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Insurance and Digital: Desperately Seeking Alignment

From the outside, insurance may appear “slow to learn and slower to execute.” Moreover, insurance professionals take hits for over-explanation as well as all the risks and threats going well beyond explaining protocols.

The advent of InsurTechs has hit some chords in offering new tools (often developed by the InsurTech itself). But the new tool might miss other elements that are out of position, creating new challenges.

The relationship of technology with insurance is still a little loose, but there could be an interesting alignment if we keep our focus.

What did experts think?

Back in the early digital days (2015-2016), CB Insights gathered, and published a virtual group of 15 Venture Capital folks to “Sound Off On Insurance Tech Disruption.” At first blush, while there were significant changes in processes and products, there were some nuances that moderated the leap to a great new world.  Here’s some examples.

In the early days, VCs were confident that disruption would be the destruction of existing products and services. For example, Frank Chen of Andreessen Horowitz said:

We expect to see more crowdsourced insurance companies, just as we’ve seen in other parts of the financial system. Crowdsourcing works great for personal loans, student loans, small business loans — why not for insurance?

Others provided specific issues.  Manish Agarwal of AXA Strategic Ventures noted:

I think if you look at technology innovation in the insurance space, it’s behind some other industries, including financial services. There are certainly examples of innovation, but not as much as in other industries.

Toby Coppel of Mosaic Ventures provided specific elements, which prevent positive customer experiences:

Insurance companies’ biggest oversight is simple: they have not been serving their customers. Actually, they rarely interact with their customers, since the vast majority of their business comes through brokers. Brokers are treated as their customers, and collect $45 billion of fees every year from insurers globally.

Let’s dissect Toby’s concerns ….

Toby Coppel says:

  • Insurers have not been serving their customers …
  • because brokers are the intermediaries,
  • which costs $45 billion per year.

The Insurance Information Institute (III) provides the following facts and statistics for 2017:

  • US Property Casualty carriers net premiums in 2017 were $558.2 billion
  • IndividualP&C agents and brokers come in at 1.1 million.

Cappel advised that brokers receive $45 billion from insurers.  On this basis, the average annual payment is $40,909 per annum for insurance business.  This is ~10% under the US average of 2017 US Bureau of Labor Statistics; which suggests that there is a lot of manual processing.

Is change on the way?

There have been changes – digital modernization is taking hold throughout the property/ casualty ecosystems in a number of nations –  but not so much that the pundits above would be satisfied.

P&C insurance is very different from other financial services; not easy to describe a large percentage of insureds, and always changing.

So what’s next?

Staying with the agency / broker environment, a  March 2015 story in Insurance Business – America was headlined:  “There are too many Independent Agencies” says industry executive.

The opening paragraph said it all:

There were roughly 38,500 independent insurance agencies in the US in 2012, but to National Financial Partners Property & Casualty Insurance Services CEO Terrence Scali, that’s about 20,000 too many.

Scali said that some small agencies are “run by people who just work for a living and aren’t building anything, which leads to less than the most competent outcome for consumers.”

He added, “I think fewer agencies would breed a stronger, smarter more capable industry. Maybe 10,000 would suffice.”

Scali and others have some ‘disruptive’ actions that run contrary to others.  He says that common wisdom suggests that small agencies can provide more attentive service.  And this is not necessarily true.

According to Scali,

In our practice, we see the agencies we acquire whose owners are freed up from the distractions of management have more time to spend with clients,” he said. “I see consolidation as aiding that outcome, not competing with the consumer experience.

Today’s Real World of Insurance Technology

P&C Insurance is a third cousin to other financial services.  From a business perspective, it has been ahead of risks and management. But technology has lagged behind.

However, the digital transformation is pushing tech forward.  With luck, we will see both moving in sync.

What do you think?