Our industry was built to bring stability to those times and events in life where instability can make life difficult. If you lose your home to fire, your insurer is your stability. If you lose your life or become disabled, your family receives some stability from your future planning with an insurer.
But where is the insurance for insurers? When the insurance industry faces periods of instability, our stability and our “insurance” must be found in innovation and transformation. To continue to offer stability, insurers must be willing to risk a little and step into those places where individuals and businesses have risk. We must create value and stability at the point of need, connecting with customers in the ways in which they are accustomed to being connected.
The year 2020 will go down in history as a year that felt unstable. As we look back in history, however, at major crises and catastrophic events, such as the rise of COVID-19 in 2020, we see a relationship between instability and innovation in technology. Think about World War II, the 1970 oil crisis, 9/11, and the 2008 financial crisis. Out of every one of those catastrophic or major events arose fascinating and world-shifting technologies to better help us cope with the changing world.
Insurance is a part of this technological innovation. COVID-19, among other cultural, demographic and global pressures, is going to make insurance better and more relevant through the innovative application of technology — and we don’t just get to see it happen, we get to make it happen.
In my next two blogs we are going to cover some important ground. Today we are going to look at the trends that are emerging from COVID-19, including faster ecosystem development. Next week we will look at some real and insightful case studies on organizations that have chosen to build ecosystems and how they are seeing success.
COVID-19 isn’t happening within a vacuum. It is applying its pressure within the ongoing context of demographic and behavioral pressures that are driving innovation. We’ll take a look at the role that ecosystems will play in answering these pressures and then we’ll use the Fogg Behavior Model to explain why customers are engaging with ecosystems. We’ll end with a discussion on insurers choosing a role to play in the future of insurance.
People are still at the root of change in insurance
With COVID-19, we quickly found ourselves creating “new normals,” even if they are temporary. Students and instructors are meeting in virtual classrooms. Restaurants are expanding online ordering, outside dining, delivery options and curbside service. Grocery shoppers are also getting deliveries. Doctors are making virtual house calls, with telehealth replacing face-to-face. After this COVID phase passes, a “new” normal will replace our previous normal and THAT normal will not include traditional insurance as we once knew it.
For the last five years we’ve been tracking three macro-trends: people, technology, and market boundaries, but the most important one that is really fundamentally changing our industry and changing businesses across all Industries is people. We’ve examined customer demographics, customer behaviors and psychology. We have researched the new and different types of needs and risk because their behaviors are very different than what they were 20-30 years ago.
Everything we discuss and every way we transform must fundamentally consider a customer-oriented perspective within current insurance pressures. There is new competition. We have different types of channels and InsurTech. We have lots of maturing technology and the explosive growth of data. All of these side considerations are just going to feed into how we engage and interact with our customers going-forward and how we provide the types of products and services that they want, need and expect.
Let’s look at it from a generational perspective: Millennials, within one year, are going to overtake the Gen X and the Boomers as the dominant insurance buying “sweet spot” segment – people in the 30-60-year-old life stage. We’ve been talking about this for years and it is now here --- but are you ready?
Then in the next five years Gen Z joins them and at this point there will be a complete flip in the dominance of the demographics in our buying marketplace. The generational shift of buyers is really important because the Millennial generation grew up digitally, but the Gen Z individual was “born digital.” Just look at kids under 8 who knew intuitively at 1 or 2 how to swipe a smart phone or could order anything off Amazon – like my 3 year old grandson did!
If they see value in something, not only will they buy it…not only will they buy it online…but if they perceive it to be of value, they are willing to share their data in order to get it. THIS IS AN ENORMOUS SHIFT, BEGGING FOR A BIG CHANGE IN INSURANCE.
The pandemic has really heightened an understanding of that in the marketplace, in particular for the younger generation.
COVID pressures heighten the need for change
According to the NAIC, there was a surge in life insurance purchasing (79% increase) coming out of the Spanish Flu back in 1919. The very same thing, perhaps not to the same scale, will likely happen with individual life insurance, and also with employee voluntary benefits. There's an expected rise in demand for life insurance as a voluntary benefit and insurers will also create new types of products that will help during a furlough. That’s a group/voluntary surge that we can count on within this channel.
In March, Forbes had an article that stated that since January 2020 when the first indications of the pandemic where emerging, online life insurance sales increased 30-50% for companies with “speedy apps.” This would be an online surge due to digital accessibility tied to the online marketing channel. At the same time, interest in pay-as-you-drive auto insurance increased, reflecting our “shelter in place” focus.
Take away the statistics and we still have the anecdotal evidence that the insurance purchase and claims processes have to enable customers to accomplish their goals easily and contactless if possible. Insurers, agents and brokers need to have their tools upgraded to allow for the “doctor-like” telehealth model – only in this case it is the “tele-insurance” model. There is a theme that runs through every pressure point including the pandemic — online and digital vs. bricks and mortar. We saw bookstores disappearing when Amazon arrived. We saw taxis losing business when Uber arrived. Those that survived offered a multi-channel model of digital and traditional. If we don’t see face-to-face interactions declining now that virtual technologies are here, then we are walking blindly into the future.
Agents are still going to be important. They need, as much as anyone, a digital/virtual perspective where they can operate in multiple different channels depending on what they're doing at the time, what they have access to, and the type of product and customer that they are engaging with. Agents, perhaps more than anyone, will benefit from real-time data, dynamic pricing, lightning-fast underwriting and engagement tools that fit into their palms. COVID handed us a mandate to make the customer experience truly flexible and downright easy. What will it take for us to grab the baton and run with it?
The ecosystem is the foundation of the improved experience
Every once in a while, you have to stop and redefine a popular term, like ecosystem, in light of its industry use. It can get thrown around until it loses meaning or it becomes whatever someone wants it to mean. In the case of business ecosystems, the actual meaning has grown as ecosystems themselves have grown and added new capabilities and new opportunities.
Today’s meaning is something like, “a collection of technology, data and partners that are pulled together in order to expand the reach of a product or service, make tasks easier, create compelling customer experiences and unify common goals behind a common platform.” Even this definition may be constricting, but for now let’s consider how ecosystems fit the future of insurance and the future of the customer experience.
People are looking for ways to make their lives simpler. Apps are helpful, but we’re now overloaded with single-function apps and apps that aren’t fully developed. The next generation of customer experience is bigger and broader, and it requires an ecosystem of relationships and a different set of technologies that work together under one common platform. Companies are going to have to choose their roles in the development of these ecosystems. We’ll talk more about this in my next blog, but for now, consider that insurers have a choice on whether or not they are simply going to be product providers within an ecosystem that is developed outside of themselves or whether they want to own the customer relationship and set the standard for an ecosystem where they operate as the core.
Either way, both paths acknowledge that we can’t do everything within our four walls and we’re going to have to seek out other types of partners and relationships that will help us deliver the types of operating models and experiences and products that customers are going to want. The ecosystem will be at the center.
The Fogg model and why customers engage with ecosystems
Underpinning the research is a customer psychology model called the Fogg Behavior Model. The Fogg Behavior Model has been adopted by several InsurTech startups that have used it to rethink how to offer insurance and engage with customers in the marketplace.
There are three factors in the Fogg Behavior Model:
- Motivation — Why should customers want to buy?
- Ability — Is it easy to buy?
- Prompts — Is there a compelling reason or trigger to buy right this moment?
When you take these three factors into account, the business model will change to meet customer engagement needs. Can we place insurance at the point of the prompt? This may mean embedding insurance into a current process, such as Tesla, embedding insurance into the purchase of a vehicle. Can we make it available “on demand,” such as at the point where a person realizes that their property or their family is open to additional risk? There is a massive shift in the younger generation; those who are becoming insurance’s primary buyers. They are going to seek ways to buy insurance at the point of the prompt, when they are motivated, and when they recognize that the process is easy.
Often, to get these three factors into sync, it requires an ecosystem approach. Real-time underwriting data and form filling might come from one company, while real-time telemetric data might come from another. Yet another company might provide value-added services to round out an offering, while a core company, such as Majesco, might provide the platform foundation to bring it all together on the cloud.
The reason that the ecosystem is even more crucial to customer engagement is because the streamlined digital experience is the normal expectation of today’s customer, who has been dealing with Amazon, Apple, Google and Uber. Many insurance companies are unprepared for that level of expectation and yet Gen Z in 4 to 5 years is going to their primary buyer.
Next week, we’ll look closely at real ecosystems that are having real success. We’ll examine the hurdles they encountered and how they are dealing with them. We will also look at which ecosystems represent a competitive threat and which ecosystems contain elements that can be translated into the insurance customer experience. I hope you’ll join me. In the meantime, find out more in the Majesco white paper, “Insurance Digital Transformation: A New Era of Core Systems, Next Gen Technologies and Ecosystems.”