Can Incumbent Insurers Dodge Digital Disruption?

Thanks to mass data and connectivity, insurance has changed for good

Despite specialising in risk, incumbent insurers have been slow to adapt to digital disruption. This can be attributed to strict regulation, large capital requirements, and the sheer complexity of the market. Today, insurers face an entirely new set of challenges. By its very nature, insurance always comes with an element of uncertainty… But technology is taking the guesswork out of policy making – not just for the policy makers, but for policy holders too. In the face of digitalisation, consumer preferences and connected products, insurance has been forced to change.

The future of insurance

The insurance industry has been disrupted from almost every possible angle. Products are smarter, collecting data and providing visibility – think smart homes and autonomous vehicles. Customers demand personalised, online services based on their own data. Traditional business models are competing with as a service, sharing economy, peer to peer, and direct to consumer alternatives. Marketing methods have shifted to mobile first, shaped by personalisation and customisation. Not only this, but automation, data analysis and connectivity have altered the claims process by streamlining administration. This has certainly given more power to consumers, but it has also made policy generation far easier for insurers that are willing to use innovative technology. In fact, according to McKinsey research, property and casualty insurers with the highest levels of digital performance also experience the highest growth rates.

Lemonade is one of the rising InsurTech startups that have reimagined traditional insurance. The company, which was founded in 2015, provides a sharing economy alternative to regular home insurance by turning the process on its head. Instead of sending a bill to customers, users pay a flat rate that covers their claims. Excess capital is given to Lemonade’s approved charitable causes, fulfilling corporate social responsibility. So far, Lemonade has raised $180m. Another young InsurTech business, Bought By Many, has taken advantage of digitalisation by connecting people with similar insurance needs. Using this collective bargaining power, Bought By Many enables users to negotiate offers that wouldn’t be available to individuals.

However, it’s not just young organisations that are leading the charge. Founded in 1843, insurance giant LV= demonstrates that legacy firms can profit from market shifts. LV=’s customer led ethos and willingness to experiment with tech (namely AI) has helped them to remain one of the UK’s most popular insurers. Lemonade, Bought By Many and LV= are just a few of the insurance companies that have learnt to take advantage of diverse digital channels and technologies. How can less digitally literate competitors keep up?

Insuring against disruption

One of the major pitfalls of pursuing a digital strategy is a lack of purpose. However, with a clearly defined vision, companies can enact changes that serve their overall aims. Defining purpose is only the initial hurdle. If a business wants to change, it has to take tangible steps to enable transformation. Simply using the language of innovation is not enough – it has to be backed up by committed investments into core technologies and ecosystems. For example, Aviva‘s investment branch, Aviva Ventures, invests in promising startups and helps to develop their fledgling products and services. These propositions can then be integrated and distributed to Aviva’s global customer base. In doing this, Aviva also builds strategic relationships with partners. Another key part of digital success is the ability to think experimentally. Sometimes, innovative ideas will not work. However, by adopting an experimental mindset, big insurance companies can mimic the agile startups that are threatening to eat their lunch. This relies heavily on culture change. If employees believe that their ideas won’t be taken seriously, then countless opportunities could be missed.

To survive in the digital world, insurance companies must define their purpose, invest in changes that serve that purpose, encourage employees and associates to adopt innovative and experimental mindsets, and accept that they can’t do it alone. This applies to new entrants as well as incumbents. Younger companies could benefit greatly from the support of market leaders while pushing their products to a wider audience. Diverse digital channels, alternative business models and customer led propositions currently characterise an industry that was (and still is) criticised for making life difficult for consumers. Insurers need to come up with a new kind of insurance policy – but this time, it’s to protect themselves.

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