A quiet revolution is underway in insurance, it’s one that incumbents cannot afford to miss.
Age-old business problems have been solved with technology saving money, reaching new markets and providing better service for customers. Insurance, thanks to InsurTech has been undergoing significant shift.
It’s been a quiet revolution because much of the change has been going on behind the scenes. That is partially because it is most comfortable for incumbent insurers to partner with companies that help save them money, by streamlining back office functions. This has meant that those companies are often selected in commercial partnerships, giving them an early edge against rival startups.
Facilitators and transformers
You could call these companies facilitators: they help incumbents do what they have already been doing but a little faster or cheaper. Some even have incumbents as investors.
There are also solutions which create more fundamental change, creating new market opportunities or reaching new people. I call these types of startups transformers.
The reality is that while incumbent insurers may find the idea of facilitators more palatable they need to learn to partner with transformers too. There is too much investor money flowing into transformers now for it to be feasible for incumbents to ignore them. Keep them out in the cold to kill them off is no longer a viable strategy.
Over a long enough timeline, the choice for all is simple: lead the transformation or to be rendered obsolete by it. To titans that can seem a strange thought, but history is littered with examples of companies that didn’t wake up to change and were left by the side of the road. Just ask AOL.
It is not all Darwinian doom and gloom. There remains great opportunity in transformation, even for incumbents.
Bigger markets and better ways of doing insurance
Technology can open up markets which previously couldn’t be reached affordably. It also means solutions can be deployed at scale, in a way never before seen.
In addition, insurers can gain advantages over their competition by working with the right companies first. Better data modelling or more responsive real time pricing may make insurer A more likely to get access to the customer than insurer B.
Incumbents would do best to see the opportunity beyond money saving. This change is about more than just cost reduction. It is about customer demands and needs. Incumbents can reshape themselves for the better before they are transformed by others.
Consider FloodFlash, one of our portfolio companies. Their device has made flood insurance more affordable for those who live in areas prone to flooding. To underwriters, FloodFlash provides access to new customers with a more accurate risk profile. What we are looking at is a move from an “All Risks” policy to a “Your Risks” Policy. Customers are getting all of what they need and none of what they don’t.
Even more revolutionary is the way Flood Flash makes customers responsible for risk reduction by providing variable pricing. A chef might get a cheaper policy if she moves her food storage out of the basement and onto the first floor. Having open lines of communication with customer is essential. It is important not only to inform them how to save money and change their facilities or practice, but help them do it. Transparency between insurer and customer becomes the norm.
Technology enabled relationships
There are many ways for insurers to meet customer needs better. The first step is to develop lifelong relationships to understand customer requirements. Crucially, this also means being flexible and adapting policies. Again technology makes this possible with negligible cost.
Consider By Miles. Not only do they provide car insurance on a pay as you go basis, something never seen before, but they provide a wealth of additional value from their smartphone app, nudging users to better driving habits, or giving them tips on how to further save money. Many in the industry complain that insurance prices have been driven down by the popularity of price comparison sites. Insurance is becoming seen as a commodity, with customers attracted solely on price, rather than through good service, high quality cover or attention to detail. By Miles shows how to buck that trend, by offering more than just an off the shelf policy.
While there has been tradition emphasis on the quoting, buying, renewing and claiming stages, expanding into delivering savings for future assets is integral.
Cost reduction is important, but experience and need based services is how to keep a customer for life.
You can only manage change to a point
Incumbents would do well to realise that it is no longer possible to simply manage and control the change that is spreading through their industry. Venture capitalist cash and strong customer demand means that incumbents are no longer the only kingmakers. The smartest strategy now is to lean into the discomfort take advantage of the opportunities on the horizon.
The reality is that the this quiet revolution is only just getting started.
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