From the point of view of insurance incumbents, the grass does look awfully green for insurtechs – companies that use technology to improve insurance industry efficiency and lower its costs.
A joke among insurtechs is that the optimal insurance company has three employees: a computer, a dog and an actuary. The computer runs the insurance company, the actuary feeds the dog and the dog bites the actuary if they try to touch the computer.
So many insurtechs boast of seamless operations, low head counts, intermediary-less (and highly scaleable) operations and exponential growth rates. How can an incumbent ever hope to compete?
According to a recent Willis Towers Watson report on insurtech, 2017 funding for insurtech ventures totalled US$2.3bn, a 36% increase on 2016. In addition, 83% of 2017 insurtech ventures had an insurer or reinsurer as investor. However, with very few exceptions, the insurance industry has so far proved quite resilient to disruptors, despite the best efforts of venture capitalists.
The good news is that insurtechs usually attract new customers who have never purchased insurance before. There exists an opportunity for insurers to learn from the successes and errors (there will be a lot of these) of the entrepreneurs who have embraced this brave new world.
The insurance value chain is made up of hundreds of dynamic moving parts: marketing, lead generation and sales; underwriting and risk; customer service; claims management, and customer retention. Each of these areas has experienced innovations that have caught the industry’s attention and imagination because of their simplicity. Some are high-tech, some low-tech and some are no-tech. The ideas seem to have plenty of upsides and limited downsides, and some of these concepts may be able to be imported into traditional insurers.
Marketing, lead generation and sales
Life insurance companies with career agents usually expect the agents to find their customers and close their sales – essentially, to both hunt and gather. Hunting and gathering are two very different skillsets for agents to master. Indeed, most career forces only have a few agents (less than 10%) who qualify for the Million Dollar Round Table (MDRT) – a badge of prestige. Why does no one mention the fact that 10% is a really low number, though? This must mean that there is a chronic imbalance of remuneration, which results in an unhappy and unproductive sales force.
Certain insurtechs are seeking to address this imbalance by focusing on lead generation (hunt), leaving agents to sell (gather). They aim to locate high-intent insurance customers, who are screened, verified and delivered to the agency for a quote – customers not generally found by traditional bricks-and-mortar company lead generation methods. This does not devalue leads gathered by other, more traditional means; rather, it adds a new cohort. The principle of ‘divide and conquer’ should benefit all distribution channels.