Last week I was interviewed in Dagens Industri, Swedens biggest business newspaper, on how disruption is waiting to happen within the insurance industry. The article is in Swedish and behind their paywall, however below sharing some thoughts discussed in the article.
Following the fintech boom and the late awakening within banking, it is now the insurance companies that are next in line. Change is driven by customer expectations from other verticals, but also from smart products collecting data related to how we carry out different tasks and live our lives, as well as recent technological developments within AI, blockchain and personalization to name a few.
All this together poses fantastic opportunities, but also challenges, for incumbent insurance companies currently selling bundled insurance products based on old segmentation variables and low levels of personalization.
Some companies in Sweden has carried out early-level experiments, mainly within car insurance, where your policy is personalized based on available data from the cars onboard diagnostics (OBD) on how you drive. Also new entrants such as Greater Than are emerging offering insurance policies based on behavior rather than demographics. The common denominator is that aggressive driving, rather than age and gender, will have you ending up paying more for the same policy…
The challenge here, I believe, is for insurance companies not to fall in the trap of controlling the customer by the usage of data, as that surely will have negative implications customer experience and ultimately on their brand (and open up for various hacks and workarounds to get a lower policy). Instead, focus has to be on taking a proactive position as a coach, helping the customer to make more well-grounded decisions.
Following this, another trend that is bound to happen is the unbundling of current insurance products, in favor of a more on-demand based insurance policy where the customer only has to pay for the exact product at the moment when he or she is exposed for the risk associated. As we move beyond self-service and artificial intelligence-based personal assistants mature over the years to come, this process will be more or less automated, where my personal assistant knows I’m about to go on a bike-ride, thus buys the exact right product for me at the best available price without me having to do any interaction at all. This, in turn, leave insurance companies at risk of being further commoditized as they lose the customer relation, instead having to talk to a computer bot. Thus, they will need to find new ways to stay relevant enough for the customer to care to have a deeper relation.
Finally, I briefly touched blockchain. This is maybe the biggest disruptor of them all, where I believe we have yet to fully grasp the implications to come. As blockchain is the ‘digital first’ interpretation of a contract-system, it will not only improve security, but allow anybody or any group of individuals to set up their own mutual insurance system, ultimately rendering the big corporations obsolete unless they explore new business models and revenue streams.
In order for insurance companies to capitalize on the opportunities to come, they face the same internal challenge as the big banks; legacy systems, control-focused governance and a culture that isn’t ‘digital first’ nor tolerant to failure, which risk limit innovation and speed. Incubator and accelerator models that ultimately puts the legacy organization out of business is one way some banks has tried to explore, which I’m confident we will see more of also in the insurance industry. Bi-modal organizations being able to handle different sorts of governance and two-speed processes is another interesting model to tackle the challenge of both having and eating the cake.
Image credit: Lars Plougmann @ Flickr