think about insurance in the digital age. Most organizations can’t simply flip off one switch (traditional business model and products administered on traditional systems) and flip another on (new business model and products on modern, flexible systems that will handle digital integration and better data acquisition and analysis). The shift is separating the insurance business models of the past 50-plus years that have been based on the business assumptions, products, processes, channels of the Silent and Baby Boomer generations from those of the next generation, the Millennials and Gen Z, as well as many in Gen X.  So, the shift will require steps that provide a bridge across a growing gap of pre- and post-digital age between leaders, fast followers and laggards.

A paradigm shift in phases makes sense, so that business streams overlap each other. For example, we expect to see existing insurers and reinsurers increasingly looking for paths to create the business of the future and revenue growth, by capturing the next generation of customers with new engagement models, products and services. But while doing that, they must fund the future by transforming and optimizing today’s business and the current customers that they have grown over the past decade.

As they rethink their business models and realign them with the customer needs and expectations of those who will be their customers for the next 10 to 20 years, they will logically still be catering to their loyal customers from the past 50-plus years. This will require insurers to know, plan and execute across these three paths:

  1. Keep and grow the existing business, while transforming and building the new business.
  2. Optimize the existing business while building the new business.
  3. Develop a new business model for a new generation of buyers.

These three focal points are critical steps in a world of change and disruption. A new generation of insur­ance buyers with new needs and expectations creates both a challenge and an opportunity. Those who recognize and rapidly respond to this shift will thrive in an increasingly competitive industry to become the new leaders of a re-imagined insurance business.

Act. Right now. Close the gap.

Not every insurance company will be successful in this new world of new customer risks and expectations, ever-advancing technology, data and analytics capabilities and expanding and blurring market boundaries. But if you are determined that your company will succeed, you must act now to start closing the most critical gaps between what your company knows and what it is doing in response to that knowledge.

See also: A Gap That Could Lead to Irrelevance  

Insurance companies must stop talking and start doing. We are entering a new age of insurance underpinned by a seismic shift creating leaps in innovation and disruption, challenging the traditional business assumptions, operations, processes and products of the last 30 to 50 years. The challengers, such as Lemonade, Splice, TROV, Haven Life, Root, Next Insurance and others, are bucking the status quo and introducing new business models, products, processes, channels and experiences for the future. Will they all succeed? Maybe not. But they will alter the landscape, just as others have in the past or in other industries, leaving companies who did not change in their wake. The implications for insurers are enormous. The gap between knowing and doing is putting insurers at significant risk. It is allowing them to fall further behind, making them irrelevant … and potentially extinct.

On the flip side, once your organization jumps the gap, you’ll be in the enviable position of putting distance between your organization and those that didn’t act on their knowledge. Following a road map (similar to the one outlined in the three steps above) will bring your organization to a place where it will be prepared to capture growth and gain the agility to move in new markets.

Closing the gap is a journey that begins with a first step of action. Take that step now!