It’s hard to think of an industry that hasn’t experienced at least some disruption by digital innovators.
Customer habits are changing, the way customers consume products and services are changing and traditional barriers for new companies to disrupt existing business models have fallen. In particular, the banking industry has been feeling the pressure from the financial technology sector. Are we about to see the same transformation in insurance?
Changing driving behavior requires new ways of thinking about Auto insurance. Farmer's and Geico have policies that fill rideshare gaps in several states, and startup insurance companies are stepping in to fill the gap.
Metromile offers a pay-per-mile policy model, where drivers install a ODB-II port device similar to other usage-based insurance providers, Metromile tracks how and where drivers go. The Metromile app allows the driver to separate personal from commercial (Uber) miles, ensuring that only personal miles are used to calculate the rates. A key difference in Metromile’s program is that they are not using driving behavior data to adjust pricing. Their app also provides useful information about car diagnostics, trip statistics and street parking restrictions.
Metromile is addressing another trend as well. In addition to providing creative gap coverage for Uber drivers, the pay-per-mile policies may be appealing to drivers (like myself) who are taking advantage of ride-sharing and putting fewer miles on their own cars.
Interest in insurance tech increasing
Investor interest in insurance technology (ins-tech) is increasing as well. Venture capital tracking firm CBInsights reported that by mid-2015, investors had funneled close to $1.5 billion into insurance technology startups since the beginning of 2014 across the Life, Health and P&C insurance sectors. Many of these new companies are taking advantage of perceived or real market gaps and more modern ways to engage with prospects and customers.
Interestingly, the Metromile leadership team is primarily staffed with executives from the technology industry, and policies are underwritten by specialty personal lines insurer National General Insurance. More insurance companies are making investments in startups like these, while also holding them at arm’s length. After all, we are talking about unproven business models in an industry known for risk aversion. But we still see a dichotomy between a radical new way of doing things (ins-tech’s new products, services and coverage innovation — where risk may not be well understood) with status quo. The question is how does the industry prudently innovate to support changing customer and market demands?
Focus on customer experience
There are still many opportunities for traditional insurers to adapt and evolve. One capability receiving attention is a technology-enabled focus on customer experience. While customer experience initiatives have been going on for years across banking and retail businesses, insurers are just starting to make inroads in enterprise-level strategies to align customer service and operational capabilities, product development, pricing and marketing initiatives to nurture long-term relationships with both end consumers and agents. A core component of these strategies is to enable “next best advice” capabilities that use real-time cross-channel context to drive relevant, personalized interactions with customers.
In addition to the challenge of overcoming organizational hurdles and synchronizing complex operational systems, these data-intensive strategies require new tools and techniques to evaluate new, existing and untapped data sources. More insurers are creating internal innovation labs with analytic sandboxes that allow data scientists the ability to explore and prototype new ideas with new statistical methods and technologies. We’re getting to faster insights and more relevant statistical models that help us identify what customers want, which customers will be most profitable (and in what channel), and opportunities for new products and services.
Ins-tech is seizing a market opportunity to provide customer-friendly products and services on the customers’ terms, and the initial feedback from both customers and investors has been positive. Traditional insurers can seize this opportunity as well by capitalizing on data assets and using that information to create more relevant interactions, enable product development cycles and increase speed to market.
Rachel Alt-Simmons is a Principal Industry Consultant for Financial Services at Cary, North Carolina-based SAS. Opinions expressed in this article are the author's own.