Disruption has arrived in the insurance industry. That’s the conventional wisdom these days, though some still dispute it. But is it pervasive throughout the insurance value chain?
Disruption appears to be mostly centered on how we sell and distribute insurance. Upstart entrepreneurs and old stalwarts alike are touting new distribution models, including peer-to-peer selling, concierge advisory services, chat bots, curated choice, and micro-targeting, among others. These new initiatives have everything to do with the sale of insurance, but fail to penetrate deeper into the way our industry does business.
Much of the innovation on the sell side of insurance has been fueled by a dramatic growth in available investment capital, young and energetic millennials who bring new ways of thinking, and modern technologies that offer inexpensive application development and deployment. The fact is, though, that most of the insurance products sold through these new ventures are often the same old thing. Matt Josefowicz of Novarica may have captured this best when he said there is a great “unwillingness to self-disrupt current models”.
Conversely, a product-first focus has led to great success for program specialists. These innovators are at the forefront of product-led innovation, and their market appeal explains why the program space now totals $32 billion, and is growing at a double digit pace. This is still a small slice of the industry as a whole, but traditional players are beginning to take notice as the industry continues to see flat prices, and deteriorating operating results, and insurers seek new opportunities for growth.
The urgent need for underwriting income can be solved through specialization in both product and underwriting. These are the key tools of the program writers who are disrupting Main Street players who can’t (or won’t) innovate accordingly. Long-time program specialists like Irwin Siegel Agency offer tailored products for the social services industry; carriers such as Markel cater to their program partners with highly specialized products across industries and classes; and insurer Hiscox draws on the expertise of its healthcare and cyber underwriters to provide combined cyber risk/professional liability coverage for hospitals. In each case, the specialization of products is paramount to the company’s success.
Outside of programs, we are starting to see early signals that product innovation is spreading. Take TROV and their unique, on-demand approach to insurance. Yes, it contains the latest distribution technologies on the front-end, but remarkably the insurance is only in force when you want it to be – a real paradigm shift to insurance traditionalists. A similar thing is happening with Slice, who is filling the gaps left by more traditional insurance products that can’t keep pace.
Some traditional insurers are catching on, too, following in the footsteps of the program writers. Farmers Insurance, for example, recently introduced a new food truck insurance product that combines coverages normally spread across multiple lines of business.
There is no shortage of problems for insurance to solve, with new risks, like drone racing, eSports, and re-usable space vehicles emerging all the time. The question is whether we will provide the products these risks demand. As Mike McGavick, CEO of XL Group, stated at a recent conference, “products are becoming shop-worn and less relevant to the actual use of the clients, and unless they are reinvented, clients will continue to find them not terribly useful.”
Rob Reed began his career in the insurance industry in 1997. Starting as an Underwriter Trainee at Prudential, Rob went on to become an agency interface specialist at CGU Insurance Limited and OneBeacon Insurance companies. Bringing with him deep domain expertise, Rob joined Instec as a Sales Executive, in 2001, and has since helped dozens of insurers solve challenging operational issues with tailored technology solutions. As the Vice President of Sales, Rob executes the Instec mission and serves as a key partner, guiding prospective clients through the sales engagement and initial implementation processes.