February 4, 2016
Waves of Change in Digital Expectations
by Denise Garth
Customer expectations, behaviors and risk profiles are evolving thanks to technology, social trends and other changes happening around us.
In the first of this three-part blog series, titled “Bringing Insurance Distribution Back Into Sync Part 1: What Happened to Insurance Distribution?”, we talked about the seismic shifts that have rocked traditional insurance distribution and about how insurance companies need to adopt a 2D strategy to thrive in this new environment.
There are four fundamental drivers of the seismic changes:
- New expectations are being set by other industries—the “Amazon effect”;
- New products are needed to meet new needs, and risks are distributed in new channels;
- Channel options are expanding;
- Lines are blurring between insurance and other industries.
In this blog post, we’ll discuss how the final three fundamental drivers have contributed to an environment of challenges and great opportunities. Those who adopt a 2D strategy will be better-prepared to seize the opportunities:
- First, by optimizing the front end with a digital platform that orchestrates customer engagement across multiple channels
- Second, by creating an optimized back end that effectively manages the growing array and complexity of multiple distribution channels beyond the traditional agent channel
Customer expectations, behaviors and risk profiles are evolving thanks to technology, social trends and other changes happening around us. These are driving the need for new insurance solutions and, consequently, new distribution methods, such as:
- We all know about autonomous cars and increasing car safety technology. Autonomous cars have created questions about where liability lies in the event of an accident involving one of these vehicles. Volvo has laid down a challenge to the auto and insurance industries with its recent announcement that it will assume liability for crashes of its Intellisafe Autopilot cars.
- The sharing economy—whether it’s for transportation, lodging, labor or “stuff”—has created a multitude of questions regarding coverages. People have realized they don’t need to buy and own cars or pay for hotel rooms when they can use someone else’s stuff for a cheaper price. People who own these items can monetize them when they’re not being used.
- Cyber risk has been around for a long time, but numerous high-profile hacks have made it a hot topic again.
- And, finally, the Internet of Things: Connected cars, homes and personal fitness trackers are generating lots of data with tremendous potential to improve pricing and create products and services, while at the same time reducing or eliminating risk.
The seismic impact has resulted in companies developing and offering new products to meet the changing needs, preferences and risks being driven by consumers. There are several relatively new peer-to-peer companies that have entered the market, such as Friendsurance, insPeer, Bought by Many and the recently announced start-up Lemonade. Metromile addresses the sharing economy trend with its product for Uber drivers, and addresses the niche market of low-mileage drivers.
Google Compare, with its focus of “being there when the customer wants it,” has rapidly expanded from credit cards (2013) to auto insurance (early 2015) and now to mortgages (December 2015), all the while expanding to new states and adding product providers to its platform with a new model that leverages customer feedback.
John Hancock is using Fitbits as part of the company’s Vitality program, which started in South Africa and which uses gamification to increase customer engagement and lead to potential discounts. Tokio Marine Nichido is using mobile (in an alliance with NTT Docomo) to distribute “one-time insurance” for auto, travel, golf and sports and leisure. HCC, which was recently acquired by Tokio Marine, has a new online portal for its agents to write artisan ontractors coverage for small artisan contractor customers.
The overarching theme in all these examples is that each company is pioneering ways of distribution, not just new products or coverages. Many companies are direct e-commerce because they are low premium, quick turnaround/short duration and potentially high volume; they are not well-suited for agent distribution.
Expanding Channel Options
Channel options and capabilities for accessing insurance are expanding rapidly. New brands are entering the market, giving customers new ways to shop for, compare and buy insurance.
Comparison sites, online agencies and brokers—such as Bolt Insurance Agency, Insureon, PolicyGenius, CoverHound, Compare.com and the Zebra—are relatively new to the market and are gaining significant market interest and penetration. There are also new brands in the U.S. selling life and commercial direct online, like Haven Life, Assurestart and Hiscox. Berkshire Hathaway will jump into the direct-to-business small commercial market in 2016, a potential game-changing move for the industry.
Finally, there are some intriguing new players that are focusing on specific parts of the insurance value chain.
- Social Intelligence uses data from social media to develop risk scores that can be used for pricing and underwriting.
- TROV is a “digital locker” with plans to use the detailed valuation data it collects to create more precise coverage and pricing for personal property.
- Snapsheet is the technology platform behind many carriers’ mobile claims apps, including USAA, MetLife, National General and Country Financial.
The insurance industry is so valuable that outside companies are trying to capture a share. This has created a blurring of industry lines. Companies like Google, Costco and Wal-Mart are familiar brands that have not traditionally been associated with insurance, but they have offered insurance to their customers. The first time most people heard about these companies’ expansions into insurance, it probably struck them as unusual, but now the idea of cross-industry insurance penetration has become normal.
In addition, insurance products are blurring and blending into other products. For example, Zenefits and Intuit are considering bundling workers’ compensation with payroll offerings.
So, what does all of this mean? There are two key implications from all of this for insurance companies.
First, multiple channels are now available to and are expected by customers. There are many ways for customers to research, shop, buy, pay for and use insurance (as well as almost all other types of products and services). Most customers demand and use multiple channels depending on what they want or need at the time. They are more ends-driven than means-driven and will pick the best channel for the task at hand.
Second, multiple channel options give customers the freedom to interact with companies anywhere, anytime, in just about any way. But this only works if these channels are aligned and integrated. An organization can’t just add channels as new silos; they must be aligned, or they will do more harm than good.
So, while distribution transformation and digital capabilities promise an easier, better experience for customers, they actually result in increased complexity for insurers. Orchestrating all these channel options is hard work and can’t be done with legacy thinking, processes or systems. This expansion of channels requires insurers to optimize both the front end and the back end of the channel ecosystem. In my next blog post, we’ll discuss these in more detail.