Repeatedly, we have described 2015 as the “year the future arrived for insurance.” Across the board, we saw significant changes in how carriers thought about the impact of new technology and innovation.
It was the year in which the Millennial generation outnumbered Baby Boomers for the first time; the gap between the two generations will only grow in the future, and by 2020 Millennials are expected to represent half of the U.S. labor force.
The year 2015 also marked a year in which customer experiences were influenced more heavily than ever by online retailers, banks and other businesses with high transaction frequency. With this in mind, insurance carriers need to be wary that they risk presenting themselves as quaint, dated and possibly irrelevant to future generations of consumers. For many, some form of self-service actually represents “better service,” and the potential to allow consumers to change communication channels at a place and time of their discretion is now increasingly part of the experience consumers expect.
Companies at the leading edge of the technology wave, including personal lines property/casualty carriers, are increasingly feeling the heat and the threat of changing market dynamics. Today, three of the top 10 personal lines underwriters are direct carriers; that’s a message that cannot be missed by carriers.
For some lines of business, there continues to be an argument that there are products which are “sold” rather than “bought,” and in highly
complex circumstances that certainly holds some level of truth. However, this line of reasoning misses a far bigger point: as technology advances and consumers become increasingly comfortable with capabilities, tools and applications will continue to allow what were once highly complex activities requiring human interaction to be offloaded onto silicon.
Examples of this abound in the physical world, perhaps accentuated by the increasing role the technology plays in the operation of automobiles. Even if fully self-driving cars are a future state phenomenon, technology assistance for drivers exists as a reality today. Stepping back into an “antique car dating from around 2006” highlights the point. While those aging vehicles are certainly still functional, they require a far different level of engagement and human interaction than did their 2016 siblings. As Bill Gates once said, we tend to overestimate the impact of technological change in the short term while underestimating its impact over the intermediate and longer term.
A 10-year look back is particularly insightful now, since that takes us to an era dependent on desktop and laptop computers. Most of us would feel very disoriented stepping back into a period in time that pre-dates the tablet and smart phone computing we know today.
When considering financial services, technology is already in play that alters interactions for relatively complex products. For instance, 2015 saw a significant rise in the use of “robo-advisers.” Although the name is somewhat unfortunate, the concept is straightforward: utilize emerging technology capabilities to expose a desired set of functionality to end-users. These end-users can in turn use this functionality to solve specific problems, or take a more complex issue (or thoughtfully constructed set of questions) to an expert.
As companies like Fidelity and Charles Schwab have increased their own focus on these tools, levels of assets under management have risen steadily. These traditional investment companies now compete directly with startups like Betterment in a race for both market share and relevance. It would seem that similar opportunities await the insurance industry where consumer expectations are changing and the average age of a producer today in the U.S. is 59 years old.
Some carriers are taking this challenge seriously, opening innovation centers and considering new ways of engaging prospects and customers. One in particular has even taken to opening coffee shops in an effort to engage Millennials, a demographic cohort with whom they have not historically been able to effectively connect. While it is far from certain that this will be a success, innovation is frequently not a flash-in-the-pan item. Rather, it is the result of continued and persistent work, much of which leads to “lessons learned” as opposed to a traditional ROI.
A recent article in Road & Track Magazine (of all places) makes a similar point for the automotive industry, which is also under considerable technical and competitive pressure. The piece highlights the success that Tesla has enjoyed by utilizing a dramatically different approach to the market than has been pursued by traditional manufacturers. The article points out some experiments that both General Motors and Ford did just prior to the turn-of-the-century during the original dot.com period, which also focused on trying to create a more direct-to-manufacturer experience for car buying, failed. No doubt those failures were contextual to the time.
On the other hand, there is nothing to suggest that a traditional car manufacturer would be able to generate the success the Tesla has in its altered approach to the market. A notable portion of Tesla’s success has to be tied to the vehicles themselves. Having fundamentally rethought what an automotive experience could be, the company went to market changing everything and as a result positioned itself to punch considerably above its weight in terms of attracting customers.
Other manufacturers will clearly learn lessons from this experience, and it is interesting to note that a surprising number of manufacturers announced relationships with both technology firms and insurance companies early this year. The newly announced relationships between Subaru and Liberty Mutual, Ford and Amazon.com, along with others, will undoubtedly be part of trying to answer the question of “so what?” now that the future is here.