How transformative are the changes happening in insurance at the moment? A lot of attention is being given to 'start-up firms’ entering the market, but what sort of impact are they having? In amongst all the talk of disruption, can we pick up the signal of a paradigm shift?
Paradigms are the underlying assumptions and thought processes that guide a particular field of activity. Normally applied to scientific disciplines, they can, with a bit of flexibility, be used to understand how insurance works. Importantly, they can also be used to understand when and how something undergoes transformational change – the so-called paradigm shift. Strategically, paradigm shifts can help firms to differentiate the transformation signal from the transformation noise.
And there’s a lot of transformative noise around insurance markets. Some of it comes from start up firms hoping to attract attention and investment. Some comes from incumbents keen to demonstrate that they’re not in danger of becoming the dinosaurs of insurance. Most seems to come from consultants interested in the fees that attach to opportunities for (as well as the fear of) change.
A lot of good can come out of this. Tired old practices and fixed ways of thinking can be challenged. Cobwebs can be swept from the market and greater flexibilities introduced. This is what happens in markets from time to time and is invariably welcomed by customers and investors.
Red Phones and Meerkats
People point to occasions when this has happened before. Favourite examples in the UK personal insurance market are direct insurers in the early 1990s and aggregators in the 2000s. Yet care is required. Such changes are often just the reinvention of old practices in a technology wrapper. Shiny red phones and meerkats shook up the market but didn’t fundamentally change it.
So are things different this time round? Are we seeing fundamental, paradigm shifts or just a lot of sweeping out of practices long overdue for the bin? Those fundamental change are rarer than many people think. A lot of the ‘transformative changes’ currently being seen in insurance are little more than the clearing away of dysfunctional practices that had suffered from strategic inattention for many years. C!aims is a classic example of this, often experienced as a torturous assembly of hurdles, suspicions and suppliers.
Important to remember that new technologies in themselves do not represent a paradigm shift, but they can on occasion enable such shifts. Think of Galileo and telescopes for example. It is however more common for the big fundamental changes to take place independent of new technologies - Newton, Einstein and Dalton introduced paradigm shifts through fresh thinking rather than new technologies.
Let’s bring this to the current insurance market. Big ideas like telematics have been around since the mid 1990s (I reviewed it back then for Motability’s vast fleet) and artificial intelligence has been around for several decades. These technological artefacts were conceived well before yielding their full potential in association with other developments, such as abundant data.
Some of the uses to which data and analytics are being put in insurance is more characterised by overcoming inefficiencies or barriers that the market has left unaddressed for too long. Other uses seem to focus on exploiting market inefficiencies. These can be very profitable activities, but they do not on that basis represent any form of paradigm shift.
They are more like what in modern business parlance would be called sustaining innovations – ways of making existing products and services better. A few may be labelled disruptive innovations, reaching out to underserved consumers in ‘low end’ segments of the market – people who want simple and convenient ‘good enough’ policies, not ones stuffed with all sorts of bells and whistles.
And then there are the new markets that should also be on the disruptive innovators radar. Insurance is not short of these, with penetration levels for some types of risk pointing to the detachment of a great many consumers from the benefits of that insurance can bring.
A Language Problem
There could be a language problem here too. The oft used term 'disruption’ is invariable applied to the technology, process or interface, and less often in relation to the changes that customer experience. While some consumers are attracted to new things, they are more usually drawn to new ways of helping them live their lives. For insurance, this language problem matters, for the sector’s frequent striving to be more customer centric stems from its habit of being too inwards looking.
What does this add up to? Insurance is being disrupted, and a lot of good will come from that. Yet more than just that is happening. Some form of paradigm shift seems to be emerging as well. That disruption is triggering all sorts of rethinking about what insurance is and how it should engage with the public need for insurance. The danger that insurers face is to see that rethinking through a corporate rather than public lens.
The paradigm shift that seems to be underway in insurance won’t happen in the market. It will happen in relation to the market. It will come from changes in the social relationships between consumers and insurers. The change will not be data or analytic centric - it will be consumer centric. It will come from consumers wanting to get closer to the market and not from insurers wanting to get closer to consumers.
It’s All about Trust
And at the heart of that change in social relationships will be trust. The transformation will only happen when insurance leaders truly transform how they perceive the nature and intent of their relationships with consumers. Does the market recognise this? To an extent, I suspect it does. Surveys point to insurance CEOs recognising that their firms’ growth is tied to trust. At the moment, those ties are seen as dangerously weak.
The response has been a series of big pronouncements on how the sector needs to be more customer centric. And that's great, but with two caveats.
Firstly, there’s the age old problem of walking the talk. It feels like such a recurring theme because it is not being fully addressed. And secondly, it’s slightly wrong. The shift will not come from being more customer centric. It will come from being more consumer centric. That difference matters.
Consumer centric means being attractive to all potential beneficiaries of insurance products. Customer centric thinks only about those people who have already bought your product. In that difference lies what I think will be the paradigm shift for insurance. It is about engaging with consumers who have remain unengaged with the market or stood back from it, for reasons that are essentially economic, philosophical, political and/or sociological.
Very Large, Very Rich
The insurance sector has faced challenges like this before, such as at a key period in the industrial revolution. Industrial life firms found new ways of serving and organising that opened up new markets amongst consumers who needed their products. And some of those firms grew very large and very rich as a result. If it can happen back then, surely it can happen now, at a key stage in this digital revolution.
The key to being part of that paradigm shift is to see the market’s future through the public’s lens, rather than a technology lens. Focus less on the data and the analytics, and more on the person. They’re the ones who will give you their trust.
It is telling that a big Far East insurer has been conducting focus groups amongst insurance orientated academics, intent on imagining what insurance will look like after this period of analytical flurry. It's almost as if they’re seeing data and analytics as a phase within a larger, more fundamental re-imagining of the market. It would be ironic therefore if a market seen from the UK as a leader in the use of data and analytics is already looking beyond what our market is currently so focused on.