For insurers as well as individuals, change is a constant. Technological advances now leap from the impossible to the mainstream in a matter of months rather than years, influencing how we think about markets and products and, with absolute assurance, how customers think about companies and industries.
There are other changes taking place as well. Since the turn of the century, recessions, shifts in capital markets, the emergence of Millennials as a consumer force and the retirement of the baby boomers at a pace of 10,000 per day are all reshaping the insurance landscape.
Product cycles and refresh rates will be dramatically faster. Opportunities will appear, and gaps will be filled quickly, as carriers apply analytics and predictive modeling. Different cohorts will continue to have different needs as they pass through predictable life events. Rather than one-size-fits-all, products and service offerings will be tailored to specific and emerging needs.
In an era where customer engagement will be crucial for success and survival, carriers will be forced to think from the outside looking in. Doing things the old way, but with more enthusiasm, will leave companies in ruins. Recent news about IBM’s 10th straight quarter of declining revenue also brings into question what the future may hold. Financial engineering, the sale of assets and the trimming of workforces can only get a company so far in its quest for financial strength and relevance. Consumers will demand omni-channel interactions, transparency of information, message clarity and instant gratification for the time they invest. They will also look to third parties for validation of company messages and product efficacy. It promises to be interesting.
Follow the Four Horsemen Channels also will reflect new ways of engagement. Carriers continue to disaggregate product manufacturing from distribution, enabling them to hone perceived advantages. However, new players will certainly emerge. The Four Horsemen of the Internet, Google, Apple, Facebook and Amazon, continue to create experiences that delight and amaze consumers. Google’s chief executive Larry Page famously said that the role of technology is to reduce the time between intention and action. An underwriting process that takes weeks or months is out of sync with this emerging reality, and carriers will need to move fast to maintain shelf space and mind-share. What’s to keep Overstock.com from expanding from P&C sales into other lines of business? Not much, particularly as its target customers evolve.
Aging core systems simply can’t support the channels and transactional components of the future. They may crank along for years, handling closed block products, but they can’t provide a foundation for future growth. Many carriers seem to be getting clear on this, and group insurers are ramping up as they look to 2015 and beyond. While many now are aware of the competitive threat from individual carriers looking to expand into the voluntary benefits space, few had considered the potential for group health carriers to do the same. Competition can come from many places at unexpected times.
Meeting with a carrier’s chief marketing officer earlier this year, we discussed the importance of mobile. Smartphones, tablets and fabulist will continue to grow in power and relevance. Recognizing this, and the differences between the previous and the next generations of producers, he said: “My business, in five years, will be dependent on people I haven’t met yet, and that scares me.”
There’s good news for carriers that are prepared to make astute investments. Commercial software capabilities have improved dramatically in recent years, and Tier 1 P&C carriers have demonstrated an ability to move beyond legacy technology and business processes.
Some carriers also are transitioning from capital investments, which create assets to be depreciated over many years and lead to ossification along the way, toward an operational expense-centric model associated with more modern capabilities. This allows “as a service” capabilities to emerge and for flexibility to become a reality. As IBM may be learning, old world margins, e.g., main- frame computers, may be inconsistent with new world realities, and preparing for that requires the ability to constantly reinvent.
Betting on the “Belle” I recently had the pleasure of flying aboard the “Memphis Belle,” a World War II B-17 Flying Fortress bomber and the star of a movie by the same name. This plane, built in 1942, is a pretty remarkable time machine. The basic crew layout and many of the controls are similar to those in the Boeing 787 Dreamliner now being built by the same company. Beyond that, there’s literally nothing that the planes have in common save this: In both cases, Boeing was willing to bet the entire company on its ability to successfully bring something new, different and vital to the market. That didn’t always go well. The original Flying Fortress crashed and burned with no backup, so the company had to double down on its bet. Yet Boeing eventually built almost 13,000 of these planes, along with a whole generation of military and civilian craft that took the company into the jet age. Its most recent wager, on the 787 Dreamliner, is part of that legacy and looks like it will pay off handsomely as well.
Insurers need to learn from companies like Boeing and be prepared to gamble. The time for reinvention is coming fast, and it promises to be an exciting ride.
Robert McIsaac is a principal focusing on life insurance, annuities and wealth management at Novarica.
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