One of the most famous movie scenes in Hollywood history involves a trash compactor. In Star Wars: A New Hope, Luke Skywalker, Princess Leia and Han Solo find that their only route for escape is actually a dead end. They jump into a giant trash compactor and within moments, the walls begin to close in on them.
Incumbent insurers may be familiar with this feeling and if they aren’t, they soon will be. Slowly, but surely, the walls are closing in. Once-thriving carriers are being confined and compacted by their 30+ year-old business and operating models. They are constricted by an inability to reach new and existing customers as well as underserved or unserved markets. They are competing with InsurTech startup and other incumbent greenfield models that are creating new products (beyond just coverage and price) to include the experience, new services and more, making the overall experience easier and more relevant to each customer. And they are doing this with a new cloud business platform that enables rapid and flexible test and learn environments that adapt to the market. It is about speed to value.
We compare these models by defining them as Insurance 1.0 and Digital Insurance 2.0. Within Insurance 1.0, traditional systems (often modern but in an on-premise mode), products and processes are still in use — and in many cases are effectively managing the current business model. The Digital Insurance 2.0 insurer, however, recognizes the need to create new models to reach new markets and a new generation of buyers who have very different needs and expectations. Trying to overlay the new model on the existing does not work … as it sub-optimizes both and does not move the organization to Digital Insurance 2.0. Increasingly, incumbent insurers are setting up greenfield developments that operate independently, outside of the original model, fostering a two-speed transformation that will gradually relieve the pressure of the compactor environment and release the insurer from many of its constraints.
To effectively portray the nature of market pressures, and to capture a snapshot of how Startups and Greenfields are responding, we recently published an informative report, Greenfields and Start-ups: Accelerating and Paving the Path to Digital Insurance 2.0. Within the report, we discuss, among other things, the very real and practical nature of the barriers that stand between insurers and customers. Which customer barriers will fall and what routes should we take to transition to Digital Insurance 2.0 models?
What are the barriers to purchase?
Insurance purchase barriers are similar to purchase barriers in any other industry. Customers ask the same basic questions. Do I need this? Do I want this? Is this process a headache or is it easy to purchase? Do I have something else that covers me? Does it seem like a good value for my purchase price? The barriers to purchase fall loosely into these categories:
- Process complexity
- Relevance of product
- Outside pressures and financial priorities
- Product complexity, lack of understanding
The greenfield opportunities that will address these barriers clearly vary among insurers, lines of business and customer needs and expectations, but every insurer needs to wrestle with how their customer journeys erase the negative stigmas and offer triggers that make it easy to purchase. The barriers are starkly clearer through industry statistics.
LIMRA’s 2017 Insurance Barometer study, found that 70% of consumers agree they need life insurance, but only 59% actually have it.[i] Furthermore, 30% of those who have it only have group insurance through their employer, resulting in 41% actually owning a life insurance policy they purchased individually. Need for this discretionary product is good, but not strong enough to motivate and encourage broader ownership due to perceived purchasing barriers.
The Insurance Information Institute cites a 2016 study that estimated only 41% of renters had renters insurance, although this is a significant improvement over the 29% reported when the survey was first conducted in 2011.[ii] Given its very low average cost (about $16/month) it is presumed that lack of understanding the need and value is more of a purchase barrier than cost. For example, renters commonly underestimate the total value of one’s belongings or operate under the false assumption that they are covered by the landlord’s policy.
Estimates of cyber risk insurance penetration vary widely: a 2015 survey by Advisen estimated less than 3% of small businesses and about a quarter of the largest businesses had it;[iii] a 2016 survey by IDT911 reported that “75 percent do not have cyber insurance, or are unsure if their policy includes cyber protection.”[iv] However, most sources seem to agree that cyber coverage use is lower than it should be, given the rising threat cyber risk presents to all businesses. A 2017 survey sponsored by Hiscox identified a perceived lack of relevance and complexity of cyber insurance policies as two major barriers to purchasing cyber risk insurance.[v]
And these are just three of many examples of underserved markets that offer significant growth opportunities! Similar barriers can be found in other product lines, but also in new risks and needs such as annuities, group and voluntary products, ancillary personal property coverage (drones, boats, trailers, etc.), commercial property, shared property and ride-sharing. Insurance 1.0’s expansive customer-facing weaknesses that have contributed to its current state include, among others: product and process complexity; lack of immediate, tangible benefits for customers; and failure to keep pace with new digitally-driven behaviors that are creating new risks and expectations.
How will greenfield solutions address customer barriers?
Greenfield Digital Insurance 2.0 companies are flipping the Insurance 1.0 script, leveraging digital technologies and fresh thinking to overcome the weaknesses of Insurance 1.0 we just described. They are using an external focus on the customer and market and adapting the insurance business model to fit the evolving risk needs and expectations of how customers want to purchase, use and interact with insurance.
We suggest two approaches for developing your own greenfield concepts aimed at overcoming the weaknesses of Insurance 1.0.
Breaking down barriers: Approach #1 — Look at New Digital Attributes to Optimize your Current Customers and Business
The first approach, based on the findings from our 2017 primary research with consumers and SMBs, quantifies the appeal of 30 individual ideas – interaction methods, offerings, and more – from 6 customer journey stages across different generations and business size segments. For a look at these attributes, download the report and then review our Playbook reports for P&C and L&A and Group insurers.
These attributes, pulled from actual Digital Insurance 2.0 startups and greenfields, can be assembled in multiple, different configurations in early stage concept development.
So, for example, an insurer may recognize that it is losing more customers than anticipated during renewal and that those it commonly loses have had little-to-no interaction throughout the policy period. The insurer may determine that it can utilize digital attributes to offer new value-added services that enhance communication and experience or provide an easy way to renew via an engaging app.
Approach #2 — Study the Competition and Create a new Greenfield
The second approach is based on understanding and leveraging the experience of Digital Insurance 2.0 first-movers. First movers, even if they fall outside of direct competition, are often excellent models for brainstorming inspiration. The manner in which they have solved customer barrier issues can provide guidance on options of where to start. Observing first-movers will also turn up additional information that falls outside of digital attributes, such as how marketing, testing and rollout was accomplished and anticipated next steps.
Majesco is actively working with a range of InsurTech start-ups and incumbent greenfields to create their unique routes to Digital Insurance 2.0, leveraging our thought leadership, research and playbooks analyzed against the backdrop of the industry and its barriers and issues. In Majesco’s Greenfields and Start-ups report, you’ll find greenfield case studies for Say Insurance, Homesite, and Haven Life. These startups and greenfields are also analyzed against two frameworks that characterize Digital Insurance 2.0 business models and their impact on customer behaviors – and their ability to overcome the complexity and low motivation of the current Insurance 1.0 business model.
Addressing Your Customer Barriers
Is your organization feeling the pressure of customer purchase barriers and an industry shifting and on the move? Just as our Star Wars heroes received help from outside of the trash compactor to relieve their internal pressures, Majesco is actively stepping into the high-pressure environment with Digital Insurance 2.0 solutions that will provide relief and the freedom to grow. We’ll show you how your company’s greenfield initiatives may be closer than you think … and faster than you think … allowing you to create real speed to value.
[i] Finnie, Lauren, Leyes, Maggie, Scanlon, James, 2017 Insurance Barometer Study, LL Global, Inc., 2017
[ii] Facts + Statistics: Renters insurance, Insurance Information Institute, https://www.iii.org/fact-statistic/facts-statistics-renters-insurance
[iii] Bradford, Josh, “Advisen Insight: Cyber Insurance Market Update,” Advisen, June 2, 2016, http://crnfpn.advisen.com/fpnHomepagep.shtml?resource_id=2319826972222#top
[iv] “Majority of American Business Owners Unlikely to Pay Off Cybercriminals in Ransomware Attack, Yet Lack Resources to Overcome Attack,” IDT911 press release, June 21, 2016, https://www.prnewswire.com/news-releases/majority-of-american-business-owners-unlikely-to-pay-off-cybercriminals-in-ransomware-attack-yet-lack-resources-to-overcome-attack-300284388.html
[v] “Report: How Firms Rate on Cyber Readiness and Why Some Don’t Buy Coverage,” MyNewMarkets.com, May 3, 2017, https://www.mynewmarkets.com/articles/183001/report-firms-rate-cyber-readiness-dont-buy-coverage