Focus 5 to Lead the Insurance Revolution

One of the common themes of the recent digital transformations is a clear shift from product centricity to customer centricity. InsurTechs are shaping future products that solve customers’ pain points. Traditional insurers are being challenged to transform their product portfolios in order to make them more personalized and customer focused. Tech innovations are accelerating the rise of InsurTechs and winning customers with their customer-centric offerings. InsurTech startups have already shaken up the industry and are leading the revolution. Incumbents have a lot to offer in terms of their risk expertise and insights, but how can they seize the opportunities presented by shifting customer behaviors/preferences, tech enablers, and InsurTechs while still being able to avoid common digital pitfalls? Here are my Focus 5 (Five D’s) for the incumbents to embrace, reinvent, and lead this insurance (r)evolution on the front foot:

1. Draw inspiration from the InsurTech threat: Incumbents should reinvent their business and tech strategies by studying how InsurTechs using novel technologies for developing digital native products and services are thriving in a digital and agile operating model. InsurTechs are effectively leveraging new/alternate data sources and applying AI/ML technologies to offer innovative personalized experiences. The rise of InsurTechs has created a competitive threat to incumbents, but at the same time, valuable opportunities for the greater good of the industry. Incumbents have a lot to learn from InsurTech successes (and failures), and there’s no dearth of inspiration. Incumbents should also take inspiration from the Fintech experience of the banking industry to find their own optimal balance of InsurTech threats and opportunities. Incumbents need to identify and assess their own business strategy pain points and prioritize initiatives that fulfill the societal need for customizable and personalized products. There’s no one recipe for success, and one size doesn’t fit all incumbents. Read my views on the rise of InsurTechs and its impact on the industry. Here are some recent innovative, personalized, and customer-centric products to draw inspiration from:

• pay-per-mile auto insurance (never felt it more than now during pandemic!)
• dynamic, needs-based coverage options (e.g., hourly auto insurance on demand)
• touchless claim processing and payout (e.g., auto damage claims)
• accelerated underwriting (e.g., EHRs and digital health ecosystems)
• premium adjustments and claims handling using fitness wearables data (also heath rewards program)
• recommending insurance based on customer’s phase of life.
• distribution innovation (e.g., insurance on mobile using AI/ML), and many more.

2. Drive innovation on your own (unique) strengths: InsurTechs are focused on the sweet spots in the insurance value chain. This includes pain points, which can be relatively easily digitized to improve customer experience. InsurTechs have clear advantages in offering new digital distribution channels for existing products and launching new data driven pricing models that are less dependent on historical risk data assets. Incumbents have clear advantages in harnessing their own (historical) data and creating differentiation using the latest tech advancements like AI and ML algorithms. The massive data that incumbents have collected over the years is perhaps their greatest business asset, which holds the key to innovation. Document analytics capabilities like OCR, page classification, and entity extraction play a crucial role in ramping up digitization initiatives and setting the foundation for leveraging AI/ML technologies. Read my views on how incumbents can get started on this AI road to generate business value by leveraging their own strengths. Insurance is, and will always be, a risk knowledge business. Therefore, incumbents are much better positioned to lead the industry from predictive to prescriptive levels of maturity on the analytics continuum’s evolution, i.e., transition from making decisions based on hindsight to making decisions with foresight.

3. Devote yourself to your future home in Ecosystems and Platforms: We are living in a world of digital ecosystems and platforms. Amazon, Google, Facebook, Apple, Microsoft, and many other industrial and tech giants are ecosystem players. Digital ecosystems and platforms are quickly reshaping the insurance industry, changing the very nature of collaboration and value creation. Fostering partnerships and alliances has never been more crucial to achieve competitive positioning in today’s world of digital ecosystems and platforms. Digital ecosystems have enormous potential to significantly optimize the insurance value chain and realize the ultimate digital mission of direct-to-consumer sale of insurance products. Digital ecosystems provide insurers with unique opportunities to engage and market products to a targeted customer base. Incumbents should accelerate their customer-centric innovation endeavors by joining a suitable ecosystem. Incumbents have all the ingredients needed to transition the risk business from mitigation to prevention using a combination of internal (available) risk data and external consumer provided data (like wearables, EHRs) from an ecosystem/platform, all leading to increased customer safety and enhanced customer experience. Read my views on how incumbents can choose the right ecosystem and start challenging the age-old notion “insurance is sold and not bought”.

4. Develop tech talent: Digital transformation and tech enabled innovations are profoundly disrupting many established industries; competition for digital and analytics talent is at its peak. The new breed of data scientists thrives on big data, and insurance industry has been one of the top big data generators. However, the insurance industry’s value proposition has not fully resonated with top talent, and therefore needs some renewed focus. Incumbents should highlight the exciting opportunities in insurance digital and analytics space and refresh the industry’s image, particularly among younger workforces. The right talent not only drives transformation from within the company but also solves the legacy IT system issues. Incumbents need to assess their tech talent acquisition strategies, rethink their remote work policies, upskill and reskill current employees, integrate new workplace capabilities, and build a culture to sustain a talent pipeline.

5. Dare to beat, otherwise join them: At the end of the day, we have to create value for our customers, and deliver attractive returns for our shareholders. A low interest rate environment, increasing volatility in investment markets, and pandemic worsening pre-existing market conditions are leaving incumbents with less options for organic growth. InsurTechs have a clear advantage in designing new digital products and processes from the ground-up. With no burden of legacy systems, InsurTechs can operate in a truly agile and fully automated model. Incumbents aspire to be nimbler and operationally efficient, but they are heavily constrained, due to their fragmented processes and legacy systems. InsurTechs are creating digital solutions along the entire value chain and tapping on opportunities to deliver more for less to insurance customers. Many InsurTechs are aiming to meaningfully integrate with traditional insurers for creating tangible value for customers, and this combination could be the winning model for the industry. There’s a lot to learn from each other, particularly in the area of risk tolerance, speed of decisions, incremental rollouts (MVPs) and agility. InsurTechs are looking to source underwriting capacity, risk expertise, and capital strength, while incumbents are looking to get better with distribution, pricing, underwriting, and administration. The synergies are obvious to drive mutual success through collaboration. Incumbents have an option to compete and beat, or otherwise partner and collaborate with InsurTechs — either way the customer will win at the end. Read my views on how life & disability insurers can partner with digital health players to unlock EHRs (electronic health records) and take the giant leap forward in achieving touchless underwriting. Time will tell who will emerge and rule like Netflix, and who will be forgotten like Blockbuster in the insurance industry.

Draw, Drive, Devote, Develop and Dare are my 5 D’s (mantra) for the incumbents to gain a competitive edge in the rapidly changing insurance landscape.

2020 will a year to remember, for various reasons — good, bad and even ugly. I’d personally like to cherish the bright side of 2020, like my experience with running the NYC Marathon this year (1 step at a time, 55,374 times).

Merry Christmas and Happy New Year!