We are in the midst of the shift from the information age to the digital age, which is realigning fundamental elements of business that require major adjustments in order to thrive, let alone survive.
As we noted in our new report, Greenfields, Startups and InsurTech: Accelerating Digital Age Business Models, new Greenfield and startup competitors are rising from within and outside of every industry, including insurance, to capture the post-digital age business opportunities of the next generation of buyers. By shifting to meet the forces of change, these companies are positioning themselves to be the market leaders in the post-digital age. Those who do not make the shift, risk not only the loss of customers, but also market share and relevance in the coming new age of insurance.
Sometimes the next big thing isn't easy to spot. The disruption of the insurance industry is in the early days, so predictions are difficult. Will the new Greenfields and startups become the next market leaders? If history is a guide, the answer is yes … some will. Just consider Progressive and how many dismissed them early on. Now they are a top ten insurer in the US market. Or consider what has happened in other industries with companies who are defunct because they missed the shift:[i]
- Streaming video: Blockbuster failed to see this trend. They filed for bankruptcy in 2010 and Netflix is now worth over $61B.
- Mobile games: In 2011, the president of Nintendo North America suggested that mobile game apps were disposable from a consumer perspective. Today Pokemon Go has 65M users. Is that disposable?
- Apple iPhone: Former Microsoft CEO Steve Ballmer reportedly commented that the first Apple iPhone would not appeal to business customers because it did not have a keyboard and would not be a good email machine. Apple iPhone single-handedly disrupted and redefined multiple industries and continues to do so.
- Autonomous Vehicles: In 2015, Jaguar’s head of R&D stated that autonomous vehicles didn’t consider customers’ cargo. Since then, Jaguar Land Rover has invested $25M in Lyft to join the autonomous trend.
- On-premise enterprise software versus cloud-based SaaS platforms: In 2003, Thomas Siebel of Siebel Systems said Microsoft would roll over Salesforce in the CRM market. In 2005 Oracle acquired Siebel Systems for $5.85M. Salesforce’s market cap, in contrast, is over $60B.
Insurance Industry Change and Disruption
At no time in the history of insurance can we find as many game-changing events and a rapid pace of ongoing advancement occurring at the same time. At the forefront is the increased momentum for InsurTech, and the Greenfields and startups within, creating high levels of activity, excitement and concern on the promise and potential of insurance disruption and reinvention.
When you add it all up, the insurance industry has many characteristics that make it an attractive target for aggressive investments in innovation. First, its size is enormous – based on industry data it is estimated that premiums written are over $4.7 trillion globally. Second, it faces multiple challenges that offer opportunities for exploitation by nimble, efficient and innovative competitors.
InsurTech advancements and the forces of change see no significant slowdown. The momentum for change that has been building is unstoppable. Industry advancements, cultural trends and IT reactions are gaining speed as they gain strength and a framework for stability and growth. It is pushing a sometimes slow-to-adapt industry by challenging the traditional business assumptions, operations, processes and products, highlighting two distinctively different business models: 1) a pre-digital age model of the past 50+ years based on the business assumptions, products, processes, and channels of the Silent and Baby Boomer generations and 2) a post-digital age model focused on the next generation including the Millennials and Gen Z, as well as many in Gen X.
Greenfield and Startups Make the Boardroom Agenda
The market landscape is rapidly changing. During 2016, there were 170 new startups being tracked by Coverager with 8 new insurers and 70 intermediaries, many of them MGAs, along with enablers who are primarily data or technology solution companies. Lemonade launched. Metromile decided to become a full stack insurer, leaving their MGA days behind. New MGAs entered the picture including Slice, TROV, Quilt, Hippo and Figo Pet Insurance, to name a few. Existing insurers made market debuts with new startups including Shelter’s Say Insurance with auto insurance for millennials, biBerk from Berkshire Hathaway for direct small commercial lines, and Sonnet Insurance as the digital brand from Economical Insurance in Canada, among others.
Add to this the projected shrinking of insurable risk pools due to the emergence of autonomous vehicles, connected homes, wearables and the domino effect of these on other industries, and it’s not hard to imagine a future with traditional carriers fighting over a much smaller pool of customers where only the most efficient, effective and innovative will survive.
As a result, discussion surrounding Greenfields, startups and InsurTech moved into the board room of every insurer and reinsurer, trying to understand how to leverage the shift to the digital age and develop strategies and plans to respond. Yet, some insurers have a blind spot in recognizing the competition both from outside and within the industry, and the critical need to begin planning a new post-digital age business model. The result is a growing gap between knowing, planning and doing among leaders and fast followers or laggards, which is rapidly becoming unsurmountable due to the pace of change.
Closing the Gap with Greenfield and Startup Business Models
Assuming that most insurers grasp the need for a Greenfield and startup mentality to grow, what remains is to aim all efforts toward accomplishing an organizational shift. How do you move your company from the pre-digital age to the post-digital age and close the gap?
It requires leadership to build consensus. It requires vision to aim in the most market-ready direction. And it requires a new business paradigm that will allow for change. We must redefine and re-envision insurance to enable growth and remain competitive.
While many have made progress in replacing legacy systems and traditional business processes, this is not enough. These systems, while modern, were built around pre-digital age business assumptions and models, not to support the range of needs in a post-digital age model driven by a new generation of customers. Like other industries, today’s insurance startups and Greenfields need and want options that do not require investment in significant infrastructure or upfront costs and therefore seek a cloud business platform solution to maximize options and minimize costs and capital outlay.
A modern cloud business platform provides an advantage for Greenfields and startups, breaking down traditional boundaries, IT constraints and age-old business assumptions about doing business, while building up the ability to rapidly develop and launch new products and services. The platform is a robust set of technology, mobile, digital, data and core capabilities in the cloud with an ecosystem of innovative partners (many InsurTech technology startups) that provides the ability to launch and grow a business rapidly and cost effectively.
Will established insurers suffer at the hands of tech-savvy, culture-savvy competition? Some may, but only if they allow themselves to. There will be constant pressure from Greenfields and startups to out-do each other in the race to better meet the needs and demands of a new generation of buyers in a post-digital age for insurance.
For traditional insurance companies, the need to re-invent and transform the business is no longer a matter of if, but of when. Insurance leaders should ask themselves: Do we have a strategy that considers transformation of both the legacy business and creation of a new business for the future? Who are our future customers and what will they demand? Who are our emerging new competitors? Where are we focusing our resources…on the business or on the infrastructure?
A new generation of insurance buyers with new needs and expectations creates both a challenge and an opportunity that a Greenfield and startup business model can capitalize upon to incubate, launch and grow. The time for plans, preparation, and execution is now — recognizing that the gap is widening and the timeframe to respond is closing.
[i] Rapier, Graham, “13 times bosses mocked new technology and got it wrong,” BusinessInsider.com, June 15, 2017, http://www.businessinsider.com/bosses-mocked-new-technologyand-got-it-wrong-2017-6/