To the Disruptors Go the Spoils Tom Caprel, Board Member | Jul 27, 2016

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Harvard Business School professor and disruption guru Clayton Christenson asserts that disruption displaces an existing industry or technology, producing something new and more efficient. It is at once destructive and creative.  Google promises to reinvent cars as autonomous vehicles, Amazon promises to reinvent shopping (again) using drones, and 3D printing could disrupt manufacturing.

The insurance industry is spawning scores of surprising disruptive innovations from bottom-of-the-pyramid entrepreneurs bringing blockchain technology, internet of things (IoT) connectivity, and creative aggregation to a market hungry for new efficiencies.  There is good reason to think that the pace of change will increase, as computing power increases and more “things” are attached to the internet, expanding its disruptive influence into new realms.  

Here are just a few examples of disruption from different perspectives in the industry:

  • “A majority of carriers currently only offer premium discounts to customers [who sign up for usage-based insurance], which poses a challenge to carriers as they gain customers through lower monthly rates, but simultaneously limit growth. The potential is there for insurers to offer customers other benefits such as, roadside service, maintenance and safety tips,” says Mark Breading (partner at Strategy Meets Action)1.
  • Many carriers continue to be affected by the nimbleness of program administrators, whose value of premium written has almost doubled since 2011 (TMPAA -2015 Program Business Study2).  Books of business are shifting to other carrier and non-carrier capital sources more rapidly than ever before.
  • “The emerging game changer is the change in analytics, from descriptive (what happened) and diagnostic (why it happened) analysis to predictive (what is likely to happen) and prescriptive (determining and ensuring the right outcome).” Jamie Yoder, PwC Global Insurance Advisory Leader3.
  • The price of traditional reinsurance, particularly property catastrophe reinsurance, has fallen in response to disruptive alternative capital that has grown in influence to become a price maker rather than a price taker. (Reinsurance Market Outlook AON Benfield 1-20154)

Despite this trend toward disruption, Novarica’s Matthew Josefowicz suggests that insurance companies may not see the statement “Adapt or Die” as a rallying cry, because “it takes an insurance company a long time to die. Policies are sticky. Renewal rates are high as long as you don’t raise premiums or stop paying claims.

“A more accurate, but maybe less catchy slogan might be “Adapt or Decline.” Without digital channels, effective data analytics, and agile core systems, insurers will face declines. Their agents and customers will first tolerate and then resent their poor communications capabilities. Their actuaries, underwriters, and claims adjusters will start to under-perform the market for lack of data and analytical capabilities. Their product freshness will grow stale compared to more agile peers as core systems inhibit speed-to-market.

“Legacy replacement is not about avoiding death – it’s about making the hard decision to arrest the decline sooner rather than later.”5

For the longest time, the insurance industry and disruptive innovation were mutually exclusive terms. Not anymore as channels are being digitized, the use of aggregators as a channel is increasing, and the internet of things has insurance companies thinking about real-time risk protection as opposed to indemnification.  Whether you believe it’s “Adapt or Die” or “Adapt or Decline”, the disruption of the conventional insurance chain is well underway. For those who ignore it, dire consequences await.

1 Santana, Danni. "Usage-Based Insurance Is Running Out of Gas." INN Breaking News., 5 July 2016.
2 Target Markets. "2015 Program Business Study." Target Markets Program Administrators Association, 18 Oct. 2015.
3 PwC. "Disruption Is the New Reality in the Global Insurance Industry." PwC Press Room, 15 June 2015.
4 Aon Benfield. "Reinsurance Market Outlook - January 2015." AON Benfield Thought Leadership, Jan. 2015.
5 Josefowicz, Matthew. "Adapt or Die? Maybe Not, for Insurers." Insurance Experts' Forum. Insurance Networking News, 6 July 2016.

Thomas Caprel has been an entrepreneur for more than 25 years.  He serves on numerous boards and as an advisor to several technology incubators.  He is called upon by senior leadership to help enrich team performance, and transform operations to boost growth.  BreakThrough Moments Methodology enhances team performance and operational effectiveness while realizing positive, lasting behavioral changes that result in transformative personal and organizational results. Mr. Caprel holds a B.S. in Political Science and an MBA from Western Illinois University. Mr. Caprel has worked with Instec as a strategic advisor since 2008.