So, why is the insurance industry losing its ability to drive itself?
by Denise GarthMs. Garth is senior vice-president of marketing for Majesco, industry consultants with over two decades of experience in providing technology solutions, products and services for the insurance industry across lines of business – Property & Casualty (General Insurance), Life, Annuity, Health, Pensions, and Group & Worksite Benefits insurance. Reprinted with permission. Visit here.
Dec 5, 2019 — A new Prius will parallel park itself. A new Tesla can handle highway driving on its own. A new Cadillac will maintain safe following distance. In all of those cases, you don’t have to touch the wheel.
But as autonomous vehicle development is on the rise, it’s almost ironic that the insurance industry is losing its ability to let the industry drive itself. Insurers whose products and processes (and customers) were on autopilot for decades, are now finding themselves having to grab the wheel back and respond to the hazards and opportunities ahead. But at the same time, they are getting to experience how fun and exciting it can be to drive! They can choose their speed to transform (and drive faster!). They can change directions to follow the excitement. The open road is calling insurers to come and experience something new and it is happening, in large part, because of the demands of people.
People are the ultimate drivers of change
No demographic shift has been greater than what is currently happening within our global populations. “People trends” are rewriting the business of insurance into a complex thriller of a story, with multiple plot lines and depth of character development. People are pointing insurers in the right directions for change, so that insurers who look out into the future can begin to see where the next chapters will begin, identifying new opportunities on new horizons. Insurers are already using their future vision to adapt their business models and technology accordingly, in preparation for the rapidly coming shift — a major population event with startling implications that is only one year away, in 2021. We’ll discuss this more in a moment.
Four years ago, Majesco published its first Future Trends report that examined a major shift unfolding due to the converging “tectonic plates” of people, technology and market boundary changes disrupting and redefining the world, industries and businesses — including insurance. What a shift we have seen in those four years! Earlier this week, we released the 2019 report, Future Trends: Looking Back and Leaping Forward, which we’ll use as a springboard for several of our upcoming blogs. In this blog, we’ll look briefly at three key people trends that are impacting the insurance industry:
- Shifting customer demographics
- Economic conditions affecting customers
- Customer psychology driving insurance simplicity
Where Do People Fit in the Technology Conversation?
Technology gets much of the focus in discussions and thinking about insurance industry disruption. But technology is just one ingredient in the recipe for change. Changes triggered by technology will only “stick” if they achieve adoption by enough people who gain value from the new capabilities and experiences created by the technology.
In insurance, as in many other industries, these changes are rapidly being embraced, with digital-native generations leading the way, opening the door to incredible growth opportunities. Changes in customer behaviors and expectations, driven and reinforced by new capabilities unleashed by technology, are forcing the insurance industry to reconsider the way things have been done and focus on today and the future. Insurers must quickly update their mindsets, their processes and technology, or risk being left behind in a state of irrelevance.
Shifting Customer Demographics
The viability of the insurance industry is vitally connected to demographic trends, market trends, customer opinion and adoption of new technologies. If we lose touch with our customers, both current and future, we lose business.
When looking at current books of business, insurers may be tempted to think the time is not right for a business model change. Their “traditional” valuable current customers, mostly Boomers and Gen X, represent a vast portion of today’s revenue and profit.
Interestingly, these “traditional” customers are increasingly digitally adept, placing their satisfaction at greater risk because of increased expectations and demand for a better experience, product, and service. The impact for insurers is an emerging fault line between customers’ long-held loyalty and their expanded expectations.
Adding to the tectonic pressure are Millennials and Gen Z, who expect insurance to be much different. They want new products that will align to their activities and behaviors. And they want services, coverage and interactions available to them whenever they want it, however they wish to engage. They want a relationship that is customized to their needs, personalized and easy to use.
The population shift and the insurance “sweet spot”
The urgency of preparing for and adapting to Millennials and Gen Z is reaching a critical point. Millennials will surpass both Gen X and Boomers in the 30-60-year-old “sweet spot” of insurance buyers in 2021 – only one year away! And in five years, in 2025, the combined Gen Z and Millennial generations will dominate the 30-60-year-old sweet spot for insurance, at a time of their greatest need for insurance. We have not seen a shift like this in our life. Insurers unprepared for a new dominant insurance buyer may find they are no longer relevant after this major shift. This is why plans and execution today is so crucial. If products, processes and technologies don’t match the demographic’s purchase and service profile, insurers are likely to see a decline in interest resulting in a decline of market share and revenue.
Economic Conditions Impact People and Accelerate Disruption
The lingering impact of the Great Recession from 2009 was a reduction in the number of insurable exposures like homes, vehicles and businesses, as well as the affordability of required and discretionary insurance coverage. The experience created permanent changes in people’s attitudes, behaviors and expectations. While all generations were impacted, Millennials delayed some of the traditional markers of adulthood, including forming independent households, getting married, starting families, and purchasing homes or vehicles.
Insurance responded by developing products and services that are more affordable, tailored to very specific needs, simpler, and grounded in trust. And although the economy has improved dramatically, we are seeing the results of this pressure reflected in new products like on-demand, single-item and embedded coverage. The economic pain of the recession coupled with new technology accelerated the disruption of insurance. Every generation is shaped by a number of features, including their past. Recession attitudes will continue to shape future insurance for decades to come.
Customer Psychology Drives Insurance Simplicity
The complexity of insurance products and processes has plagued the insurance industry since its beginnings. It has consequences for decisions throughout the customer’s journey with an insurance company.
In our 2017 Future Trends report we highlighted Lemonade for its use of both technology and the first use of behavioral economics to create a radically different insurance experience. The use of AI chatbots and behind-the-scenes data sources makes transactions simple, transparent and fast. There is a feature that encourages honesty in the claims process and Lemonade uses a short video recording to review a claim.
In 2019, we expected to see an increase in companies, both new and existing, using Lemonade’s mix of technology, data and behavioral economics. While there are many examples of companies employing some tactics from behavioral economics, there are few that have done so as extensively as Lemonade, building “good” human behavior into the foundation of its business model.
Instead, the focus of most innovation efforts from both new and established companies has been on simplification, to remove some of the cognitive effort required to make decisions in traditional insurance processes. This fits with the Fogg Behavior Model that we highlighted in 2018’s Future Trends report. The Fogg model translates behavior into a simple “formula” consisting of just three components: Triggers, Motivation and Ability, all of which have to occur in the same moment in order for a behavior to occur.
This week at the SMA Summit, Kyle Nakatsuji, the founder and CEO of Clearcover, a full stack InsurTech insurer who won the Transformation in Action Award for Customer Engagement, shared that they used the Fogg Behavior Model concepts as a basis of their business model. He shared significant percentages of auto policies sold online, followed by significant percentages of customers downloading their app that is then used for claims and service. They recently added a smart help center on the app that saw a drop of 25% support in one week. We outlined in our P&C Playbook and L&A Playbook reports the potential power of this model coupled with our Digital Insurance 2.0 Product Framework as a way to rethink customer engagement. This model and framework provides a lens for how people make insurance decisions and reveals the many weaknesses of Insurance 1.0 models that Digital Insurance 2.0 models are exploiting today.
Where Are Your Customers Today? Where Will They Be Tomorrow?
As people change and as insurers adapt to meet their needs, market boundaries are also in flux. Since 2015, InsurTech has been unconsciously recreating an industry model that largely ignores traditional market boundaries — blurring boundaries with tremendous speed and disruptive power. In our next blog, we’ll look specifically at how dramatic these boundary shifts are, and how insurers can capitalize on shifting boundaries with technologies such as Majesco’s Digital1st Insurance™, instead of being negatively impacted by traditional technology constraints. For a close look at the future trends of engagement across any markets, be certain to download, Future Trends: Looking Back and Leaping Forward.