The last will be first, and the first will be last:tension in the InsurTech entrant and incumbency environment

entrants and incumbents

 

 

Funny how things can change- one week riding the funding train, next week sitting in the startup exit car.  Skinny jeans, Vans and untucked shirts change into a wardrobe that has a descriptor- business casual.  Same idea in start-up accounting- paid in option value becomes the eagle flying twice a month and performance bonuses.  Evolving from a role that suggests you handle all tasks to the paint drying on the corner cubicle placard that reads, “Chief Marketing Officer.”  Startup to post-IPO organization, and in time-incumbency. Welcome to quarterly reports and silo culture.  All the same customers, however.

An unexpected tension exists between insurance start-up culture with the unicorn hunt, and the cash flush, ‘we are happy with a combined ratio under 100’ culture of the incumbents- the status of industry legitimacy is pursued but once gained is treated like being in the clique the other players deride.  It’s clear that much of insurance innovation is founded in the existing industry being seen as an unresponsive, callous, cash grabbing, seldom paying monolith.  A product that is sold, seldom bought, with businesses that hide behind clever spokespersons to craft a façade of ‘hip’.

And the legacy monolith?  Always comfortable riding a train of convention.  Think of it- incumbent carriers know the route they traverse, little option to change the route because the route is like a rail track.  Hook up the cars, open the throttle of written premiums, hope there aren’t unexpected steep grades that might depress the profitable results of the trip.  Not that incumbents don’t occasionally start a string of cars that take a new path, but seldom does the main string of cars slow to allow connection of the cars that tried the new path.

Consider the recent comments cited from the Financial Times attributed to UK-based insurer, Aviva’s former CEO, Mark Wilson:

“(Aviva) took space in an old garage in London’s Hoxton Square to house the digital projects that he believed would transform the insurance company. The idea was that, away from the actuaries and the bureaucrats at head office, trendy millennials with coding skills could let their creativity loose and turn Aviva into an insurer fit for the future.” 

Not waiting for that parallel-running train to catch speed, the current CEO for the firm, Maurice Tulloch, suggests the firm’s course remains upon the main track, “and (Aviva) is set to take a more hard-nosed look at the garage and the projects that are housed there.”  Seemingly not patient enough for results to take hold, and in probability a disconnect between the ‘garage’ and the existing culture.

Even the Street is discouraging alternate routs for the insurance incumbent. From the same article is found:

“Huge amounts of money were being invested (at Aviva) and it looks like it got out of control,” said Barrie Cornes, analyst at Panmure Gordon. “Reining it in is the right thing to do. They need to look at the costs and it wouldn’t surprise me if they looked to cut some of the expense,” he added.  Looks like?  Based on what?

It was controversial how much he talked about it. He said that pulling back some of the digital investments could add 5 percent a year to Aviva’s earnings per share. Few people expect the garage to close, at least in the short term. Aviva is not the only insurance company to sharpen the focus of its tech investments in recent years.  (thanks, Graham Spriggs for the share of the article)

Five percent per year additional profit by reining in the firm’s potential future.  Huh.   If “All the Insurance Players will be InsurTech”, by InsurTech influencer, Matteo Carbone voices the insurance industry’s future, a five percent savings to the bottom line might be better spent on maintaining competitive advantage by leveraging tech and process innovation.  It’s that tension between quarterly expectations and seeing down the road.

Along the same line, incumbents that take the path of innovation often stray from the InsurTech digital path when results aren’t immediate.  A key player in the US P&C market that touts itself as a data company has initiated many digital service changes; same company however reaches for the analog diagnosis methods when unexpected (read as not positive) results are experienced.  Digital/AI innovations should be addressed using the same AI if there’s to be an effective feedback loop, right?  Not if the quarterly results demon is waiting.   No naming names because all are guilty of the method- it’s too hard to change right away.

A recent announcement by Lemonade regarding the firm considering exercising an IPO, further exemplifies how a poster-child insurance start-up may migrate to insurance ‘legitimacy’, and potentially step aside from its game theory approach to serving customer needs.  The very basis of the firm’s leading principle supporting its charitable giving approach to claim handling/premiums, the Ulysses Contract, may be preempted post-IPO by the quarterly ratio chase and Daniel Schreiber’s hands will be tied no more, and will become available to take the cash or craft the next opportunity.  The firm has traveled far from the day where the first seventy renters’ policies were observed rolling in through the company website.

Not that there aren’t innovating companies/startups that have either migrated to conventional insurance forms through investment exit or by IPO- see German Family Insurance-Deutsche-Familienversicherung, the first European InsurTech IPO, or firms that have made effective partnerships with incumbent carriers, e.g., Lucep PTE that forged an effective working basis with MetLife Portugal .  Each of those firms found effective ways to bridge the perceived gap between innovation and incumbency.

It just doesn’t matter which insurance route your organization is following- incumbent or entrant, each customer is dear, all firms need to act with a sense of customer service urgency.  Today’s startup chasing seed money is next year’s IPO, and in quick time an incumbent that even newer entrants are focused on disrupting.  And there’s no reason skinny jeans can’t be worn at one’s corner cubicle while the wearer peruses the corporate 10-Q or ECOFIN dictates.

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Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

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Collaboration, not Confrontation for InsurTech- an Ides of March Warning No Longer Needed for Incumbents

It wasn’t long ago that the figurative tools of InsurTech were being sharpened against imperious legacy insurance.  In contrast to plans however, effecting insurance change has been found to be significantly more nuanced an effort than that which was foretold to occur within the Roman Senate on the Ides of March.  And, as with the limited effects of the Ides on the crowds in the Forum, InsurTech change to date has been primarily a focus within the inner sanctum of insurance that has remained transparent to its customers- and their perception of the industry. 

As noted in my last column, InsurTech has proven its worth in theory, and in many ways in practice – developing innovative methods that allow more efficient operations, devising effective methods to underwrite, distribute, engage, sell, service and retain customers and staff.  Very cool – but have the innovation efforts had an effect where they need to, customer satisfaction?  And, are there indications that InsurTech-founded carriers are economically viable?

There are two primary lines of insurance business to consider regarding customers’ response to InsurTech’s effects:

  1. New business lines, ostensibly where new business methods are simply the only business methods the customers know.  Innovation is simply part of the customers’ experience.
  2. Incumbent/legacy business that has in some part been changed in the service provided to the customers.  This could be back office changes, underwriting, distribution, sales, claims, after-sale service, etc.

New business lines

There have been many entrants to multiple lines of insurance since the advent of the ‘InsurTech’ initiative, in essentially all major markets around the globe.  There are carriers with explosive growth involving tens to hundreds of millions of customers such as Zhong An , a China market startup whose customers have voted their initial satisfaction with their overwhelming participation in the carrier’s ecosystem approach.  Other markets have seen the advent of online auto (motor), renters’ and homeowners’ options, including owner usage-based auto provider Root Insurance , behavioral economics/charitable giveback player Lemonade, proactive homeowners carrier Hippo, and German health insurance ‘hybrid’ start up,  DFV_AG (incumbent with a clever tech solution for claims).  In each case the firms’ primary customers are in majority digital ‘natives’ whose expectations for performance are not colored by legacy operations’ processes.  In great part these firms’ customer experiences comprise not much more than a few written premium/earned premium cycles.  Considering that, traditional financial success has been a difficult measure  (see assessment work by Adrian Jones and Matteo Carbone,  e.g., mo-premium-losses-insurtech-start-ups-get-big )  and service satisfaction is in great part solely the success of getting customers to pay the premiums.  Niche carriers such as Dinghy Insurance (cover for freelancers), or Pineapple  (peer to peer personal effects cover) are endorsed by participants as being just the right unique item for the respective policyholders.  Satisfaction by default.

Incumbent/Legacy Business

Global insurance companies have been present in some form for three hundred years (and certainly risk management has been a principle since the days of Hammurabi, and since things have changed a least a little since 1750 B.C.); it can be said that societal innovation carried risk management along for the ride and insurance customers have at least begrudgingly maintained satisfaction with the purpose of the industry during the ensuing 3750 years. 

So what about innovation/InsurTech being the dramatic industry change since 2015-16?  Have customers embraced and celebrated all the wondrous technical and process improvements that have burst forth from the slide decks of very smart InsurTech folks?  It sure is hard to tell.

Not all markets and lines of business solicit and/or maintain customer service responses from their insurance customers, so customer satisfaction changes due to InsurTech advances are not much easier to gauge for incumbents as would be for new entrants.  Certainly the P&C markets within the U.S. have more than one authority capturing customer service tendencies:  J.D. Power is a recognized provider of service data, and Clearsurance  (an InsurTech firm in its own right) is an online aggregater of customer service responses.  But can survey tendencies be attributed to tech innovation?

A review of J.D.Power auto insurance customer survey data from 2016  and 2018 find the top players remain at or near the top, that the industry average satisfaction has increased a little, and that the 2018 customers voice approval of having multi-channel access to their policies/carriers.  No overt celebration of tech advances but some tech mention is worth something.  There has not been a wholesale abandonment of incumbent carriers within the US as the top-ten carriers’ market share in 2016 (71%) and 2018 (72%) has changed little (http://www.naic.org). 

Continuing the discussion to Homeowners carriers, J.D. Power data for 2016  and  2018 find some customer tendencies being noted across the two year period, but no actionable changes that can be attributed in the majority to innovation/InsurTech.

As for customer satisfaction data for other global markets- it’s difficult to obtain comprehensive results for insurance lines across national borders, and unified markets such as in India and China do not yet have the tradition of longitudinal study of customer survey data.  It can be suggested as those markets ‘homogenize’ with influx of firms that are outside the domestic current growth there may be cross-pollination of survey habits.  And in terms of health insurance surveys, the mix of national health programs, private programs, national programs for select portions of populations, it’s an apples and pomegranates situation for customer sat information.  As for life products, annuities, etc.- efforts to collect those tendencies mirror the efforts the industry has held for a while – a little underwhelming from the customers’ perspective.

After a lot of blah, blah, blah, it’s difficult to say that InsurTech is a concept that insurance customers embrace as a reason to buy insurance, change who they buy from, or give warm, fuzzy feelings about the product, any more than the change from cuneiform text to Roman/Greek to Arabic writing changed the industry.  The overarching point- InsurTech has awakened initiatives that are blending many digital and tech methodologies with finance and insurance, e.g., API integration (thanks, Karl Heinz Passler) but not on a seismic, customer based level- yet.  Give the industry a generation and the customers will force the issue by default acceptance of societal tendencies.

Until that wave of change occurs, insurance innovators can better effect change through sharpening skills in understanding what customers indicate they need, innovating from the needs of the figurative forum-first- and helping the firms that hold the bulk of the public’s business- the legacy players- avoid the need to be warned of an Ides of March initiative.  InsurTechs might even find that in collaboration there are profits to be made.

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Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

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Insurtech Front Page Weekly CXO Briefing – Incumbents on customer engagement

Service Satisfaction Indicator

The Theme last week was InsurTech Upstarts at the Gate.

The Theme this week is incumbents exploring better customer engagement. Customer engagement can be improved with the combination of technologies and a human touch.

For more about the Front Page Weekly CXO Briefing, please click here.

Incumbents embracing InsurTech is a common theme in our posts. This time, it’s about customer engagement.

Story 1: Humania Assurance Launches 5575

Extract, read more on Coverage:

“Humania Assurance has introduced a new portfolio of online health insurance products tailored for Canadians aged 55 to 75 years old.

“When retiring and leaving their workplace, this population loses its group insurance advantages. It is then difficult for these people to cover all expenses relating to their health. This portfolio of products will allow them to reduce their financial stress and focus on taking care of their recovery.” – VP Sales and Marketing, Kim Oliphant.”

A gentle gesture to care for the elderly. Efficiency can be improved by technology, but the warmth of insurance still need to be delivered with a human touch.

Story 2: Chubb Life Launches New Digital Platform to Enhance Customer Experience

Extract, read more on Chubb media room:

“Chubb Life Insurance Indonesia (Chubb Life) has today launched an online platform called Chubb Life Customer Corner as part of its ongoing commitment to putting customers first and providing them with the best customer experience, anywhere and anytime.

Kumaran Chinan, Chubb Life COO said, ‘We are proud to launch the Chubb Life Customer Corner which will make it faster and more convenient for our customers to access important policy information, including the latest claims information, anywhere and anytime they choose to.’”

Insurance penetration rate is still low in Indonesia, and the Internet-savvy youths will soon become a major purchasing force of life insurance in next 5 years. Selling it in a digital way can help Chubb become the first insurer for many young users in Indonesia.

Story 3: Aviva aims to disrupt the market with new subscription-style product

Extract, read more on Insurance Age:

“Aviva has launched a subscription-style insurance product, which it said was designed to address consumer concerns with the industry such as dual pricing.

AvivaPlus is initially a direct product, which the provider stated offers flexible cover, monthly payments with no APR, no charges to cancel or change the policy and a renewal price guarantee.

It is available for home and car insurance, but Aviva noted that it was looking to extend it to more product lines in the future.”

Dual price happens when there is a lack of direct channels. Technology certainly can play a big role in building channels.

Engagement is about building trusts. By caring for the elderly, launching online platforms and addressing information asymmetry, incumbents are making friendly gestures.

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Zarc Gin is an analyst for Warp Speed Fintech, a Fintech, especially InsurTech-focused Venture Capital based in China.

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