Connecting the insurtech dots
10/16/2018

With so many new technologies and disruptive business models, insurance companies need to carefully evaluate their strategies to unlock business value.

By Pat Renzi, Principal, Life Technology Solutions, Milliman.

You only have to look at the business press headlines to see how companies everywhere are being forced to reevaluate their strategies in the face of a technology revolution.

E-commerce and peer-to-peer (P2P) services are harnessing information available through the large digital footprint we all leave. They are combining to disrupt traditional business models that have worked more or less unchanged for generations.

Bestselling author, Professor of History at Tulane University, and distinguished fellow of the Aspen Institute Walter Isaacson has written about how, in the face of so many different new technologies and disruptive business models, insurance companies are having to think differently about their strategies in order to remain relevant.

Isaacson suggests that the insurance industry should focus on the opportunities these disruptive technologies unleash rather than the threat to the status quo.

But it’s also the case that, where insurers are responding, their insurtech funding is often only targeting technologies that change just part of the insurance value chain.

The entire value chain of insurance needs to be reassessed such that insurers change what they sell, how they sell, how they service and connect with customers, and how they run their internal operations.

Investing in transformation

The high level of investment required is another big consideration and transforming a business model is expensive. Currently, many insurers are feeling the pinch of operating in a saturated market and are more inclined to focus on the role of technology in managing costs and making processes more efficient.

Legacy infrastructure, organizational structure, and internal processes make it challenging for the big, established insurers to make bold changes.

There are exceptions, of course, and some insurers are successfully using technology to change the nature of insurance and the complete customer experience. Life insurer John Hancock partnered with Vitality, for example, to bring a different approach to the delivery and customer engagement around life insurance.

Vitality uses tech tools such as fitness trackers to help people make healthier choices and dynamically earn rewards for addressing their specific health issues.

As part of the joint program with John Hancock, policyholders receive personalized health goals and can log their activities using online and automated tools, which are integrated with personal health technology. In fact, John Hancock gives every new policyholder a free Fitbit as one easy way to track their progress.

The insurer continues to serve its existing customers, but the partnership with Vitality has allowed it to offer a full end-to-end new approach to insurance quickly and with less risk and disruption to its established book.

Vitality brings a different mindset to the insurance industry. The company recognized there was an opportunity to transform the whole value proposition an insurer offers customers and not simply apply new technology to an old way of doing business. Importantly, they are shifting insurance from a transactional business to a relationship business.

Plus harnessing data is mutually beneficial for insurers and for their customers. It allows carriers to deepen their understanding of their customers, offering a variety of services; it brings a new meaning to the term connectivity in the sense of attracting and retaining customers.

Enter the tech giants?

Some people think that if the insurance industry doesn’t disrupt itself, someone else will do it for them, maybe an Amazon or a Google.

Recent news about how Amazon, Berkshire Hathaway, and JPMorgan Chase are looking to form an independent healthcare company for their employees in the United States, according to a New York Times article, shows that the appetite for disintermediation is there.

The New York Times commented that the alliance was a sign of just how frustrated American businesses are with the state of the nation’s healthcare system and the rapidly spiraling cost of medical treatment: “It also caused further turmoil in an industry reeling from attempts by new players to attack a notoriously inefficient, intractable web of doctors, hospitals, insurers and pharmaceutical companies.”

But beyond self-insurance, do the tech giants really have an appetite for entering the insurance business in competition with the market incumbents? Perhaps not—a more likely route is by partnering with insurers. Insurers are experts in managing risk and understanding regulation, and can help tech companies add insurance to the other products and services that they offer.

For insurers, there’s tremendous potential in partnering with e-commerce businesses. E-commerce businesses such as Amazon, Airbnb, and WeWork have valuable relationships with their clients. Additionally, the societal changes these organizations are driving are fundamentally changing the risks individuals need to insure.

Such companies know so much about their customers and their lifestyle choices, for example, that they can potentially distribute the most complementary insurance services and products that add to their offerings.

It’s easy for an online retailer like Amazon to spot when a customer has had a life-changing event such as starting a family, for example. In that context, being the marketing arm for an insurer makes perfect sense.

Toward a more resilient society

Isaacson said big advances in society are usually the result of more than one big innovation arising at the same time and someone bringing them together.

He cited how Henry Ford figured out how to mass produce cars at the same time as advances were taking place in oil extraction, leading to the creation of a suburban middle class in the United States.

Society’s relationship with the insurance industry could be transformed in a similar way, with e-commerce acting as a conduit to greater insurance penetration everywhere. In the end we all benefit, because greater insurance penetration means a more resilient society and a stronger economy.

But it’s up to insurers to embrace this new breed of business, rather than react with fear.

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