In the past, innovation tended to be an occasional thing for insurers—particularly when it came to breakthrough ideas. Now, as I argued in my last blog, there are several reasons that make innovation more central to the whole insurance enterprise.
Important drivers include unfriendly capital markets, increasing regulatory requirements, an almost daily war for talent, very stiff price competition in saturated markets and low demographic growth in most mature markets. But I want to focus on two drivers that are perhaps more significant when it comes to innovation.
The first of these is consumer pressure. There’s ample evidence that the nature of today’s consumers has changed radically. This new breed of consumer is now connected pretty much all the time, thanks to the massive uptake of the new generation of mobile devices like smartphones and tablets. Generally speaking, power is shifting to the consumer—and insurance is no exception, as a recent study by BAK Basel Economics and the Swiss Association of Insurers showed. Some even talk of a paradigm shift from “insurance being sold” to “insurance being bought.”
The connected consumer is empowered by her ability to compare offerings very easily. This transparency means that every service provider—including insurance companies—is now automatically competing with the best. Increasingly, too, consumers are becoming habituated to levels of personalization and service in one industry online—and expecting it from others.
Increasingly, customers are building special interest communities and some companies, like Friendsurance (www.friendsurance.de) are using the power of social networks to broker exceptional insurance deals. Friendsurance uses traditional insurers to cover large claims, but uses groups of “friends” to cover smaller claims. It’s an attempt to re-interpret the power of the original mutual society in the Internet Age, and its business model has some similarities with South Africa’s stokvels. Learn more about the Friendsurance model and stokvels, or rotating credit unions/saving schemes.
Along with this increased ability to compare offers and pricing, one must realize that consumers are growing accustomed to changing providers with the click of a mouse. In other words, the dynamics of the simple sale (which merchant is selling the cheapest gas heater?) is increasingly being applied to the complex sale, a category into which insurers fall.
My main point: empowered consumers have hugely raised expectations, and insurers will need to innovate as never before to meet them.
The second driver is the entry of new competitors into the insurance market. These are non-insurers that are really shaking things up because they don’t have the legacy of existing business processes, patterns of thought or technology systems to deal with. Among them, we are seeing telecoms companies, retailers and car manufacturers. The huge risk here, for insurers, is that they become mere “product factories,” separated from customers and subject to low margins. In particular, this would decouple them from the claims process, which remains the most important way to build strong customer loyalty.
In my next blog, I want to look at the current state of innovation in the insurance industry.