Why Insurance is the next industry to be disrupted, and what traditional insurance companies can do to keep up.
The insurance industry has been the laggard of the fintech revolution. But it’s not too surprising, since the very premise of insurance is minimizing risk for all involved parties. The ability for insurance companies to innovate or enter new markets is further hindered by responsible government regulations that mandate insurance companies keep a minimum amount of capital to be able to pay out large claims at any given time.
Insurance is supposed to be boring. That’s the point.
Imagine if a group of teenagers were challenging each other to risky dares but responsibly stated, “before I jump off this cliff into the ocean, let me quickly make sure my life insurance policy is buttoned down.” The dare would be ruined. Insurance keeps us safe.
And yet, technological change in finance and insurance is simply inevitable.
In 2015, insurance technology startups raised a combined $2.65 billion in funding. One of the standouts from this group includes Oscar, a truly impressive all-digital health insurance tech company that allows users to be boarded in minutes, search for doctors based on expertise and cost, and even be financially rewarded for walking and running more than usual (the app tracks your step count).
With a current valuation of approximately $3 billion and over 125,000 customers in just over 2 years, Oscar is aggressively ramping up to become a bona fide disruptor in the health insurance industry.
How exactly are they doing this? By making it really easy to sign up for, and use, health insurance.
Notice that every instance of users interacting with Oscar in the above demo video involves a smartphone. Disruptive insurance companies are meeting customers on their terms, on their devices. They are fundamentally customer-first companies.
But it’s not just health insurance that’s being disrupted.
P&C, life insurance, travel insurance, and auto insurance all have viable contenders with funding ranging from $2 million to $13 million.
Consider Metromile, the smart auto insurance app that charges users per mile driven. The app makes the most of every piece of data available, summarizing driver trips, speed, gas costs, parking location, decoding “check engine light” problems, and even allows drivers to contact mechanics. Their marketing revolves around “how to drive less and save!” ideas, further enforcing to customers that they want to serve them, not just take their money and hope they don’t get into an accident.
It doesn’t take a lot of digging into the insurance industry to realize that disruption of traditional insurance companies is not years away, but months. The pains of the traditional paper-based model are too keenly felt, and the new customer-centric digital platforms are too convenient and cost-effective for a complete overhaul of the insurance industry to not happen in a very short period of time.
The Square of Insurance
Square was a pioneer in fintech, plodding for years only to be met with derision from big payments companies who saw them as small-time players selling honey at the fair.
But like a true pioneer, they have slogged through a path that others can now run through. What took Square years to do will now take insurance companies months, in terms of market adoption. Savvy customers will say, “Oh, they’re the Square of Insurance”. They make it easy. They onboard customers fast. They’re digital-first. This is the new fintech standard.
What You Should Do About It
As with any disruptive innovation, disruption is never inevitable. Technological change is inevitable, but not disruption.
So how do you stop insurance tech companies from disrupting you? You beat them to the punch.
1) Feel the Pain
You deeply consider your customer pain points, where you can remove friction, and where you can make the business more efficient. You survey hundreds of current and prospective customers about what they would like to see, what they dislike most about your service, and how they would prefer to do business with you.
2) Survey the Land
You may be light years ahead of the competition in terms of market share and brand recognition. That’s good. But the very nature of being disrupted means you didn’t see it coming and you underestimated the competition. Be diligent in understanding who’s up and coming, and why.
3) Use Existing Technology
You partner with technology providers who can deliver on key customer complaints and back-office bottlenecks. Your processes need to be digital, fast, intuitive, and delightful in order to keep up. What needs will you address first? Digital customer onboarding? Using data to make better decisions?
4) Don’t Create a Frankenstein
While you need to partner with technology providers, frantically purchasing disparate systems will be your downfall eventually. If you’re looking to solve a particular problem, work with a vendor who can solve that entire problem, not just a piece of it. A Frankenstein solution will be difficult to iterate on, and a nightmare to tweak as industry standards change.
While once the laggard of technology innovation, insurance has risen up to become one of the most compelling and technologically advanced industries.
Traditional insurance companies need not fear insurance tech, but they do need to have a healthy respect for the innovations that are being developed, or they will find themselves being disrupted faster than expected. Remember: disruption isn’t inevitable, but technological change is. You don’t have to be one step ahead of the competition, you just have to offer an alternative to the fintech startup offering.