Tag Archives: state farm

When Incumbents Downplay Disruption…

An unmanned car driven by a search engine company? We’ve seen that movie. It ends with robots harvesting our bodies for energy.

That is a line from a 2011 Chrysler car commercial mocking Google’s self-driving car project.

Another Chrysler commercial was even blunter: “Robots can take our food, our clothes and our homes. But, they will never take our cars.”

Chrysler’s early mocking of Google’s efforts exemplifies the fact that few cling to the status quo tighter than the companies that best understand it and have the most stake in preserving it. It is human nature to value what one does well and look askance at innovations that challenge the assumptions underlying current success. Sprinkle in some predictably irrational wishful thinking and you have the mindset that too quickly dismisses potentially dangerous disruptions.

Ironically, seven years later, those Google “robots” are now mostly driving Chrysler Pacifica minivans. Those robots have taken Chrysler’s cars and driven more than 10 million miles. Chrysler benefits by selling cars to Waymo, the spinoff from that Google project, but not nearly as much as it might have from building the robots themselves. Waymo is valued at $175 billion, about five times Chrysler’s market value.

History brims with other examples.

When Alexander Graham Bell offered to sell his telephone patents to Western Union, the committee evaluating the deal concluded:

Messrs. Hubbard and Bell want to install one of their ‘telephone devices’ in every city. The idea is idiotic on the face of it… This device is inherently of no use to us. We do not recommend its purchase.

Ken Olsen, who disrupted IBM’s mainframe dominance with his DEC minicomputers, mocked the usefulness of personal computers in their early days. He declared, “The personal computer will fall flat on its face in business.” Olsen was very wrong, and DEC would eventually be sold to Compaq Computer, a personal computer maker, for a fraction of its peak value.

See also: Why AI IS All It’s Cracked Up to Be  

Steve Ballmer’s initial ridicule of Apple’s iPhone is also legendary, though the words of the then-CEO of Microsoft were mild compared with the disdain on his face when asked to comment on the iPhone launch.

Years later, after he retired, Ballmer insisted that he was right about the iPhone in the context of mobile phones at the time. What he missed, he admitted, was that the strict separation of hardware, operating system and applications that drove Microsoft’s success in PCs wasn’t going to reproduce itself on mobile phones. Ballmer also didn’t recognize the power of the business model innovation that allowed the iPhone’s high cost to be built into monthly cell phone bills and to be subsidized by mobile operators. (Jump to the 4:00 mark.)

The biggest challenge for successful business executives—like Ballmer, Olsen and those at Western Union—when confronted with potentially disruptive innovations is to think deeply about potential strategic shifts, rather than simply mock innovations for violating current assumptions.

Another perhaps soon-to-be classic example is unfolding at State Farm Insurance.

State Farm released an TV ad that is a thinly veiled attack on Lemonade, a well-funded insurtech startup. Lemonade makes wide use of AI-based chatbots for customer service. State Farm, instead, prides itself on its host of human agents. In the ad, a State Farm agent says:

The budget insurance companies are building these cheap, knockoff robots to compete with us… These bots don’t have the compassion of a real State Farm agent.

As I’ve previously written, AI is one of six information technology trends that is reshaping every information-intensive industry, including insurance. In fact, as I recently told a group of insurance executives, I believe insurance will probably change more in the next 10 to 15 years than it has in the last 300.

See also: Lemonade Really Does Have a Big Heart  

That doesn’t mean that Lemonade’s use of chatbots for customer service will destroy State Farm. But, as State Farm should know, customer-service chatbots are only one of numerous innovations that Lemonade is bringing to the game. As several McKinsey consultants point out, AI-related technologies are driving “seismic tech-driven shifts” in a number of different aspects of insurance. Lemonade has also adopted a mobile-first strategy and is applying behavioral economics to drive other business model innovations.

State Farm executives need to get beyond the mocking and think deeply about how emerging innovations might disrupt their strategic assumptions.

One way to do so is being offered at InsuranceThoughtLeadership.com, where ITL editor-in-chief and industry thought leader Paul Carroll has offered a “State Farm Lemonade Throw Down.” Carroll offers to host an online debate between the two firms’ CEOs about how quickly AI technology should be integrated into interactions with customers.

Lemonade’s CEO, Daniel Schreiber, has accepted. I hope Michael Tipsord, State Farm’s CEO, will accept, as well.

Better for Mr. Tipsord to face the question now, while there is ample time to still out-innovate Lemonade and other startups, than to be left to reflect on what went wrong years later, as Steve Ballmer had to do with the iPhone.

Customers Vote: State Farm or Lemonade?

A recent social media dust-up between renters and homeowners insurance technology upstart Lemonade Insurance and old-line insurance industry stalwart State Farm motivated us to look at what their respective customers are saying about their experiences with the companies.

A little context: State Farm recently aired a television commercial poking fun at technology-focused entrants to the marketplace. Specifically, the commercial made fun of the use of bots (artificial intelligence) used to process claims.

Lemonade was quick to respond to the perceived slight, with early Lemonade investor Ashton Kutcher even weighing in on Twitter. Kutcher has since deleted his tweet, but Coverager captured it in a screenshot.

To support its claim that Lemonade leverages technology to provide a customer experience superior to State Farm, Lemonade’s CEO Daniel Schreiber published, compared and contrasted its renters insurance customer rating and ranking to State Farm from Clearsurance’s independent platform. You can see Clearsurance’s full renters insurance rankings here.

Full disclosure: Lemonade is an engaged subscriber and affiliate marketing partner of Clearsurance. State Farm is not currently a subscriber. Being a subscriber does not enable any company to manipulate their customer ratings, which derive 100% from customer feedback.

See also: New Entrants Flood Into Insurance  

With that context, let’s see what renters insurance policyholders are saying about each company. Below is a table that includes renters insurance ratings of Lemonade and State Farm for six different categories. It’s important to note that, given that Lemonade was founded in 2015 and has a vastly smaller market share than State Farm, the startup insurer has far fewer renters insurance reviews (57) on Clearsurance than State Farm (1,349). Given that, the data should be taken with a grain of salt as Clearsurance user testing has revealed that the more reviews on a company, the more weight a consumer assigns to that company’s rating.

*Lemonade’s claim service rating based on just nine reviews

Time will ultimately tell whether Lemonade can maintain these high customer ratings as it scales and receives more reviews from its policyholders. Still, we can at the very least get a sense for how consumers feel about Lemonade’s technology-based insurance. And the early returns portend a customer base that is highly satisfied with the experience.

Despite not having agents like State Farm, which has more than 18,000, Lemonade has a 4.75 customer service rating out of 5. The part of the story that’s harder to tell with the data is how consumers’ experience has been at the time of a claim.

Lemonade’s 4.33 claim service score is based on just nine reviews, which isn’t enough to draw any conclusions. By comparison, State Farm’s 4.26 claim service rating (based on 267 reviews that include a claim) and 4.41 customer service rating are both among the best for renters insurance companies.

The largest discrepancy between the two companies is price. Lemonade has received a 4.80 rating from consumers for price, while State Farm’s 4.21 price rating is its lowest of any of the six categories we collect ratings on.

Beyond just the ratings, though, consumer feedback within reviews has helped provide us with a look at what their policyholders value.

Lemonade’s policyholders frequently discuss the ease of working with the company, things like getting a quote, buying a policy and setting up the coverage. In fact. 53% of Lemonade reviews discuss ease of the user experience while just 15% of State Farm reviews do so.

The online services of Lemonade are also a main focus of reviews. More than a third of Lemonade reviews (35%) discuss the companies’ online and application-services while just 3% of State Farm reviews address the insurer’s online services. Instead, State Farm reviews are more apt to talk about agents (18%, compared with 0% for Lemonade, which has no agents).

All this isn’t to say consumers have indicated one method — agent or bot — is better than the other. Quite the contrary, in fact. The consumer ratings data shows that both methods are pleasing the companies’ respective policyholders.

State Farm and Lemonade appear to be geared toward different demographics and different service preferences. Some may prefer the personalized service an agent can provide. Others may prefer the ease and speed of a bot — like Lemonade’s Maya. That’s what this data indicates. And both companies appear to be enjoying success of their different business strategies.

Lemonade has raised $180 million in funding and just last week was one of the companies Forbes named in a list of the next billion-dollar startups. State Farm, meanwhile, holds the largest P&C market share in the U.S.

See also: Making Lemons From Lemonade  

The misconception in all this — and why Lemonade may have taken offense to State Farm’s commercial — is that it insinuated agents are far superior to bots. The State Farm agent in the commercial says, “These bots don’t have the compassion of a real State Farm agent.”

While more State Farm reviews use words describing the helpfulness of the company (15% to 7% for Lemonade), the customer service ratings in the table above indicate that isn’t the only part that matters. In today’s technological age, customer service in the eyes of the consumer may not just be about being compassionate. It factors in things like ease and speed, too. We would submit that saving a customer time from having to think about insurance is an act of compassion.

What this means for Lemonade and State Farm in years to come remains to be seen. For now, a majority of the policyholders from these companies have indicated they’ve had a positive experience. If you’ve held a policy with Lemonade or State Farm, share your experience on Clearsurance to help better inform other insurance shoppers.

This article originally appeared on the Clearsurance blog.

Does Amazon Threaten Home Insurers?

Amazon has made no secret of its intent to disrupt virtually every industry on the planet, most recently announcing a partnership with JPMorgan Chase and Berkshire Hathaway to create an independent healthcare company. Reportedly, the retail giant has also begun to explore the idea of setting up an insurance price comparison site in the U.K.

The formula is now clear. Amazon and other consumer-first digital disruptors like Google set their sights on a conventional industry with aging distribution and marketing channels, then things start to change rapidly. With an insurtech revolution already starting to brew in the home insurance marketplace, how long will it be before the likes of Amazon and Google enter the market in a serious way? And, if they do, will customers welcome them?

While industry incumbents like State Farm, Allstate and Progressive have begun to speculate on potential scenarios for this kind of digital disruption, J.D. Power’s P&C insurance industry practice went right to the source – the consumer – to ask how real home insurance customers would feel about the presence of tech companies in this space.

Following were the key findings from the J.D. Power Pulse Survey:

20% of Consumers Would Use Amazon or Google for Home Insurance

The data revealed that 20% of consumers would use an Amazon or Google for their home insurance. Millennials showed even higher interest at 33% for Amazon and 23% for Google. Of those who indicated that they would be willing to switch, 80% currently have insurance with a large national carrier.

See also: What if Amazon Entered Insurance?  

75% of Consumers Interested in Home Telematics

While most of the media’s attention has focused on the future of automation technology in automobiles, the disruption to your home experience – and by extension your home insurance – through smart home technologies is likely to have an equal or greater impact.

Smart home technologies are revolutionizing many areas of the home, from simple comfort features that can now turn lights on and off or access in-home entertainment by control of your phone to home security and emergency support with automatic shutoffs and alerts.

The insurance industry wants in on the action. Insurers see smart home technologies as an opportunity to deepen their relationships with customers, while improving home coverage options and underwriting. While leading home insurance carriers have begun to venture into these areas, not much research has been done to understand the consumer’s demand as these features become available. Based on the J.D. Power Pulse Survey, following are insights into the current consumer appetite for this type of technology:

  • Top areas for insurtech disruption: Among consumers polled, following are the top area of their relationship with their home insurance provider that needs the greatest improvement:
    • Product Options/Coverages – 20%
    • Underwriting Sophistication – 15%
    • Claims – 14%
  • Top insurtech technologies: Among consumers polled, following are the top technologies consumers are most excited about coming to the insurance industry:
    • Cybersecurity – 36%
    • Blockchain – 25%
    • Internet of Things (IoT) – 24%
  • 75% of consumers are interested in home telematics. While the bulk of talk on telematics has been focused in the automotive space, home insurance customers are overwhelmingly interested in getting discounts on their homeowners insurance for proper home maintenance and security.
  • 46% of consumers would be willing to allow their home insurance company access to smart home sensor technology in appliances, such as refrigerators and air conditioners to help prevent loss and malfunction (smart tech loss prevention). 56% of consumers who currently have “smart” tech in their home would allow access

See also: 5 Misunderstandings on Home Insurance  

  • 34% of consumers would likely switch to a home insurance company that offered smart home technology loss and protection options:
    • 57% of millennials would likely switch
    • 40% of consumers who currently have “smart” tech in their home would be likely to switch (64% of consumers reported having some sort of smart tech in their home, such as a smart thermostat, doorbell, etc.)

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.

3 Ways to Maximize an Insurtech Partnership

In reading recent reports on insurtech, it was heartening to see the number of insurers that have chosen to gain the market-leading capabilities and tools they need to succeed by partnering with innovators. Many of the major insurers on the list are seeking differentiation, focused on augmenting their product lineup with a new offering, such as State Farm’s and Allstate’s partnerships with Openbay to provide non-collision auto repair services. Others are expanding distribution through a new channel such as an app.

In our experience, insurers that start a partnership with an insurtech that focused on a narrow goal, such as gaining homeowners coverage to enhance their existing auto, inevitably expand the relationship, because the right insurtech partnership rapidly positions insurers for greater growth and prosperity.

Banking on the Power of an Insurtech Partnership

Banking on the digital savvy of an insurtech innovator can deliver powerful results, but in our experience focusing on the following three areas produce the greatest overall outcomes:

  • Empower agents: In the initial talk about digital distribution, many assumed that agents would be ousted from their traditional roles and forced into a position of obscurity. We don’t see this happening, and neither do leading insurers, as 50% of consumers still want to speak with an agent when they have questions or concerns.

The problem is, when you put an agent up against the Amazon experience, the agent comes out as woefully inefficient, taking too much of the consumer’s time to manually plug reams of information into multiple back-office systems to generate a quote.

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

Agents are still a powerful force in the industry, but to keep their competitive edge they need the ability to speed the quote-to-issue lifecycle. One leading insurer stands to improve premiums by $100 million to $150 million by the end of this year because it streamlined the agent’s tasks to offer seamless product bundling in a single transaction.

Overhauling legacy systems won’t get other insurers there fast enough, but partnering with the right insurtech will.

  • Add product and channel choice: I mentioned the Amazon experience above, because it has shaped so much of consumers’ shopping preferences and expectations. As we see by following insurtech funding and partnerships, traditional insurers are realizing the direction that consumers are pushing the industry and, in an attempt to get ahead of the game, are differentiating themselves and the service they provide by partnering with insurtechs to add channel and product choice.

We see tremendous benefits for insurers that focus on meeting more of the customer’s needs. Consider a leading insurer that introduced coverage options by selling other carriers’ products to augment the insurer’s auto lineup and added 72,000 policies in less than 10 months. Another gave agents access to additional home products and grew policies sold from less than 8,000 a month to 57,000 a month.

Of course, product choice isn’t complete without giving consumers the ability to engage with insurers through their channel of choice. One top-five insurer, well known for digital prowess, has been reported to own quote conversion rates of 35% through agent channels and as much as 53% through direct purchasing.

The problem for most insurers comes in attaining digital capabilities and the extensive range of products they need to acquire and retain customers. Developing products can take a year or more, and overhauling legacy technology to add digital channels of engagement and efficiently distribute new offerings is an arduous task. Neither course of action will make traditional insurers competitive before leading digital rivals pass them by. Partnering with insurtech innovators to bundle products from other carriers with their own and distribute them with top-tier digital capabilities, can.

  • Streamline the quote-to-issue lifecycle: During a recent advertising campaign, one client generated 3,000-4,000 quotes a day, but not by simply cranking up advertising power or frequency. Instead, the client supported the extended marketing campaign by digitizing the quote-to-issue lifecycle for 80% of desktop traffic and 100% of mobile users. Smart app capabilities and automation allowed consumers to enter minimal information and automatically generate rapid quotes. The experience is similar to Amazon’s product purchasing environment, where customers search for a product, are immediately presented with options and click to buy the items they want. This is the future of insurance, and, by partnering with a leading insurtech provider offering a SaaS-based digital distribution platform, this insurer is providing the future today.

Coming Back for More

Insurers that focused on a simple goal, say of improving product selection or extending delivery channels, often expand the relationship to include more offerings and new distribution capabilities. One top-five insurer partnered with a leading innovator to enhance product selection for in-house agents by bundling products with those from other carriers through a digital distribution platform, and three years into a five-year contract signed up to offer additional product options, added 367 agents and extended the relationship to also offer the insurer’s products and carrier appointments direct-to-consumer via digital channels.

See also: 3 Misconceptions on Insurtech  

Why? Because within the first two years, the company found itself presenting 70% of customers with an offer, converting 35% of those quotes and doubling sales year-over-year. With outcomes like these, who wouldn’t expand the relationship?

To learn more about selecting the right insurtech innovator to power your growth, download our infographic: InsurTech Innovators Arm Incumbents to Meet the Customer-centric Imperative.