Slice: Insurance Disruption in Action

Most “disruptive” Fintech propositions are actually incremental; Slice.io promises to be an exception.

Celent’s Banking and Capital Markets analysts have tracked Fintech since 2013 and continue to track movements in areas such as payments, digital banking, and blockchain. More recently, our insurance team has begun looking at Insurtech, especially the initiatives coming out of the Global Insurance Accelerator and Startup Bootcamp.

One observation emerging from this experience across the three verticals is that most startup propositions are actually incremental innovations. Despite numerous broad claims of disruption, most of the solutions alter part of the traditional value chain. In insurance, for example, start ups target narrow activities such as claims settlement or customer engagement with advanced algorithms, direct distribution schemes, and/or new data sources. Undoubtedly, some will deliver value, but to label them as disruptive is a reach and strikes me as sensationalist.

An exception to such incrementalism surfaced today in the launch of Slice. Its press release today announces $3.9million in funding and describes their approach as one addressing a new market – the on-demand economy – with a new product – one that combines both personal and commercial coverages into a single contract. The stated goal is to not only change the way we work with insurance products, but to change the way the insurance product works. This is why I consider this as one of the very few examples of disruption – delivering a new proposition to a new market.

Slice has worked with primary insurers and reinsurers to develop policies which provide insurance coverage on a per event, time period-specific basis. Their forms combine what is traditionally both personal and commercial coverages in order to address ridesharing, homesharing, and (eventually even delivery) services. It acts as an MGA, sourcing business both directly and also through on-demand apps such as Uber and Lift driver platforms. Their goal is to close the current gaps that are not addressed by traditional products and cover the exposures which are often unintentionally retained by operators.

It is exciting to see a new market / new product proposition in the mix. Examples such as Slice reframe the discussion around what true disruption looks like in insurance.

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Troll insurance, cyberbullying and millennials

As I read through my myriad of promotional mail, I came across an interesting insurance offering – troll insurance. Chubb, a multinational insurance company, is offering its clients in the UK the first ever troll insurance. Chubb personal insurance policy holders will be able to claim up to £50,000 (approximately US$75,000) towards expenses that include professional counselling, relocation due to online abuse, or time spent off work due to cyberbulling. http://ift.tt/1lYnyUS

Cyberbullying is defined by the insurer as three or more acts by the same person or group to harass, threaten or intimidate a customer. The inclusion of cyberbullying into Chubb’s policies is a result of a survey of the target audience and brokers.

Although the new policy is primarily tailored towards worried parents, adults who become victims of online abuse will also be covered. The policy money can be used to pay a reputation management team that would restore the person’s public image, or even to hire a forensic specialist to trace the origins of the trolling. However, the coverage is pricey. It can only be purchased as part of Chubb’s top-of-the-line home insurance package which costs at least £2,500 ($3,730) per year and is targeted at high-net-worth individuals.

While I find it unfortunate that this type of insurance is required, I applaud Chubb for creating an innovative product to cover a gap in the current insurance offerings. Online harassment has real consequences, but the law against it tends to be hit or miss. Ironically, a few American insurers have policies pertaining to cyberbullying, but they protect people who are accused of the offense rather than the victims or harassment.

Insurers continue to look for ways to be relevant to the Gen-Xers and Millennials in the marketplace. Chubb’s troll insurance provides a coverage that is relatable to these tech savvy demographics. It’s time for this insurance in North America as well.

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Insights from the Trenches – West Coast CIO Roundtable

On March 22 and 23, Celent hosted a CIO roundtable in San Francisco that brought together CIOs from a variety of Property Casualty carriers. Sessions included presentations by CIOs and discussions on innovation, core systems in the cloud, transforming the customer experience, digital strategies, dealing with millennials and gender balance in the workplace, and optimizing the agent experience to drive growth. Some of Celent’s recent research was presented to stimulate discussion as well.

 
The discussion highlighted the similar challenges that carriers face, regardless of size, lines of business, or geography, as they look at transformation.

 
Innovation:
Celent research shows that the population of highly digital individuals is growing and that a firm’s ability to innovate has a high impact on a highly digital agent or consumer’s willingness to work with them. Yet there are often barriers to progress as not all leaders within an organization are seen as supporting a company’s innovation efforts. While carriers see that innovation is critical to meeting customer expectations, innovation is not always seen as important to a firm’s strategy.

 

Carriers discussed the distinction between driving innovation processes and culture within an organization, and implementing specific innovation ideas. It was noted that employee engagement is key to innovation.

 

One carrier presented the program they initiated to drive innovation within their own organization with the results of improving employee engagement, driving improved financial results, and improving the speed to market of idea deployment. The CIOs discussed a variety of best practices for stimulating new ideas, capturing and triaging these ideas and rewarding employees for their contribution while moving towards implementation.

 
Core Systems in the Cloud:

Activity in core system replacement continues to occur at record levels with well over half of the carriers in the industry either currently engaged in system replacement projects, or planning a future project. But these projects often take years to complete and deploy. As vendors look for ways to speed up these deployments, one option is a cloud deployment. Software vendors clearly recognize the importance of the cloud to drive their businesses forward – 50% of policy admin vendors surveyed in Celent’s recent report on cloud capabilities tell us that cloud is mission critical, and 50% tell us they offer a cloud solution.

 
But carrier take-up has been relatively nascent with few carriers choosing to make the leap. Almost 60% are waiting and watching while 20% are sure it’s not for them Typical concerns include data security lack of visibility into the infrastructure, concerns about difficulty moving data off the cloud, and how a cloud deployment will change the IT organization.

 
One carrier spoke about their journey of replacing their core suite with a full cloud deployment. Specific issues the carrier faced were echoed by other carriers as core system replacements are often accompanied by a process redesign and often include a greater use of analytics to improve decisions and streamline processes.

 

The cultural issues can be significant and change management is key to a successful implementation. Moving solutions to the cloud also raises new terms and condition in the contract with the vendor that carriers need to understand and think through carefully before signing. But a cloud deployment can potentially result in a faster implementation and can allow a carrier to deploy their scarce IT resources on the aspects of maintenance that are strategic to the insurance business rather than using staff on infrastructure management.

 

A changing workforce

2015 was the year that millennials became the majority in the US workforce and millennials have very different expectations of their career and the role they can and will play. But there is a perception disconnect between what managers and millennials view as the most important factors that indicate career success. Millennials are most interested in meaningful work, flexible working hours and high pay. Managing millennials can require a shift in a leader’s traditional practices. Gender diversity is also a gap in the industry with few women in executive level roles in the financial service industry. Men and women have different views of the opportunities available to them.

 

CIOs exchanged a number of ways they’ve been successful at attracting and motivating millennials including gamification efforts and opportunities to reward and recognize millennials for their contributions while providing them with expanding learning opportunities. Various sources of unconscious gender bias were discussed and ways of helping women become better at networking and building relationships within an organization were seen as tools to help women progress in an organization

 

Going Digital
Digital is a buzzword in the industry and CIO’s don’t all have a common set of terminology or definition for what digital really is. Some define digital as automation of work processes and some define it as automation of decisions. Celent described four digital goals that are typically the results of a carrier’s digital strategy – getting leaner by reducing expenses or increasing productivity; getting smarter by making better decisions and getting the right content to the policyholder at the right time; getting faster with shorter cycle times for policy issuance claims and product changes; and making the experience better for a customer.

 

One carrier described their journey towards digital and transforming the customer experience. When every business unit owns the customer experience, it’s difficult to provide a consistent customer experience across the entire relationship without a true owner of customer experience. A discussion of who is the customer resulted with most carriers recognizing the role that the agent plays and the need to optimize the agent experience.

 

CIOs then discussed some of the cultural issues faced as long-term employees work to absorb the change. It was clear that implementing the technology was not the roadblock to moving forward –but that finding staff that are skilled in understanding the business and also understand the ways to digitize is hard. Combine that with the cultural challenges of massive changes in how the work is being done creates barriers to moving forward quickly. All agreed that aligning their digital initiatives with the company strategy is key to finding the right projects. An interesting question arose around is there a place where it’s too much? How do you know when to stop? CIO’s agreed that this is a constantly evolving world and processes need to be in place to regularly assess, screen and prioritize new initiatives.

 

Optimizing the agent experience
Celent presented some recent primary research around agent needs and drivers when it comes to placing business. Agents clearly state that they place business with carriers that make it easy to do so. While a carrier must have a good product, a solid price, and excellent claims, in a tie, the agent with the easiest process for placing and servicing business wins the deal. CSRs have significant influence in the placement decision and the CSR community, like other roles in the industry is in the process of undergoing a generational shift with older CSRs looking at retirement and younger millennials entering. This generational shift means that carriers are looking at how to provide additional tools and support such as gamifying the training process, providing additional help text and supplying more documentation as transactions occur.

 

CIOs described their own efforts in prioritizing connectivity with the agency management solutions and discussed the high priority that portals take when it comes to making IT investments.

 

Overall:
This event gave CIOs an opportunity to share ideas with their peers and the mix of research and the CIO discussion of the practical applications was seen as extremely valuable by the participants.
Additional events will occur over the summer in the Midwest and in the fall in the Northeast.

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Insurers are investing in data scientists

A few weeks ago I described a few results of a survey we have launched during the last quarter of last year around the role and importance of data in insurance. My blog post can be found here. Since then we have published a report summarizing the findings of this survey that our members can find here.

An interesting trend we identified based on this survey was the need for insurers to hire more data scientists with advanced degrees and strong background in data and computer science. Indeed we think technology is not enough nowadays and insurers need to also invest in people with deep skills in this domain. I recently came across the following article from INN: Sentry Insurance Gifts $4 Million to Grow Data Science. It seems to validate our findings and I expect to see more of these kinds of initiatives going forward.

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One last look back at Google Compare

It’s old news by now that Google is shutting down Compare, its financial services and insurance comparison site. It wasn’t open long – less than a year. When Compare was first announced, the industry reacted with warnings that this was a major disrupter in insurance distribution. With the massive audience that Google has, the industry expected that Google was going to swoop down and capture the online insurance market – which by the way is pretty big – typically 20-25% of all new auto policies are purchased on line according to those who track this type of metric.

 

So what happened? Well, the fundamental idea of capturing the online market is a sound idea. And Google was pretty smart at avoiding all the hard technical costs of building out the aggregator engine by partnering with those who had already done the hard work – like Compare.com, Coverhound and Bolt.

 

But the business model of an online aggregator is hard. There are three models – online agents – who earn full commissions. That wasn’t really Google’s deal. They weren’t interested in any of the after service or ongoing relationships. A traffic generator – sending a potential lead to another site and being paid for the eyeballs. Well, that’s not very lucrative either – and frankly, Google can make money through their own advertising and search capabilities. Spending the money to build an online quoting front end only adds cost to something they already do quite well, thank you.

 

So why would Google have invested the money in an online quoting front end? To take advantage a lead model.   With a lead model, the aggregator collects data, processes a request for quote and sends a highly qualified lead to be fulfilled. The price per lead is significantly higher than the price for traffic.  But there’s a fundamental challenge with this model. For the lead to be valuable to a carrier, the lead has to actually purchase insurance. And because a lead is sold to multiple carriers, the acquisition costs rise for a carrier.

 

Let’s say a lead is sold for $5 to ten carriers. The aggregator makes $50 for that lead. But only one carrier actually writes the lead.   If ten leads are sold, and each carrier writes one, the aggregator makes $500 but the carrier has spent $50 for that lead. Play out a competitive situation where the leads aren’t equally distributed, and you can see that the acquisition costs can rapidly rise. If I only get one lead out of twenty, I’ve spent $100 for that lead. If I only get one lead out of $30 I’ve now spent $150 for that lead – which now is pretty close to what I’d probably be paying an independent agent.  And what if the customer NEVER buys – and simply goes in looking for prices so they have a comparison to an off line model? The numbers rise rapidly.

 

So while carriers are very interested in participating in the online marketplace, they really want to work with those aggregators who are successful at converting traffic to leads that will convert to policyholders. The online agent model is attractive as the carrier doesn’t pay until the policy is written. The traffic model is similar to online advertising, so that works as well. But the success of a lead model is a combination of the price of the lead and the likelihood of closing that lead – which is dependent on the number of carriers the lead is sold to and the propensity to buy.

 

So here’s where Google lost an opportunity with Compare. They thought they could convert relatively low paying traffic into high paying leads simply by putting a quoting front end on and didn’t think through what they could have done to improve the conversion rates.

 

With their analytical power, Google could have created a truly disruptive experience by providing consumers with a powerful recommendation engine. Google is a master at finding out information about individuals from social media and other publicly available data. They could have created an algorithm that used the information about the lead to tailor and target recommendations.

 

Personal auto isn’t that hard. If we were talking about commercial, it’s a much harder set of algorithms. But honestly, it’s not that hard to create something that tells a customer that given their location, the value of their home, the type of vehicle and their driving record, 64% of people like you choose this limit/deductible/additional coverage etc. And getting a personalized recommendation drives conversion. When people trust that the advice is good, they’re willing to buy. We’ve seen many examples of how inserting advice and recommendations into the quoting process drives conversion.

 

When I personally go to get an online quote – it’s part of my job – I enter information that shows I own a home in California and I drive a luxury car. So why oh why do the aggregator sites today recommend minimum limits coverage to me?   My car is worth more than that. Today, trusting the advice from an aggregator site is dicey. And that is why policyholders continue to rely on the advice of an agent.

 

Does this mean the role of aggregators is dead? No.

 

But Google missed a major opportunity to truly disrupt by providing a powerful recommendation that actually used their ability to easily find information about individuals and combine it with their powerful analytical abilities. They ended up creating just the same thing we had back in the 90’s. Kudos to them for killing it quickly – but they missed an opportunity to use their capabilities to make the model work.

 

 

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The secret to profitable organic growth? Deliver a customer experience that your competitors can’t match

Maintaining growth and relevance is more challenging than ever for carriers. It is a hyper-competitive market with new entrants, a poor investment market, and rapidly changing customer expectations.

 

• Customers are demanding a different relationship model from their insurers. They are increasingly demanding transparency and simplicity with simpler contracts, clearer pricing disclosures and tailored recommendations with extraordinary service.
• They are more and more self-directed and using non-traditional third party advice. Clients are more financially literate and are increasingly relying on aggregation and comparison tools. They look more for concepts than for entities – diminishing the value of advertising.
• They are demanding collaboration and participation in product choices, claims, and risk management. They expect proactive communications that demonstrate knowledge of the customer. They expect customer service to be fast, excellent, and available through any channel they choose.

 

Whether you define your customer as a policyholder or an agent, (it’s a matter of religion in this industry), expectations are being driven by innovations by non-insurance players. Uber provides instant information availability without long waits on the phone, which gives control and transparency to the customer. Amazon recognizes their customers and provides product and service recommendations that come to the customers without any additional work. Apple provides variations on their products that allow customers to choose among the different value propositions and the flexibility to change those purchases with minimal hassle.

 

But limited customer interactions in insurance have pushed incremental innovation to focus on products rather than customer experience.

 

As ardent incrementalists, most players in the insurance industry look at the customer experience from the inside out by thinking about all the points where WE touch a customer. However, being good at the discipline of focusing on customer experience requires taking a broader view of customers’ lives and the context in which they are interacting with the brand. Those who excel at customer service are masters at looking from the outside in, understanding what is going on in a customer’s life when THEY touch us and then delivering unexpected signature moments across a broader expanse of experiences.

 

Certainly efforts have been made to drive effectiveness for insurance processes, nevertheless, there are still many areas where improvements are possible. The way forward requires a comprehensive digital view that goes well beyond process automation. By recognizing that customer experience is about more than designing a clean and friendly user interface (UI), insurers can move beyond the superficial and achieve real results.

 

The technology is there to support this. But what keeps us from moving forward? Surprisingly, few carriers have anyone who owns the entire customer experience. Customer experience is usually owned by organizational silos. When no one owns the experience, it becomes a low priority. If there are limited metrics, or metrics which don’t focus on the quality of service from a customer viewpoint, then there are too many competing priorities to drive investments here.

 

Digital makes possible a level of engagement that was never possible before. But beware – the democratization of digital technology is eroding competitive barriers. And to meet customer expectations in an increasingly digital world, carriers will be required to make both cultural and physical shifts to incorporate new systems and processes while harnessing data and using real time analytics.

 

Like it or not, customer and distribution partner behaviors and expectations are changing the business model. It is not just about reducing expenses and writing more business. Carriers have to look at new distribution models, new product types well beyond pure indemnification products, and revolutionizing the customer experience.

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