I remember the simpler days, not so long ago, of cuddling up on a frosty Friday night with a Blockbuster movie and a take-out pizza (double pepperoni, hold the pineapple). It was the first day that Titanic came out on video, and I had to fight for it. But that's a story for another day.
At the time, this was the-thing-to-do… put the kids to sleep and enjoy a cozy night at home. Who would’ve thought that we would witness the collapse of the movie mogul Blockbuster in our lifetime?
But they did, and we witnessed it. We had a front row seat, and popcorn.
Why? Was it because they didn’t have a great product? No, Hollywood has always turned out hit after hit that were worthy of a Friday night investment.
The chain store collapsed mainly because it didn’t keep up with the times.
Netflix and other streaming entertainment services such as Amazon Prime tapped into new digital markets and offered services to users that completely disrupted the home entertainment market.
No longer do movie-goers need to drive through the foul weather to browse available movies at the rental shop; now they can make their selection from the comfort of their couch.
The insurance industry, long considered to be antiquated and out-of-touch with modern technology, is ripe for a similar upset.
For many, insurance is associated with poor customer satisfaction and limited technological innovation. But in this age of swipes and clicks, change is inevitable.
The question is whether or not the industry will “seize the opportunity to reinvent their business models or stubbornly cling to the status quo," as Sam Friedman from TechCrunch eloquently stated.
Why are Companies Investing in an Outdated Insurance Industry?
When trying to predict success in any market, sometimes the best advice is to “follow the money.” Where are investors pouring their money? What do they know that the rest of us can’t see yet?
The last few years have seen a massive investment in insurance technology. According to researcher CB Insights, funding in firms developing technology solutions for the insurance industry tripled in volume between 2014 and 2015, effectively reaching US$2.65 billion.
So, why are investors pouring so much into this outdated industry? Here are some of the prevailing factors:
- The insurance industry is a MASSIVE market with annual premium revenue of approximately $5 trillion and close to $15 trillion in assets under management.
- For the past 300 years, the insurance industry has been characterized by strong conservative policies and has seen little change. There is a world of opportunity available to new and innovative companies to the market.
- There is a huge untapped market of people, especially among millennials and low-income earners who don’t buy insurance products and services… yet.
- Recent deregulation and other changes in the U.S. and Europe have opened new opportunities for insurance providers.
However, the most widespread reason for the influx of investment is that there is a critical shortfall in technology in the insurance industry.
Insurance providers are grossly behind other sectors in their investment in technology, and investors can SEE those opportunities and are jumping at the chance to fill the void.
This is an opportunity for insurance providers, just don't pull a 'blockbuster.'
Insurance Industry: A Netflix Moment
1. There is a big disconnect between insurers and customers
In today’s busy society, and because of changing modes of communication, it’s becoming less common to see face-to-face appointments between insurer and customer.
Not only is it more expensive to handle clients through a live agent, but millennials want convenience, and few of them have any interest in meeting in person. Talk on the phone you ask? Yuck! That's so 1995.
Millennials, and Generation Z, are much more likely to buy insurance through digital sources.
2. Aggregator websites
This new environment is the perfect soil in which to birth aggregator sites such as PolicyGenius.
These tech startups are not new to the insurance scene, allowing consumers to compare prices from many different insurance providers on their computer or mobile device.
And, although 50% of their prospects are millennials who naturally prefer digital mediums, nearly 20% of the company’s users are actually Baby Boomers. PolicyGenius is making a remarkable impact with older demographics.
“If you’re able to demystify the insurance process — or even create a better insurance experience — you open yourself up to a huge audience, hungry for someone to make sense of it all.” - Tx Zhuo, Entrepreneur.com
3. Smartphone technology has changed the game
Connectivity is the biggest change in this new digital environment. Devices, people, and properties are all becoming more inter-dependent. This new reality some have aptly termed the 'internet of things.' More on this later.
For example, devices installed in vehicles and an app downloaded to the driver’s smartphone are providing telematic monitoring of a driver’s performance. The result has been the rise in usage-based auto insurance (UBI) whereby drivers can be rewarded or penalized based on their driving practices.
4. New sensing technologies
Taking this a step further, manufacturers are also developing new sensing technologies for vehicles that can prevent speeding, driving out of lanes, and invariably help drivers avoid collisions.
Better performance not only reduces the number of accidents each year but also results in lower insurance premiums.
5. The Internet of Things (IoT) movement
Connectivity-related disruptions are not limited to the auto insurance sector. Using “smart” technology in homes and businesses, the IoT movement is giving owners and insurers the opportunity to remotely watch over residential and commercial properties.
It won’t be long before the life insurance sector is also able to tap into the technology, using telematics and remote monitoring to offer discounts or rewards based on healthy lifestyles.
The famous saying, "the future is now," seems to be very true in this case.
Although there is understandable concern over security and privacy issues, there is a general understanding that “Insurers need modern data-driven analytics to better understand their customers.”
6. Robo-Advisers aren’t just for the movies at Blockbuster
Again, because of our changing society and the fact that more people prefer convenience, there is a significant expansion of robo-advisers across the industry.
For the insurance industry, this illustrates the growing trend toward a convenience consumer mentality. This has important implications for everyone.
7. Rapid growth in Fintech Investments
There is a growing attitude among insurance providers that “If you can’t beat ‘em, buy ‘em.”
As a result, we are witnessing a massive influx of funding for insurance technology.
“In an industry not generally known for innovation, insurers have already begun making strategic fintech investments to import cutting-edge capabilities.” - Sam Friedman, TechCrunch
Dying, Surviving or Thriving
So, in light of these massive shifts in the insurance industry and the foreboding predictions of mass disruption in the near future, insurance carriers have three strategic options:
- They can sit back and wait (joining the ranks of other outdated giants like Blockbuster who were too slow to embrace change).
- They can evolve their business models, seek out alliances – and SURVIVE. This would involve developing an “optimization culture” in which insurance carriers focus on their strengths and take leadership in a certain area of the market.
- Or they can revolutionize their business models, prevail over disruptive companies – and THRIVE.
This is the most determined option in which companies develop an “innovation culture,” and develop innovative products that are easy to understand and attractive to their changing market.
This means completely reinventing their business models and holding disruptive companies at bay.
Which option will you choose? Check out our Insurance Solutions for more info on how WeGoLook can supplement and augment your workforce.