Rethinking the Insurance Business

Millennials are forcing a transformation

A guest article by Carmen Reinicke in collaboration with Sankar Virdhagrisawan, Associate Partner, IBM GBS & Kelley Buchanan, VP and Partner IBM US Financial Services

There’s something wrong with insurance, it’s scary! Getting insurance can be a confusing and frustrating process. Most young people (OK – let’s say it – Millenials) have no idea where to turn for help – or what kind of coverage they even need – and, if you do have insurance, there’s always that fear you’re paying money to a company that’s only looking to rip you off in your time of need. It’s no wonder why millennials are the least insured generation.

On the other hand, insurance companies are just as afraid of customers – or, as they call us “the insured,”. When you sign up for insurance, companies immediately see you as a risk. And thus, they treat you as a risk, and assume that all the information you’re telling them is a bending of the truth – which in many cases it is. It’s estimated that fraud costs about 80 billion a year, across all lines of insurance. So as much as we don’t trust insurance companies, they don’t trust us either!

When customers don’t feel protected, and don’t feel like they’re getting guidance and support, business slumps. Insurance companies are feeling that squeeze, and the industry as a whole has not been growing. Life insurance has experienced an 80% drop off rate from application to approval, in part because people just don’t want to do all the paperwork necessary, and certain areas – like auto insurance – have taken even more of a long term hit, with uncertainty about the future triggering stalled growth. When cars drive themselves, will we even need auto insurance? The answer may still yes, but it won’t look like auto insurance does today.


When I told Sankar Virdhagriswaran, Associate Partner at IBM, how I felt about insurance (frustrated, confused and like I might be ripped off), his response was “You know, that’s exactly how people felt about getting their computers fixed before Apple came up with the genius bar. People were confused by the product – laptops – they didn’t know where to get them fixed, they didn’t trust the average computer store. And so Apple turned it around and made getting your computer fixed into a wonderful experience. That’s what insurance companies need to do today.”

And many are trying. Tons of funding has poured into insurance startups over the past couple of years, and those numbers continue to grow as new entrants increasingly look to take market share in the trillion dollar industry. Last year, VCs poured $2.65 billion into insurance startups globally, up from $740 million in 2014. With an industry that large up for grabs, no wonder so many are looking to the future of insurance.

Insurance as a whole needs to rethink the fundamentals of how they do business to stay in the game – they need to see and be seen as trustworthy, protective helpers that will help you if anything goes wrong. Or how about even before things go wrong – by connecting you to the products and services that will make your life easier. And safer.

From insurance to. . . assurance?

How does insurance go from an industry that’s remained largely untouched for the last 50 years. . . to completely new? First on the list is thinking about customers holistically – through a person’s life – to determine where an insurance company could be helpful at any, and many, touchpoints.

Say I have a smart washing machine. It’s connected to the Internet of Things (IoT)) and connects with my insurance company, sharing data I approve, and recording how many loads I’m doing, how often the machine is run, etc. Historical data predicts that after 1000 loads of laundry, my machine will need a tune up or it might break. If you’re an insurance company – and I have insurance on my washing machine – this is a huge opportunity. The insurance company could notify me that my washing machine needs a tune up, alert my smart washing machine provider, preempting a potentially costly event – maybe even giving me a coupon for the laundry detergent I use – all without a claim ever needing to be filed.

Shh. . . don’t tell your insurance company

Companies should look for ways to build trust with customers so that they actually want to have – and use – insurance. A classic example – when two people get into a minor car accident, it’s common for the two parties involved to try to settle it between themselves (one paying for damages) instead of going through an insurance company. Why? Because it’s possible that both driver’s auto insurance premium will go up for reporting that they’ve been in an accident. Sometimes, the cost of that outweighs the benefit of having insurance – and using it. But why? Isn’t there a way for insurance companies to help, instead of only seeming to penalize you for doing business with them? What if an insurance company could make your car safer to drive, instead of raising your premium? The fact is that with emerging technology, the right strategic partnerships and an extended ecosystem of products and services, that’s exactly where insurance companies should be headed.

Starting Up Trust

Sound like a win/win? It is! And it’s where the future of insurance needs to go. If companies aren’t able to capture and keep customers with seamless experiences built on trust, like the one described above, they will continue to be disrupted by startups. One such startup changing the game in renter’s insurance is Lemonade. I’d never had renter’s insurance before and I actually signed up for Lemonade – through an ad on Instagram! It took mere minutes for me to get coverage for my apartment. . . which actually made me feel confident – and protected.

Lemonade is doing a lot of things that differ from the norm, from including using artificially intelligent and empathetic bots helping customers, to applying the study of behavioural science to positively influence their customer experience, and encourage a continuous process of improvement. This New Entrant is also socially conscious, and devotes a portion of their relatively small fees to a cause of your choice. Simply put, they’re trying to make insurance easy, and something to feel good about. And it’s working.

When there is trust between an insurance company and the customer, it is beneficial for both. Customers who trust their company are much more likely to share personal data – which in turn makes it easier for companies to provide more personalized products and services – and a better all round experience. That translates into increased sales and a healthy revenue stream. But how will insurance companies get from here to there?

A 180 spin

Insurance companies need to rethink current insurance company business models – and think of themselves as Services Platform Business instead. A complete 180 from what insurers do now. An insurance company that thinks of itself as being in a Platform Business understands that they are in the business of matching those that need services (customers) with those that provide the services (auto body repair, health care providers, fixed income providers, etc.). But that would mean doing business very differently from the way insurance companies do today.

Simplification for the Company – and Customer

In the future, we will work with insurance companies to go through our lives with fewer issues – they’ll be able to predict when our possessions will need coverage, help us pre-empt problems, and trust us to work with them to file claims truthfully. Customers will feel like they have a protector, an advisor, that is looking out for them.

But delivering an experience that inspires trust is not an easy endeavor – and the road to that goal for insurance is largely a technical one. The technological transformation needed across the insurance industry in nothing short of massive. The explosion of data released by the constantly evolving Internet of Things (IoT) means Business as Usual is not possible anymore. Cloud, cognitive augmentation and beautifully designed digital delivery will be a requirement to turn unfathomable amounts of data into actionable, applied analytics – sophisticated and unique enough to change the customer experience – just like the start-ups.


It Ain’t Pretty

In a lot of ways, it will be easier for new entrants to stay in front of emerging customer demands. Their ‘born in the cloud’, lean technology platforms were built with extreme data in mind. But incumbents are dealing with a different reality – and it’s not pretty. Many industry experts agree that the insurance sector has some of the most outdated, repetitive and often paper related, processes in the entire economy. In order to even dream of competing, insurance organizations will have to streamline services with cutting edge Robotic Process Automation and Blockchain technologies, just to keep pace.

IBM Insurance Partner, Kellley Buchanan, says “We are working with clients to reimagine everything about how their business works. Implementing one technology or changing one process will not get them to the finish line. It’s a complex fabric of nascent technologies, woven together for the first time to produce services we’ve never dreamed of. The depth of the technologic transformation needed today by the insurance industry cannot be underestimated. If insurers don’t get this metamorphosis right, they simply won’t be here in the future.” Can today’s insurance organizations revolutionize their own industry – utilizing new technologies and models to stay in the game? We’re about to find out.

Carmen Reinicke is a Consultant and storyteller at IBM, Into the Future

Sankar Virdhagrisawan is Associate Partner at IBM GBS.

Kelley Buchanan is VP and Partner, Digital Strategy, IBM US Financial Services.