Why insurers may struggle to transition from coverage to protection
We need to have an honest conversation about the state of insurance.
Annual results show a mixed bag of success. But whether insurers hit their quarterly numbers or not, it increasingly looks like a sector in trouble.
Trust is at an all-time low due to poor experience and the sector’s inability to meet consumer expectations. It feels like the real value of insurance is waning, and it’s losing the heart of its customers.
Embracing ecosystems
The best we have seen from the insurance industry in the experience-economy shift of the 2000s was smart forms online, which will not do. But, this vital sector is in a different position than banking, where the looming Fintech threat is mostly a better digital front-end and some spending analysis.
The real danger for insurers is when someone genuinely grasps the scale and breadth of the full insurance lifecycle. Conversely, when embraced by insurers, this ecosystem concept, coupled with open architecture and enabling tech, offers huge potential.
The complexity of risk-to-price models, large supply chains, the advent of IoT, and integrated/embedded systems have created the opportunity for data-fluid, connected, and intelligent capabilities, which can differentiate an insurer’s customer experience and build better relationships.
Plus, extending into adjacent industries creates more value for insurers and customers alike. It’s a large-scale way of removing massive amounts of risk, which consumers and insurers are desperate for.
Customers expect more
According to Bain’s latest Customer Behavior and Loyalty in Insurance report, following several years of turbulence (pandemic, extreme weather, etc.), consumers want more than just financial support when something bad happens. They want help before something happens. They want help reducing and preventing risk.
But insurers are struggling to leap from risk coverage to risk removal. Their businesses and the tech they’re built on are just too rigid to ingest and leverage the data required to do it successfully.
Change needed
Insurance needs a change in mindset, away from policies and premiums to one based on connected services, real-time analytics, and risk removal. In short, it needs an ecosystem mindset. Without ecosystems, insurers face disconnecting completely from their customers and could lose millions in risk-removal revenue.
Automotive manufacturers becoming insurance providers isn’t the real threat, the real threat is cars capable of self-reporting a claim or diagnosing their repair status and identifying a repair shop, with no integration with the insurer whatsoever. The consumer knows this. Therefore, the gap between insurers, the world around them and how they interact is where their businesses are at risk.
Without this thinking, insurance could become an irrelevant, forced purchase, which at best acts as a backup plan to ‘keeping my business operating’ or ‘allowing me to drive my car’. If that’s the case, consumers will just go for the cheapest option because no provider can differentiate on experience and relationship value…not yet, anyway.
Leveraging smart data
Insurance systems have long been capable of providing risk data, so it’s not a giant leap to imagine a completely different proposition emerging. Leakbot and Hiscox are scratching the surface of risk removal in the home with leak detectors, which is a good first step, but you’ve got to wonder why it’s taken so long to get here.
Smart devices enable everything: navigation, payments, our social status, personalized VIP experiences, tracking our health & fitness, you name it. How humans interact with the world has changed, and it’s a gold mine for insurers if they’ll only take advantage of it.
Moving away from accelerated value chain-based business models to true ecosystems must be the focus. To be successful, insurers need to shrug off the constraints of value chain models where the exchange of value to create a product or service is linear.
To do this, they’ll need to go deeper into the ideologies of human-first thinking and build their ecosystems around human insight. After all, an ecosystem business establishes a much higher degree of relationship with the people it serves and can act on this insight.
Ecosystem-based businesses like Amazon typically become marketplaces where owning the customer relationship can be wholly separate from the source of a product. However, there are other examples, such as digital money or PayPal, which have reshaped that capability to respond, adapt, and grow with the customer.
So, what does this all mean for insurers? It means they must shift. The business model, the tech it sits on, and the sector’s purpose must evolve.
If insurance were invented today, it would completely differ from the business models we currently work with. It would still have the same DNA of helping society function, helping individuals recover from tragedy, and ensuring everyone remains financially safe, but it would operate differently.
It’d be more connected to how our lives and the world operate rather than just drab, minimal facts on paper.
Insurance 100% has the potential to become one of the ecosystems other businesses operate within; it’s just a matter of ambitious insurers implementing these new business models so society, and their businesses, can benefit.
