Being digital is the strategic imperative for incumbent insurers
The insurers that survive the next 10 years realise that their business must be redesigned for the customer in the digital economy. This means an outside-in approach that offers an any time, any way digital experience for the insurance customer. The role model is Jeff Bezos and the way that he has redefined the customer experience. To achieve this, Bezos’ Amazon built a totally connected enterprise from the ground up. Their entire value-chain, through front, middle and back office, is a digitally, operationally and organisationally connected enterprise.
Now, whilst I don’t subscribe to the hype and hysteria that Amazon are going to disrupt the insurance industry, because they’re not, Amazon’s impact can be seen in the way that InsurTech has emerged from nowhere in the last 3-4 years. BTW, if anyone doubts that InsurTech isn’t on the incumbents’ radar, just look at the State Farm/Lemonade ding dong.
It’s all about the Customer, stupid!
Ever since I started to write and speak about InsurTech back in 2015, the defining characteristic of InsurTech has been the focus on the customer. By that I mean actually putting the customer at the heart of the insurance proposition. Through building a digital experience that suits the way the customer wants to buy and own insurance, not how the insurer wants to manufacture and sell insurance products.
It is this outside-in, front-to-back approach, putting the customer at the centre, that defines the connected enterprise. KPMG explain it well in their report Aligning Behind the Customer Agenda. KPMG commissioned Forester Consulting to study what insurance firms (aka, the incumbents) are doing to be better aligned to their customers. It makes for interesting reading!
From my perspective, the incumbent insurers always say they’re customer centric, but what they mean is not the same as what the founders of the InsurTech startup mean. You only have to line up digital examples from InsurTech startups with the best efforts of traditional insurance offerings to see the difference.
Value beats price in the Customer First, Connected Enterprise
But it’s more than simply having an intuitive and slick digital interface. The customer first, connected enterprise means designing, building and operating a business that provides a holistic experience for the customer. And offers more than simply the cheapest price.
The ‘race to the bottom’ on price has dogged insurance for decades, leading to the rise of price comparison brands that treat insurance as a simple commodity. Mass market insurance has been oversimplified and under-valued as an important safety net in personal lines with price become the single determining factor when buying it.
But the big problem in any price-only driven market is that cost of sale is a killer. Price points go down faster than sales and marketing costs and this continually squeezes the whole supply chain. In the intermediated world of personal lines insurance, friction and inefficiency simply compound the issue.
Interestingly, the consumer perspective appears to show that value beats price when it comes to buying criteria. Take this data point from Ovum’s report “Driving Engagement through Value Creation” which shows that 50% of respondents would pay 5% extra premium in return for value engagement.
For the incumbents it’s a matter of survival
The big InsurTech trends that are going to change customer behaviour are engagement, convenience and personalisation. These InsurTech characteristics require a connected enterprise to deliver on these customer promises. This is where the likes of Trov have a massive advantage over the incumbents because they built a tech platform and surrounding insurance organisation from the ground up. By contrast, the incumbents, such as Allianz, are not starting with a clean sheet of paper and they have to redesign and reengineer their enterprise.
The CIO for Allianz UK, Jacob Abboud, explained it to me in this recent article, “We started a journey to change the way we do ‘change’ in Allianz. It was necessary if we are to meet the Group’s strategic agenda and build customer-centric digital capabilities quickly and efficiently. We are transforming our legacy into a digital business from infrastructure to applications and platforms that are underpinned by a digital architecture.”
The incumbents like Allianz can no longer hide behind the ‘legacy’ excuse for failing to create the customer centric, connected enterprise. They’ve seen the writing on the wall and have started the huge task of redesigning their empires. Note the “customer-orientated business” in this headline from Coverager, “QBE has announced changes to its structure to simplify its operations and build a more streamlined, agile and customer-oriented business.”
For the InsurTechs it’s staking a claim
Take Trov for example, who I first wrote about in 2015 after my first meeting with CEO and founder, Scott Walchek. At the time, Trov were a few months away from launching a first of kind insurance product in the Australian P&C market. If there was ever a need for a connected enterprise then that was Trov!
And the reason why Trov needed to be a connected enterprise is simple. “Customers let you know very quickly what they do and don’t like about your product and offering.” Scott told me over a coffee a couple of months back. “When we started out, never before had a customer been able to turn insurance on and off at will, all applied down to a single second.”
The point that Scott made back in 2015 was that to deliver on the customer promise, Trov had to put in place a the equivalent of a connected enterprise to make it happen and be able to respond accordingly. It was not a case of (just) building a great app (of which Trov is a thing of beauty IMHO). No, Trov had to make sure that underwriting, claims, policy admin, customer service, all the separate functions in the value chain worked together seamlessly as one.
All too often, when I look at the digital efforts of some incumbents, what I see is an old-world attempt to win new customers with gimmicks and slick marketing without addressing the fundamental and underlying core insurance proposition. (Cue to remind readers of the role of Jeff Bezos and Amazon in redefining customer expectations).
The InsurTechs know how to eat their cake and have it too
When I’m asked to explain this headline, if I’m in the West I use Lemonade and in the East I turn to ZhongAn. Either way, the example set by both of these digital insurers is not just that they are more efficient, running at a lower unit cost than incumbents, it’s that they are more effective. It is this combination of effectiveness and efficiency that distinguishes the new InsurTech players from the established incumbent ones. It is this combination of low cost of operations together with customer focus that is the real lesson for the incumbents when it comes to achieving a customer-first, connected enterprise.
Let me give you some data points. In China, ZhongAn have built a totally digital insurance platform with around 2000 employees to serve half a billion customers! 99% of all their pricing, underwriting and claims settlement is fully automated and immediate.
From the ground-up and in less than five years, ZhongAn have built a connected enterprise that is a fully digitised insurance value chain from front to back.
In the US, Lemonade’s productivity can be measured by the number of customers per employee, which is currently around 1,800. This reflects the digital nature of their business and is over three times better than the industry norm for the US P&C market that runs at about 500 customers/employee amongst the analogue incumbents.
The key thing for Lemonade is that their approach has not diluted their focus on the customer. Lemonade’s NPS score is around 70 compared to an industry norm closer to 10. And the stat that really seals if for me is in claims settlement times, aka, the moment of truth for insurers! Lemonade measure the settlement of claims in minutes and hours, not days and weeks. As I said in my annual top 10 InsurTech predictions list two years ago in December 2016, “Speed to Pay will become the Key Measure in Claims Settlement KPIs”. Claims directors take note!
The customer first, connected enterprise is a gift from Amazon
The lesson from Amazon, embodied in InsurTechs like Trov, Lemonade and ZhongAn, is that to be customer first, you have to be a connected enterprise. Every time and every way that the customer interacts, uses, engages with the insurer has to be seamlessly connected together. This is table stakes, it’s a given. How the insurer achieves this will vary as there is no one, right way.
But what is for sure is that, if the insurance industry is to learn anything from the InsurTechs and Jeff Bezos’ Amazon, the old ways of working for insurers are no longer viable and sustainable. It’s just a matter of time.
And if incumbent insurers are to avoid becoming the Borders, Radio Shack or Toys R Us of the insurance industry, then adopting the customer first, connected enterprise is the strategic imperative they can’t ignore.
The author Rick Huckstep is Chairman of The Digital Insurer and a keynote speaker, strategic advisor and investor in technology startups