Mass consolidation & advanced tech are shaking up the insurance industry
New technology is disrupting the legacy insurance experience and mass consolidation is inevitable.
Just about every established B2C industry, from entertainment to health care and travel is being revolutionized by advancements in technology. Driven by savvy, mobile-first consumers who are demanding faster results and more streamlined experiences from their service providers, the insurance industry is the next sector to benefit from a major disruption.
To understand the differentiators at play in the insurance industry today, it helps to understand the different types of businesses operating in this sector.
These companies could be put into four groups, but since two are very similar, they can be lumped together. The three major types of companies in the insurance space:
- Lead generating companies
- Carriers and MGAs
- Online intermediaries, or digital insurance agencies
Only one of these structures isn’t vulnerable to the current insurance market volatility caused by catastrophic events and policy changes.
One of the business models that has been in operation for decades is built on lead generation. These companies are dependent on landing the right “leads” through referrals, list purchases, pay-per-click advertising or other lead-generating marketing techniques. A lead-generating company’s success is dependent on the quality of the leads it gets and its salespeople’s ability to turn those leads into customers.
The playbook for this type of company has largely remained the same for years and has not kept pace with recent technology. They are selling the customer data to multiple insurance carriers and regular offline insurance agents at the same time. What’s changed is the insurance customers, who are tired of insurance salespeople cold calling them during dinner time or emailing them with offers to switch providers. Lead-generating insurance companies that don’t adapt to a 21st century, digital-first approach will find it harder and harder to increase their market share. The customer often does not receive the depth of knowledge and personalized approach that other more advanced companies can offer.
Two kinds of insurance companies have been lumped together for simplicity because they often share the same setback. Carriers are the companies offering coverage to the insured by issuing an insurance policy. They charge premiums and pay for losses and claims covered under the policy. A managing general agent (MGA) acts as a wholesale broker or agent for a carrier, managing a portion or in some cases all of the insurance business of an insurer. An MGA delivers a carrier’s product to both insurance agencies and clients.
Whether a carrier (or provider) utilizes MGAs or not, both models are directly tied to policies and therefore susceptible to environmental events and claims that make premiums go up.
The third type of company, digital insurance agencies, act as intermediaries who are not susceptible to the same types of risks and rate hikes as insurance companies or MGAs. An intermediary allows customers to shop from up to 50 carriers at once, while not being tied to any actual policies or premiums themselves.
Intermediaries still employ licensed agents and experts who are available to help a buyer when needed, however, the ones who have created a customer-first, fully online experience have a clear advantage of putting the customer in the driver’s seat when it comes to bundling or shopping for individual auto, home or life policies.
Mobile devices have completely revolutionized how people shop for things like insurance. To understand how today’s consumers like to make purchasing decisions, look at the popularity of online travel agents (OTAs).
Just 5-10 years ago, people used to book trips through travel agents or by visiting multiple websites. Today, OTAs like Expedia and Priceline have gobbled up smaller competitors and shifted the power of choice from the agent to the consumer. OTAs are able to access massive databases (beyond what even the large hotel chains can access) to provide travelers with everything from the lowest prices on flights and hotels to real reviews — available to bundle and book on one site in a matter of seconds.
A similar mass consolidation is happening in insurance sales now. An intermediary, a digital insurance agency, that leverages best-in-class technology like data lakes can reveal quotes from all available home and auto insurance providers and compare them in minutes.
Databases can already auto-fill most of the information a provider needs to get an accurate quote after a person answers a few simple questions from an online form. Because customers are device dependent with short attention spans, this online shopping platform for insurance makes the most sense by providing consumers with a similar experience to what they are already getting while shopping on Amazon or booking a vacation through Priceline.
Data access is the new gold for insurance companies
How companies manage data is becoming a major differentiator when it comes to offering insurance. The ability to store structured or unstructured data and organize large data sets from diverse sources is crucial to being able to provide a fast and accurate online experience. Advancements in data management have also made it much faster and easier for the insured to switch policies by using online forms that auto-fill already captured information.
Data lakes are more cost-effective than older ways of managing data, so their use within the industry should only continue to increase. Most companies store their data lakes on the cloud, making it decentralized and able to be accessed anytime and from anywhere.
Another technology that has streamlined the insurance policy acquisition process is robotic process automation (RPA). This refers to the use of bots that interact with customers in human-like ways while connecting to digital systems and software to deliver relevant results.
RPAs can even deliver more accurately and consistently than their human counterparts. RPAs also reduce staffing costs for insurance companies, while allowing licensed agents and highly-skilled workers to spend more time on higher-value tasks. In addition to providing human-centric responses, RPAs can be programmed to follow all regulatory and compliance requirements —another benefit to the insurance company.
AI and RPA technology has already advanced to the point where robots can read text on a screen, identify and extract data, autofill information and deliver relevant results to customers in minutes. Insurance shoppers not only enjoy the speed advantages, they also know that when working with an intermediary online, but they are also most likely to get the best deal and not end up over or underinsured.
In the United States, there are close to 6,000 insurance providers offering many different bundles and options, depending on the state where the customer resides. The company that is able to offer real-time quotes from the top-rated insurance companies, allowing the customer to compare them instantly, customize the coverage and buy the best policy for them on a phone, tablet or computer in minutes will have a clear advantage over a legacy company still dependent on paper forms and phone calls.
Adrian Dzielnicki is a licensed insurance broker and Chartered Financial Analyst Charterholder. He is also the co-founder and CEO at Nsure.com. Before that, he co-founded Graviton Capital, one of the largest microcap investment banks in Poland.
Opinions expressed here are the author’s own.
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