Nearly every industry has encountered disruptive start-ups that ultimately become action verbs — Uber, Airbnb, Amazon — and the list goes on. To date, the insurance industry has had limited exposure to such disrupters, due in part to relatively high barriers to entry.

However, the list of tech-startups gaining a foothold in the industry is expanding, including Oscar, Metromile, and SimplyInsured. These companies' ability to address key policyholder pain points is fueling strong growth.

While some insurance executives may not see these innovators as a significant threat, larger carriers can learn from their focus on improving the customer experience with simplified processes, refined product structures and personalized marketing.

The following are five key strategies evident in insurance innovation that traditional carriers can also harness for their benefit:

1. Enhance policyholder interactions to build lasting relationships

Most insurers have a limited number of interactions with policyholders, and as more entrants vie for their attention, it becomes increasingly important that each of those interactions is a positive one. Some carriers are trying to accomplish this by developing mobile apps and online portals to deliver information to policyholders in real time, and make agents more accessible, visible, and relevant when possible.

USAA has taken a different approach using virtual agents, and artificial intelligence to forge "digital empathy" with its members.

Trying these strategies on a small scale first provides carriers with the opportunity to determine which initiatives truly improve the customer experience across all contact points, and therefore, warrant further investment.

Whether it's wearable technology or connected devices, ensure that technology meets policyholders' needs. (Photo: Shutterstock)

2. Meet evolving policyholder needs with new services and offerings

Just as policyholders expect more when it comes to service, they also expect more personalization when it comes to product. Metromile has gained a following with low-mileage drivers with its pay-per-mile offering.

Other start-ups, like Oscar Insurance, are betting on wearables — a concept that 63 percent of insurers say will have a "high or very high" impact on their organization, according to an Accenture Technology Vision report.

The applicability of these new offerings spans lines and sectors. Industry giant AIG recently invested in a wearables firm that embeds trackable devices in construction workers' vests to monitor movements in high-risk workplaces.

Carriers are also exploring how "connected home" technologies enable monitoring and loss prevention for real estate. In home, life and health insurance, some policyholders are already receiving lower premiums for exhibiting desirable lifestyle characteristics, like energy conservation and regular exercise.

While these new offerings are an exciting opportunity for insurers to acquire new policyholders and better align premium rates with risk, many questions remain around payment structures and technologies.

For example, carriers that extend this information to inform higher premiums for risky or unhealthy behavior should quantify whether it drives effective risk mitigation more than it hinders policyholder retention and acquisition.

Funding for insurance-focused start-ups hit a record $2.7 billion last year. Carriers that choose to invest in InsurTech should ensure it enhances the agency model. (Photo: iStock)

3. Capitalize on technological advancements in claims

Recent advancements in technology have unlocked massive claims processing opportunities that enhance the policyholder experience and ensure appropriate payouts. Start-up Livegenic won praise last year for its mobile, real-time video platform that enables claims professionals to see what the customer sees without disconnecting from the phone call, accelerating the claim handling cycle from weeks to hours.

Other industry players are leveraging modernized claims platforms to fuel a faster, more efficient and higher quality claims process. These systems can automatically settle simple claims using rules-based processes (as long as fraud isn't suspected), freeing up team time for more complex requests.

Technology is also enabling lower cost and higher quality approaches to the most challenging claims adjuster tasks. Both Allstate and State Farm recently tested using drones to assess roof damage — circumventing the dangerous need to climb ladders or use ropes and harnesses.

As many of these initiatives require significant resource investments up front, insurers should closely monitor their immediate impact on a range of performance metrics, including customer satisfaction and cost, to understand their true value.

Over time, carriers will also want to analyze how these investments impact retention and market share in order to inform further investments.

The distribution channel is changing, and not all policyholders prefer to conduct buiness face-to-face. (Photo: Shutterstock)

4. Empower individuals to buy where they want, how they want

A number of tech-savvy startups have gained their momentum in online and mobile channels, and traditional carriers are increasingly exploring new digitally-enabled capabilities as well. This will be key to unlocking growth with younger populations, as millennials are two times as likely as other generations to purchase policies online instead of going through an agent, according to one Gallup poll.

The growth of direct-to-consumer distribution channels has piqued the interest of a number of traditional carriers, who've in turn invested in platforms for fast comparison shopping online; for example, AXA, Transamerica, and MassMutual have all backed PolicyGenius, while Chubb invested in CoverHouse.

While testing the online waters, carriers should not lose sight of the importance of enhancing their agency channels, which will be critical to selling more complex products that don't lend themselves well to self-service.

Insurers are accomplishing this in a variety of ways, including offering sales- and technology-focused trainings and product education programs, investing in agencies' digital presence, and more.

Carriers should test each new program on a small scale before deploying widely. (Photo: iStock)

5. "Test and learn" to understand what works best for your business

With so many unknowns associated with each new innovation, intuition and historical data can only get decision-makers so far in deciding which ideas are right for their business. As such, carriers should consider trying each new program on a small scale, or piloting new variations of existing programs with a small group of policyholders, to gauge whether they generate enough incremental benefit to justify their cost, and in which lines.

These small scale tests minimize the likelihood of incurring unnecessary losses or tarnishing the brand, and empower executives to confidently allocate funds to ideas that work and cut investments to those that don't.

Special Reports /

5 things traditional insurance carriers can learn from the successes of tech start-ups

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