I am proud and happy to publish exclusively an excerpt of Matteo Carbone and Andrea Silvello’s new book: “All the Insurance Players Will Be Insurtech: A wave of innovation is finally reshaping the insurance industry”
Exclusive Excerpt of Matteo Carbone & Andrea Silvello’s new book: “All the Insurance Players Will Be Insurtech: A wave of innovation is finally reshaping the insurance industry” (available in the USA, Germany, UK, Italy, France & Spain)
Chapter 2
How to innovate and maximize the opportunity: the CPs of Insurtech
In today’s fast-changing world, “innovate-or-die” has become not only a business mantra, but a given. By placing a world of choices in our hands, technology has empowered the consumer as never before. Any enterprise that does not adopt a “customer-centric” focus will lose business to others who are more than willing to take up the slack.
The insurance industry is no exception to this rule. And, although the sector is commonly perceived as slow-changing, it has actually shown quite a capacity for innovation.
Digital insurance distribution, for example, began as far back as the early 1980s, when the German Post Office experimented with remote insurance sales in Berlin and Düsseldorf using Bildschirmtext—data transmitted through the telephone network and displayed on a television set. Today, UK consumers buy nearly sixty percent of their auto insurance online, and consumers commonly use comparison websites when purchasing auto insurance. Few other industries have embraced digital distribution so widely or so well.
Health insurance, too, offers many examples of innovation using technology. In the last twenty years, the South African insurer Discovery has introduced a number of ways to improve policyholders’ lives using connected fitness devices: tracking healthy behaviors, generating discounts, and providing incentives for activities supporting wellness and even healthy food purchases. Discovery has replicated its “Vitality” model in different locales and business lines, and has motivated its customers to continually increase the number of connected devices they use to provide data to the company. The insurer has even extended its incentives to other insurance lines: Vitalitydrive rewards drivers for their driving knowledge, course attendance, and good driving behaviors with discounts of up to fifty percent on fuel purchases.
Innovation is accelerating in the industry, too. New and emerging technologies are providing user experiences much different from the confusing, complex enrollment and claims processes for which insurance providers have become infamous. Institutions with hundreds of years of tradition are rethinking their insurance business models and identifying areas in their own value chain to transform or reinvent with the help of technology.
Hardly a day goes by, it seems, without some new insurance application or service appearing on the scene. Broadly speaking, these innovations can be categorized according to seven macro areas:
- Awareness: generates awareness in the client of the need to be insured, and other marketing aspects of the specific brand/offer;
- Choice: offers an insurance value proposition, divided into two main groups:
- Aggregators that compare different solutions, and
- Underwriters, innovating ways to construct the offer for the specific client;
- Purchase: innovative ways to improve the act of selling, including the collection of premiums;
- Use: includes three very distinct steps of the insurance value chain, namely, policy handling, service delivery—which is becoming more and more important—and claims management;
- Recommendation: recommends purchases based on user data and experiences;
- The Internet of Things (IoT), the hardware and software solutions involved in “connected” insurance (such as motor insurance telematics), and
- Peer to peer (P2P): bringing peer-to-peer logic to the insurance environment, in a manner similar to the old mutual insurance model.
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Having advised nearly one hundred insurers, reinsurers, tech players and investors, we have formulated a set of criteria for determining the potential of each InsurTech initiative, whether executed by a startup or an incumbent. We’ve based our “Four Ps” on four fundamentals of the insurance business:
- Profitability: What effect might an innovation have on the profitability of the insurance portfolio, acting on the loss-ratio level or on the cost level without an increase in volumes?
- Proximity: Does it have numerous touchpoints for improving the relationship with the customer?
- Persistence: Does it reach out effectively to increase renewal rates, thereby stabilizing the insurance portfolio?
- Productivity: How does it contribute at the top-line insurance level to new client acquisition, cross-selling, or fees for added services?
InsurTech is taking off, there is no doubt, as our world becomes ever more connected, and technology pervades all aspects of life. Investment in InsurTech initiatives boomed in 2015-2016 and is continuing to grow in 2017 bringing the total amount raised to nearly $20 billion.
Published with the friendly approval of Matteo Carbone & Andrea Silvello.
