Why is meaningful change taking so long?
Insurance is a unique industry and like no other I’ve worked in. As Lemonade’s Chief Behavioural Officer Dan Ariely said, “If you wanted to create a system to bring out the worst in humans, it would look a lot like the insurance of today”.
Ask people who work in Insurance how they began and they will probably tell you they stumbled in to it.Ask consumers about their interactions with Insurance companies and it will more than likely be a tale of dissatisfaction (I remember making my first insurance claim after someone had run into my parked car and painfully finding out what a £500 excess was). Ask any non home-owning, non car-owning millennial to describe the basic concepts of insurance and most will struggle (although InsNerds Simplest Glossary would be a good place to start).
Yet this is a $4.5 Trillion industry with global premiums equating to 6.5% of global GDP in 2015.
Most analysts have agreed for several years that it is an industry ripe for transformation, so why is it taking so long for any meaningful change?
I put it down to three things:
The retail industry was completely democratised by the internet. Anybody with an eBay account could take on the big boys and consumers were given a near perfect view of product, price and proximity. Compare the retail industry of 20 years ago to today and it has been transformed beyond recognition.
Not so Insurance.
One big problem is that the average consumer typically doesn’t understand the product they’re buying. When they were buying insurance from a high street broker, they at least had someone to advise them and explain the relative benefits of different products. In today’s on-line aggregated world, consumers are usually looking at price only and have little idea whether a policy is adequate for their needs. This results in huge dissatisfaction when claims are made and consumers realise they’re under insured.
This leads to anger from consumers, claims getting embellished and ultimately an unsatisfactory and adversarial business arrangement with distrust at it’s core and the true value of the insurance buried under huge admin and fraud costs. So rather than improve the situation, apart from creating some very rich aggregators, the internet has magnified the industry’s problems.
The are signs that things are changing and the industry is starting to embrace technology to improve customer engagement. Certainly the innovative use of chatbots and AI from the likes of Lemonade is starting to change the way the man on the street views insurance, which can only be a good thing.
Most people I know in the industry have stumbled into it. Now don’t get me wrong, I’ve met some really smart people but if I ask a new graduate today to name the top 20 companies they want to work for, I doubt whether Insurance would figure particularly prominently. I’ve seen plenty of initiatives over the years but ultimately, Insurance has an image problem and until the public’s perception of the industry starts to change, then we are unlikely to see a huge influx of talent. That said, the recent rise in number of InsurTech start-ups is beginning to shake things up. I've noted myself the shifting demographic of conference attendees being markedly different to 5 years ago. Still a few too many ties for my liking but we’re moving in the right direction.
Another recurring problem I’ve seen is new start-ups emerging with really smart people and great technology but who lack any practical knowledge of insurance. The initial enthusiasm is quickly dampened as they become embroiled in regulation and archaic standards and usually decide that there are easier paths in other, more glamorous fields. I think the change has to be driven from within the industry. The game changers will be people who can combine entrepreneurial spirit and technical expertise with deep industry knowledge.
That said, a broad well informed panel of industry commentators and a significant rise in global InsurTech investment is beginning to turn a few heads, so I wouldn’t be surprised to see some high profile appointments over the next 12 months.
Thanks in part to the large capital requirements, we’ve yet to see the big disruptor in Insurance and to be honest unless Jeff, Mark or Larry decide it’s something high on their priority list then we’re not going to see an Uber moment any time soon. This is an industry that is based on risk aversion so although a lot of the big companies are making the right noises, I think the truth is they’re hedging their bets whilst keeping an eye on what the competition are up to. I’d love to be proven wrong but I think the challenges of regulation, legacy technology and shrinking margins are paralysing a lot of boardrooms.
However, parallels could be drawn with the wider fintech market of 10 years ago which after a some tentative first steps was just preparing to embark on a period of exponential growth.
So the question is, what happens next? Will the new wave of InsurTechs slowly but surely change the face of the industry? Will we see a major play by one of the tech giants? Or will it be a case of the more things change, the more things stay the same?
Watch this space.