In 2011, venture capitalist Marc Andreessen famously coined the phrase “Software is Eating the World” in a Wall Street Journal article. The point: Companies across industries are doing so much digital and tech work that they are, essentially, becoming software providers in addition to their original businesses. And, we’re seeing that happen in the insurance industry as well.
Disruptions are coming in fast and technology-savvy companies are moving to shake up the insurance business. While there are signs all around that as insurers are moving ahead in adopting digital technologies to streamline and energize their businesses, we’re also seeing insurance business models being altered by the tech sector. Insurance, in some ways, is becoming another data-driven service that can be added to digital platforms.
It’s not just the insurtechs that may be introducing disruption. For example, the electric-car company Tesla is now offering lifetime insurance bundled into the purchase price of its vehicles. A Tesla executive suggested that the company would be partnering with carriers for the service, but there was also a possibility it may offer the coverage on its own.
The software-driven enterprise is a lightweight one, with a lot of adaptability and room for adding on additional services – such as insurance – as needed. The auto market, with the potential looming disruption from driverless cars guided by artificial intelligence, is just one area where insurers can no longer operate business as usual. New ways of thinking are required.
In a recent article here at Digital Insurance, Lemonade CEO and co-founder Daniel Schreiber discussed his plans to “Uberize” the insurance industry – that is, to employ big data, artificial intelligence and mobile apps to provide renters’ insurance and more. Essentially, Lemonade is a platform company that connects policyholders with the resources they seek.
A recent report by the Institute of International Finance explored all the forces that are reshaping the insurance space, and provides a warning to those insurers that resist moving more forcefully into the digital realm: “Incumbent firms unwilling or unable to adapt to new technologies, learn from new market entrants, and adjust business models will likely face persistent low growth and declining profits resulting from the inability to compete at a high level with tech-savvy incumbents and digital startups,” the report states.
Lagging the market in digital technology adoption may hurt insurers’ competitiveness across a number of functions, “including measuring and managing risk, handling claims, selling policies, and recognizing consumer demands,” the authors continue. They predict that disruption by tech-savvy competitors will come in “the most profitable areas of the value chain and wrestle policyholders away from established insurers.”
The IIF report’s authors have several recommendations for insurers seeking to develop their digital acumen:
- Design information technology architectures that are adaptable and attuned to the business. “Significantly invest in building state-of-the-art IT architectures that are secure, customer-friendly, and—from the privacy perspective—safe for the customer to use.”
- Invest in proactive recruiting and skills development. This may be the Achilles’ heel for the industry, seen as conservative and bound to legacy systems. Talented professionals need to see there are opportunities to join or develop within a “new” industry that is re-inventing itself.
- Partner with tech-savvy firms. “By partnering with inventive startups, incumbents can bolster their competitive position and reduce the time required to develop, test, and launch original products, while startups can capitalize on incumbents’ deep pockets, large base of clients and their data, and robust infrastructure. Consequently, startups will not only raise challenges for incumbents in the form of additional competition but will also present opportunities in the form of partnerships.” Another route is to directly acquire these types of companies as well.
- Support new initiatives too foster innovation outside the mainstream, such as innovation labs. The IIF report’s authors observe that many insurers “have created dedicated teams at innovation labs, participate in accelerator programs, and hold hackathon events focusing on insurance-specific issues. For instance, Aviva opened a ‘digital garage’ in London and one in Singapore the following year to explore and develop digital technology. Global incumbents, including Allianz and Swiss Re, have joined Startupbootcamp InsurTech, an accelerator of startups focusing exclusively on insurance. The objective of the London-based accelerator program is to foster startups and collaborate with them to bring improvements to the market.”