The beginning of a new year is often a time of retrospection of the past and a time to think and plan the future. It is also a time to celebrate what has been happening. Insurance is in full-scale party mode — like a bash that didn’t shut down, but just kept growing. For those of us in the insurance industry, this is real excitement. Where is this party going?
It is an unprecedented time for insurance. The industry is facing its disruption head on, just like banking, retail, travel, music and so many others. The opportunity for changing the industry is so compelling that recent institutional and strategic investment is reported to now exceed $22 billion, representing over 1,500 start-up companies in the phenomenon that we now call InsurTech. And the pace is not slowing down. How fast has the change been? How fast will it continue?
Looking Back – A Retrospective
Let’s look at how this party started. When you look back, the signs of disruption were there, slowly building to a dramatic market shift.
The buildup included the introduction of the Apple iPhone in 2007, then the rapid adoption of emerging technologies like IoT, drones, AI, autonomous vehicles and wearables. We witnessed the emergence of the Sharing and Gig economies with new digital-first businesses like Uber, Lyft, Airbnb and others. We were struck by the news of the AXA and Facebook partnership, then intrigued and amused (perhaps relieved?) by Google’s announcement they were entering insurance and then leaving. The platform and API economy emerged with cloud, open APIs, microservices and ecosystems with Apple, Google, Uber, Alibaba, Amazon and others becoming some of the first “platform” companies. And most importantly, we watched how new customer demographics, needs and expectations would fuel the shift.
During this time, the insurance industry continued its path of modernizing their businesses focused on legacy replacement with on-premise core systems that were multi-year, multi-million-dollar initiatives. In most cases, modernization focused on automating and optimizing the current business to ease internal insurance pressure points for processes such as operational costs, claims and underwriting that provide financial returns.
And then the dramatic market shift began with the emergence of InsurTech in late 2014 and early 2015. The shift started slow, gaining momentum by mid-2016 that nearly put the entire insurance software buying cycle on pause as insurers tried to figure out what InsurTech meant, if it was a “fad,” and what the implications were for their businesses today and in the future. Was this party going to last?
Foundational and fundamental elements of the insurance business began to rapidly change through the growth of InsurTech startups. They arrived at the party from all over the industry map, each with a different background and an original focus. We could broadly place them into different startup categories, such as insurance startups, MGAs, technology and data startups, but they all shared one trait — they envisioned a different future for insurance. This future would align to shifting customer demands, leverage new technologies and challenge long-held insurance business assumptions, focusing on external customer pressure points across the value chain through product innovation such as price, ease of access, engagement and un- or under-served markets.
In mid-2016 we began to see signs of this new future with the emergence of new channel startups like Ask Kodiak, Denim, Insurance Menu, and Compare.com and the launch of new technology and data startups like Hazard Hub, Lapetus, DropIn, Elafris, and Data Robot. But the momentum accelerated with the announcements and launch of new insurers or MGAs like Lemonade, Slice, Haven Life, Ladder Life, ZhongAn, Root Insurance, Trov and more … many of the first wave of insurance “platform” companies. In just a few years, ZhongAn and Root Insurance are now considered the first “unicorn” startup insurers with valuations over $1 billion.
In the same timeframe, between 2016 and 2018, InsureTech Connect grew from 1,500 attendees to over 6,000 attendees. It was a physical representation of the industry party that had been growing all along. The proof was in the building. CEOs could look at each other and say, “If you’re here and I’m here, then InsurTech is no fad. Insurance disruption is in full swing and we’re doing something about it.”
Looking Forward – A Future View
So, where is the party headed? While the insurance business model has been resilient over many decades, the emergence of the Digital Age and the first wave of disruption via InsurTech is highlighting the challenges and opportunities with every aspect being redefined within the context of a new future, Digital Insurance 2.0. And it is just the start. Tremendous changes are still on the horizon.
As we enter 2019, Digital Insurance 2.0 is intensifying and shifting. Traditional insurers, reinsurers, brokers and MGAs are increasingly investing in startups, developing their own greenfields, creating new and innovative products, establishing robust ecosystems, and targeting new market segments for un- or under-served customers. Companies embarking on Digital Insurance 2.0 business models are now focused on digital cloud-based platform capabilities and ecosystems.
As a result, insurers are increasingly shifting their focus from modernization to building new business models based on a new flexible, digital, cloud-based technology platform and ecosystem to capture the tremendous value in terms of the growth and innovation by exploiting untapped markets, addressing under- or unmet needs, creating minimum viable products in rapid time, and strengthening customer relationships. And they are doing so in a few weeks and months, rather than years. We see traditional insurance companies of all sizes and segments like Mass Mutual, CopperPoint, American Family, State Farm, Heritage Insurance, Shelter Insurance, XL Catlin, and Munich Re are learning from InsurTech startups and leading the way to Digital Insurance 2.0. And many more are preparing plans for 2019 to stake their claim to a new future of insurance.
They are recognizing that in the age of Digital Insurance 2.0, market leadership and success will be defined by focusing on the customer experience, business innovation, technological leadership, and rich ecosystems that extend value and speed to value. To accomplish this shift, they must allocate or reallocate resources --- people and capital --- to move them rapidly forward to Digital Insurance 2.0. Recognizing the necessity of these industry-wide innovations for the future of insurance, A.M. Best has indicated that they will be reviewing their methodology to consider explicitly including innovation in the rating process.[i]
Digital Insurance 2.0 is just the beginning. Change and disruption are constant and will continue to accelerate, compressing the time between major shifts. What is the next shift and when will it occur? I was recently asked that question. I suggested it would be the use of blockchain within the next 3-5 years because it has the power to once again disrupt and change insurance industry assumptions, models, processes, data use and products … shifting the industry to Insurance 3.0.
Enter a Dual Lane Strategy
The rapid pace of change, disruption and transformation unfolding in insurance demands a dual lane strategy for insurers. They must maintain and optimize their existing business in the current “slow lane” while at the same time creating a new business that enters the “fast lane,” providing a path and the momentum needed to propel them to the future as each shift emerges.
What Insurance 3.0 will be is yet to be seen. But insurers with an outdated Insurance 1.0 business model and technology infrastructure — living life in the slow lane — are increasingly at a huge disadvantage. More importantly, for insurers still in Insurance 1.0 to get from where they are to Insurance 3.0 will require facing insurmountable obstacles and unrealistic timeframes in order to stay competitive. They are putting themselves at risk.
The demands of agility, speed and innovation are dramatically different as we enter 2019 than they were in 2015. Just think …
It took 7-8 years from the start of the Digital Age in 2007, with the introduction of the Apple iPhone, for Insurance 1.0 to witness the emergence of InsurTech, and with that only 3-4 years to see the shift to Digital Insurance 2.0! Will you be ready for Insurance 3.0 and the future of insurance?
If you are in the midst of these decisions or you are worried that your company may be missing out on the insurance industry’s “party of the century,” Majesco has the cloud solutions, experience and thought-leadership that is your team’s ticket to entry. For an insider’s look at the growth of InsurTech, be sure to read InsurTech: Energizing the Shift to Digital Insurance 2.0 or download Greenfields and Startups: Accelerating and Paving the Path to Digital Insurance 2.0.
[i] Insurers Agree Innovation Is Critical for Future Success, A.M. Best Company, Inc., September 24, 2018