We’ve had an awesome time with NAMIC’s Connect Differently option for their Annual Convention! A few days ago we posted an article about all their Millennials related sessions and today we are focusing on some technology related sessions. We watched three sessions all closely related to the very important topic of Technology: “Emerging Technology and Board Responsibility”, “Mutual Survival” and “Game Changers”.
Emerging Technology and Board Responsibility:
This session was presented by Novarica, a research organization dedicated to the insurance industry.
The session started by talking about New Entrants into the insurance business which include both venture capital backed startups and carriers with new high tech models.
There are literally hundreds of new entrants and new ones being announced every day. This is happening because they recognize that we are not providing a great customer experience. Also, the startup community have been going after the finance industry for years and they’ve picked all of the low hanging fruit already. The insurance industry is widely perceived as inefficient, product centric and old fashioned by the tech world and we manage literally billions of dollars in premium, all of which makes us a big juicy target.
New technology and big data tools allow looking at risks in new ways. More than anything what we’ll see is our traditional business models getting challenged. They used Hiscox as an example because they have issued 75,000 small commercial lines policies for tech literate buyers through a direct model, without an agent. This is only the beginning!
They also talked about Lemonade which made a big splash recently for raising a lot of investor capital and just this last month for actually going live (in one state) as a peer to peer personal lines insurance carrier. If you haven’t checked out Lemonade go ahead and check them out, what they’re doing is pretty cool and whether they’re successful or not, they’re going to make a splash.
Historically carriers have been focused on risk transfer. In the future we’re going to have to transition some and be more focused on customer expectations and engagement. Our customers expect us to be as good as Amazon/Google/Facebook, etc. If we don’t figure it out, somebody else will! Millennials are not brand conscious, experience is king for them. They would be more than happy to buy their insurance from Amazon without a second thought.
Overall the biggest lesson from the session is that carriers need to transition from tactical innovation to strategic innovation of whole new experiences. In order to do this, we’re going to be not just tech savvy, but at least partially made of true tech people. The presentation reported that most carriers don’t even have a true digital strategy.
In personal lines, loss severity and frequency will decline which will bring down premiums, especially with self-driving vehicles (auto insurance) and the internet of things (home insurance).
Insurance is an information business, we don’t actually produce any widgets. Let that sink in for a moment. We are an information business that is not good with technology and is largely being ran with decades old mainframe technology. Clearly, that’s a problem!
Novarica did some surveys of insurance company boards and found:
- 93% of CIOs said no one in their board has actual tech experience
- 71% indicated boards don’t appreciate important of tech
- Most CIOs do attend board meetings but their role is tactical, not strategic
- Mostly answering questions like: How is X project coming? Will it be on budget?
- Only 1 out of 28 has a board level strategic technology committee
They also talked about how technologies that the insurance industry considers “emerging technologies” are actually technologies that are already here like drones and big data. We’re not even thinking about true emerging technologies that are only in the works.
They gave the following advice which we agree wholeheartedly with:
- Bring in board members from technology with actual tech experience
- Create a board level strategic technology committee
- IT must move from tactic to strategic priority
- Make technology an ongoing dialog and evaluate every time the board meet
Carriers have historically been internally focused and risk averse and the new customer expects external focus. Basically, we must become technology companies that sell insurance.
The session started with this really interesting graph. Here at InsNerds.com we keep close tabs of ongoing technology and insurance trends and spend a lot of time thinking about where the industry came from and where it’s going, but we had no idea things had truly changed this much! One number that we found really fascinating is the inflation adjusted cost of a median home: $31k! Basically, if you’re part of a dual income professional couple you could buy a house with a one year mortgage. We’re sooo envious!
From a capital leverage perspective both mutuals and stock insurance carriers are MUCH safer today than they were in 1974, they have become much less leveraged. We found it very interesting that 13% of insurance carriers are over 100 years old!
Historically the primary reason that property casualty insurers have failed has been for under-reserving (45%). Also interesting 12% have failed because of Rapid Growth and only 7% because of Catastrophe Losses. Also very interesting that since 1986 55% of Stock companies and 31% of mutual companies no longer exist in the same form, they either went broke or were acquired. (Keep that in mind next time you’re job searching, Mutuals are more stable!)
They identified that 5 important trends to focus on:
- Auto safety
- Low interest rates and longevity
- Rising healthcare costs
- Big data and deep learning
They talked about the potential insurance consequences of not only driving for Uber/Lyft but also for taking an Uber/Lyft. (Note: Uber/Lyft both have $1M liability policies to protect you while you’re riding in an Uber/Lyft so you are covered).
There is a move towards insurance as a service. Being able to buy insurance for a single trip, for a single quick car rental or a single day you’re spending at an AirBNB.
The key advice in the session is about transitioning from paying for claims to being a full risk management partner. The industry could do things like work with auto manufacturers to identify what they need to fix to lower claims, what is causing a lot of losses. They also talked about creating stated value policies that pay the car owner who owns a car whose manufacturer goes out of business, for example if Tesla goes out of business and your shiny new Model S drops in value overnight you could collect that type of insurance and go buy another car.
If we figure out how to integrate into our customers’ lives they’ll stay with us even if they no longer own vehicles. We need to understand the value we provide and come up with non-traditional products.
Carly and Tony have been discussing the possibility of biotechnology/personalized medicine/etc hitting an exponential curve and life expectancies suddenly rising fast but we haven’t actually written an article about it or heard a word about it on any previous insurance conference. They actually said “The first person that is going to live to 150 years old has already been born.” Not much detail beyond that was given, but let that sink in. We agree!
For reference, in the last 50 years, US women have gained 4.6 years in life expectancy. Japanese women have gained 9.6 years. We’ll need to design products to deal with longevity risk, the risk of outliving your retirement savings.
Tony lived in Northern California for 2 years before moving to Atlanta and during that time he made some friends in the startup world and got a bit of an inside view into some of the first startups that are coming after the insurance industry. We even wrote a very successful article about InsureTech startups and Tony was planning on proposing a session for the CPCU Annual Meeting in Hawaii about the startups. Life got in the way and the session never got proposed, Tony went through a big life transition, moved a few thousands miles and ended up being an underwriter. The InsureTech world exploded during that time and now he deeply regrets not having proposed the session when things were just getting warmed up. Because of this we were not surprised to learn that:
The presenters explained that even that slide is outdated, their newest research has found that there are 500 active startups trying to disrupt the insurance industry. For most insurance professionals (and even insurance executives) this is shocking. The world is changing right under our feet, the startups are coming for us and they’re hungry!
In 2015 $2B flooded in to fund hundreds of new InsureTech startups. Over 30% of the startups are focused on disrupting distribution. If you’re only writing through independent agents you ARE going to be disrupted. Personally, we think all carriers are going to be disrupted in some way. It’s fair to expect that 90% of the startups will fail but 10% will succeed. Think about that, that’s 50 successful startups disrupting the industry, 15 of them in distribution of insurance products.
Carriers are choosing to handle this in different ways, for example Axis has a group of 10 people, living in Silicon Valley, whose sole job is to figure out ways to disrupt Axis. They’re smart, you’re much better off disrupting your own business than waiting for somebody else to do it. If you think you’re too niche and won’t be disrupted, remember Kodak thought the same! You need a disruption lab, even if it is a single person.
Google Compare came and left, and will come back better. That battle is not over, not by a long shot.
Customer demands are shifting and changing, especially as the Millennials become a bigger part of the insurance buying market.
There are 4 Game Changers:
- Amount of capital coming into the industry (think BILLIONS)
- Digital transformation
- Emerging technology and big data
- Quickly evolving customer expectations
“The world of the Jetsons is here” said the presenter. They only element that hasn’t happened is flying cars, and in some ways even the Jetsons wasn’t advanced enough, being made in a world of manufacturing, they couldn’t envision remote workers who are now part of our reality and probably going to become more and more in the next few years.
We’ve all seen pictures like this one, but we love the question that this one asks: What will be the insurance headline? Will it be “World’s largest insurance company carries no risk?” or maybe “World’s largest insurance agency has no agents?” Who knows, it’s too early to tell, but if we don’t disrupt ourselves, somebody else will. Right now we even have trouble insuring the companies mentioned above: How do you insurance a company that owns no assets but uses millions of dollars in other people’s assets?
This is a great question we had never really thought about and it’s incredibly interesting how the carries answer differently. Carriers need to understand that ultimately the agent is a distribution channel, and not a customer, they are a business partner, and at least in commercial lines, a VERY important business partner. Ultimately, only the customer is your customer.
Customers today expect data anytime, anywhere, on any device. How do we serve those customers? How do we become present in the customer’s life (and top in their mind when they face risks)? Customers expect amazon/apple experience on all their purchases, INCLUDING INSURANCE.
Insurance has a unique opportunity to really push education out there that prevents and mitigates risk, but it must be on youtube, not hidden away in your system.
At least one carrier already allows their underwriters to work on a tablet from anywhere (the name wasn’t mentioned, but we’d love to know!)
Carriers now choosing for cloud instead of self-hosted systems 58% of the time.
All carriers are currently dealing with updating or replacing their core systems, you need to get those finished, move on and focus on how to best serve your customers without your old tech getting in the way. It’s no longer an arms length relationship, even if using independent agents as your distribution.
Overall, we’re really enjoying the sessions that NAMIC put together this year. We might write one more article about the conference. If you attended in person or virtually, please share your thoughts with us! All the videos are available for 90 days and you can still buy access to Connect Differently (got some training budget you need to utilize before the end of the year? *hint hint*).
NAMIC offers an online only option for it's conferences called Connect Different. It's not perfect, but it's the only insurance conference we know that offers this, so good for them! They gave us a free pass this year in exchange for us blogging about it.
Emerging Tech and Board Responsibilities: This is a time of BIG change, you need to make sure you have real tech people in your board. Most carriers don't. Key point: carriers need to transition from tactical innovation to strategic innovation of whole new experiences. For Millennials experience is king, not brand. We are an information business that is not good with technology and is largely being ran with decades old mainframe technology. Clearly, that’s a problem! Warning Will Robinson, Warning! 93% of CIOs said no one in their board has actual tech experience, 71% indicated boards don’t appreciate important of tech, only 1 out of 28 has a board level strategic technology committee.
Mutual Survival: primary reason that P&C carriers fail has been for under-reserving (45%). 12% because of Rapid Growth and only 7% because of Catastrophe Losses. From 1986: 55% of Stock companies and 31% of mutual companies no longer exist in the same form, they either went broke or were acquired. 5 Important trends: Auto safety, Low interest rates and longevity, Rising healthcare costs, Big data and deep learning, Cyber.
Game Changers: VCs investing in InsurTech like there's no tomorrow and they're coming after us! 4 Game Changers: Billions coming in, Digital transformation, Emerging technology and big data, Quickly evolving customer expectations.
Great Sessions --> Long Article --> Long TLDR. It's math, don't shoot the messenger.