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The Eureka Moments of 2014 in Insurance IT

Denise Garth | December 16, 2014

Archimedes, the ancient Greece scholar, is credited with making the famous exclamation “Eureka!” when he realized he had found the method of determining the purity of gold. The phrase caught on, and has been passed down to our culture to be used to express the excitement of discovery, inspiration, or awareness of something new that will impact and change the world (or parts of it).

The insurance industry has experienced many eureka moments in 2014, from the accelerating pace of change, disruption, transformation, and innovation, all with huge significance and an unexpected intensity. Each of these eureka moments is influencing the vision and strategies for Next-Gen Insurers.   

At the beginning of 2014, we predicted a defining year for the insurance industry. And this has turned out to be a year in which new and emerging technologies have enabled transformation and innovation, and a year in which the focus on doing things in new ways will forever change the business of insurance. What a year it has been. So, what were the eureka moments of 2014? 

A digital revolution is underway. It is massively disruptive, foundational, and is reshaping all businesses, including insurance. The digital revolution is driven by the ubiquitous connectivity of customers via the Internet and emerging technologies that are demolishing traditional, historic business assumptions. Being a digital insurer is so much more than just having a website or portal for customers and agents, more than using channels like social media as a point of sale vehicle or advertising arm, and more than having a mobile app to report a claim.

It is powerful. The combination, integration, and intersection of the website, mobile platforms, social media, mobile messaging, location services, crowdsourcing, business and customer applications, online video, content management, customer communications, sales enablement, branding, and marketing work together to create a seamless, engaging customer experience. And sophisticated data and analytics that know, influence, anticipate, and involve the customer create a next-gen customer experience. After all, in today’s world, it really is all about the customer, their experience, and earning their loyalty. In this revolution, insurers must embrace digital to win and be relevant in this new digital world. 

A new competitive landscape is emerging. A new breed of competitors is rising out of the companies that grew up digital—Silicon Valley tech companies like Google, Facebook, eBay, Apple, and others. These companies are on the forefront of the digital revolution, redefining everything from business models to customer engagement, revenue models, partnerships, customer empowerment, the use of data and analytics, and more.

In response, centuries-old industries like insurance are feeling the pressure to reimagine their businesses. The tech companies have challenged, disrupted, and changed many industries and businesses, inciting broad moves by others that have emerged as or transformed quickly into digital businesses that are beginning to impact insurance. Consider retail companies like Overstock.com and Walmart selling insurance in the US, or Tesla selling insurance in the UK, or large tech companies like Google and their new insurance comparison site in the UK, or IKEA selling insurance in their stores in Sweden.

While these challengers may not compete directly by developing insurance products and underwriting them, they are competing in far more insidious and influential ways. They want to capture the customer relationship, loyalty, pocketbook, and much more. And to do it they are using innovative offerings, engagement, and business models. New competitors will own and manage the customer relationship, and ultimately how the customers spend their money and that is far more dangerous and disruptive. 

The shared economy is shattering economic assumptions. Based on point-in-time needs, the shared economy empowers individuals and businesses to access specialized skills, resources, goods, or services from anyone, anywhere, anytime. It is spawning new business models that are leveraging the combination of crowdsourcing, open innovation, and technology. As Susan Shaheen, adjunct professor at the University of California, Berkley, recently noted in an SMA Innovation Ecosystem Webinar, Shared-Use Mobility Market: Trends and Definitions, the shared economy is creating a foundational change from ownership to access. These new business models are challenging decades of business assumptions, models, pricing, and growth that were based on an assumption of ownership rather than temporary access or subscription.

So, if people increasingly choose not to own homes or vehicles, but rather to seek access only, their need for insurance is drastically altered, changing the insurance fundamentals from risk models to pricing, products, and services, and ultimately the customer relationship. No business can face this magnitude of change alone, and harnessing the potential of the shared economy and all its possibilities will mean joining the ranks of those using crowdsourcing and open innovation.

Traditional companies and their brands cannot afford to be left out of the shared economy trend. The disintegrating long-held business models and assumptions, along with customer and revenue growth models, are making it mandatory. In this new shared economy, traditional companies like insurers must embrace crowdsourcing and open innovation and adapt quickly in order to be relevant—perhaps even to survive. 

Emerging technology adoption is exploding. The pace of introduction, experimentation, and adoption of emerging technologies is gathering speed and having a profound and multidimensional impact on lives, businesses, industries, and the economy. This comes at a time when the convergence of advancing technologies, increasing customer expectations and demands, and access to capital for new technology start-ups are magnifying the extremes—from disruption and destruction to innovation and transformation.

And the impact to the insurance industry will be more profound, pivotal, and game-changing than ever before. Never before has such a breadth and depth of technology advancement had as much influence as what we are experiencing now. Based on SMA’s research report, Emerging Technologies: Reshaping the Next-Gen Insurer, nine emerging technologies are seeing an impressive and rapid adoption – 3D Printing, the Internet of Things, Drones/Aerial Imagery, Driverless Vehicles, Wearable Devices, Gamification, Artificial Intelligence, Semantic Technologies, and Biotechnology.

Five of the nine are projected to arrive at or go well beyond the tipping point within three years. Even more impressive is that all nine are projected to surpass the tipping point in five years. The failure to develop strategies, experiment, and invest in these technologies today will place many insurers at significant risk, because the amount of time it takes for the slower movers in the industry to catch up to the industry leaders can be as much as five years. And given the pace of adoption of these technologies by insurers, that amount of lag time carries more potential for damage than it did in the past. The astounding influence of these technologies over a relatively short period of time will begin to delineate a new generation of market leaders.

IoT is redefining businesses. Sensors are increasingly being built into products or embedded into things such as animals, land, people, and more, generating massive amounts of data that could be used by companies, including insurance, to offer new products, services, or solutions. It is estimated that by 2020, there will be 8 billion people on earth and 50 billion connected things with 5 million apps, representing nearly 6 things per person. In SMA’s Emerging Technologies report (mentioned above), the IoT is leading in the adoption of emerging technologies by insurers, with nearly a quarter of insurers in some phase of deployment, putting adoption close to the tipping point already.

These results accentuate the overwhelming conclusion that nearly every business, including insurance, must and will become an Internet of Things (IoT) business, bringing traditional, physical products into a new digital world. And because these products are connected 24/7, the massive amount of data that will be available to create new and improved value for customers will become table stakes. For insurers, this will shift the focus from risk-protection-only products to customer-value-based products and services, including risk avoidance, risk mitigation, and even new value-added services, potentially from outside traditional insurance.

The IoT has the power to create completely new business and revenue models, to generate new business value in order to counter product commoditization, to enable mass personalization, and to gain deeper customer insights for creating new products and services. Those who do not embrace IoT quickly will run the risk becoming irrelevant. 

Autonomous vehicles are already here. While Google gets a great deal of press about their driverless vehicles, many traditional automotive manufacturers are quietly preparing plans to introduce their own autonomous/driverless vehicles beginning in 2020. But more importantly, in 2016 these manufacturers will begin the transition to autonomous vehicles by introducing cooperative solutions that will include "traffic jam assist" systems that take over braking, steering, and acceleration for vehicles moving along in low-speed traffic.

But the real game-changer will start in the next couple of years, with the introduction of technology solutions that can be installed in existing vehicles, creating autonomous capabilities immediately and at a relatively low cost. So while the regulatory evaluation on driverless vehicles continues, autonomous capabilities in both new and existing vehicles will rapidly disrupt business model assumptions of vehicle insurance, including risk factors, premium models, distribution costs, claims costs, and reinsurance costs.  

Data is the new digital currency. Step aside, Bitcoin, because data is the new currency in the digital economy. Data has always been seen as the lifeblood of the industry, but its strategic value is at the forefront in this new digital world. And big data, BI, and analytics are steadfast as top priorities for insurers and continue to take the insurance industry by storm. Data is critical to the acquisition of insights about customers, the offerings of products and services, the creation of new products and services, and more. Increasingly, data is being connected to the cloud, allowing data to be available anytime, anywhere, and in any way.

What will hold insurers back (and be significantly detrimental in the new digital world) are the lack of data management strategies and the deficient level of data mastery maturity. Both strategy and mastery will be needed in ample supply to unlock the full business value of data, whether transactional, unstructured, internal, or external. 

Pace of change demands innovation and collaboration for future success. These are critical components for digital companies today, but the success with which they are employed will separate out the market leaders of tomorrow. The flow of information to engage collaboration through a network of resources and communities is vital to developing new products and services. The collective intelligence of ecosystems through collaboration promotes entrepreneurship, provides a greater understanding of new technologies, and stimulates the learning and creativity that together are key characteristics for future success.

With the explosive pace of change, the absence of collaboration and innovation creates significant business risk and a potential for loss of relevance. Innovation is the price for strategy enablement and the creation of possibilities. The powerful combination of these two concepts, innovation and collaboration, will be indispensable for companies in positioning, retaining, and more importantly, leapfrogging market leadership status.

Insurance industry disruption has begun and will tear down the business assumptions and paradigms of the last 20-30 years. Insurance leaders that can see and define a future vision; create a culture of innovation; and identify, understand, and leverage these eureka moments by embracing an outside-in approach will position themselves as the new leaders and winners in this fast-paced environment of change and disruption.

Embrace the disruption. Re-envision, reinvent, and change the business. And most importantly, embrace innovation and collaboration with an ecosystem of outside-in thinking and collective intelligence to inspire and accelerate your transformation. Be a disruptor and an innovator. Become a Next-Gen Insurer.

Denise Garth, Partner at Strategy Meets Action, is well known as an innovation leader in insurance. With a unique combination of strategic and operational experience in the industry, Denise is committed to helping insurers create and accelerate new ideas by capitalizing on established and emerging technologies. She can be reached at dgarth@strategymeetsaction.com.

 


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