This post concludes our exploration of Insurance/Insurtech trends in North America as part of our progression through our seven dedicated Regional Profiles. In our previous post we reviewed our general statistics for the region (gathered in the course of our Global Trend Map) and identified five qualitative themes, of which we have so far explored 4.
- Insurers’ renewed focus on their primary underwriting business in the face of low interest rates and impending Insurtech disruption
- The rise of the ‘new consumer’ and how this is changing the insurer-customer relationship
- Customer-centricity as the prime mover of distribution and product
- The impact of legacy systems and regulation on (re)insurers’ innovation and transformation efforts
- How insurers are to unlock new sources of growth in a mature market
Here we present Theme 5 featuring commentary from our two local influencers:
- Chicago-based Stephen Applebaum, Managing Partner at Insurance Solutions Group
- Boston-based Matthew Josefowicz, CEO at Novarica
5. Mature Growth: Where are the Opportunities?
If the current renovation underway at many insurers – complex, expensive and ultimately aimed at creating a lower-price model – is perceived as a cloud, then the silver lining is the greater scale that it will enable.
In absolute terms, even ‘saturated’ insurance markets are under-penetrated ...
We characterised the North American market as being middle-class and relatively saturated, lacking the low-end market opportunities on offer in many parts of the world, like Asia-Pacific, LatAm and Africa to name a few (see our forthcoming dedicated profiles on these regions). While this is a useful designation for understanding how dynamics vary from market to market, it can be misleading: the truth is that, in absolute terms, even ‘saturated’ markets are under-penetrated.
It's time to densify the pie!
Simply by rendering the coverage they offer more fit-for-purpose and intuitive, North American insurance players can bring more customers into play in existing segments and product lines – without having to completely reinvent the wheel. This way, even if it does sometimes appear a race to the bottom, the current convulsion in the industry will ultimately result in a denser pie.
"Advanced analytics, combined with digital and social tools, can provide a much more cost-effective way of reaching clients, and educating them about risk and prevention. We know that clients understand the concept of life insurance but still aren’t familiar with the products themselves. Through analytics tools and possibly AI we can deliver more information to the market, customised to clients, in a proactive way."
Catherine Bishop, Head of Insurance Strategy and Data at RBC Insurance
Obviously, some products and segments are riper for growth than others, and it is by identifying these early on – as well as the particular customer pain points to be overcome – that insurers can bring much-needed focus to their transformation efforts, which otherwise threaten to become too thinly spread and to do no more than reduplicate the flaws of the legacy business, just in a shinier form.
‘Insurers need to shift their orientation and look at the needs of individual market segments. Instead of starting with the risk, they need to start with the market,’explains Novarica's Matthew Josefowicz. ‘They need to be asking: what kind of coverage does the market need, how much detail do they want in it and how comprehensive does it need to be in terms of what they need to buy?’
Josefowicz points to several innovative new entrants who are successfully taking this bottom-up approach to insurance.
‘There are innovative companies like Slice that are doing insurance for the gig economy, and there are folks like Trōv who are doing single-item insurance in a scalable way – so there are many ways to approach the different kinds of risk that buyers need insuring,’ he expands.
In many cases – particularly in mature markets like North America – the factor inhibiting growth is not the price or extent of coverage per se but rather insurers’ failure to distribute the product in an appropriate way.
‘I think that for some insurance lines, for example in life insurance, the reliance on traditional distribution and traditional sales processes is actually boxing the industry out of some market segments, who just won’t tolerate that buying process,’ comments Josefowicz.
‘Life insurance is very under-penetrated in North America, and I think the opportunity is to use technology to make the buying exercise easier for those under-served segments that have been put off by inefficient and unpleasant buying processes.’
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The injunction to double down on the customer – rather than simply redoubling sales efforts on fundamentally outdated products – applies not just to personal lines but also to commercial ones.
The reality of doing business, whatever industry you are in, is changing rapidly, and the palette of risks businesses need protection against would be unrecognisable to the insurers of yesteryear, one conspicuous addition being cyber risk. Josefowicz believes that it’s still early days but that insurers are now moving towards effective product offerings in this challenging area.
"The most progress will likely be made by partnerships between innovative nimble start-ups and incumbents who are skilled at navigating a highly regulated and complicated ecosystem. Insurtech is not a zero-sum game."
Nick Martin, Fund Manager at Polar Capital Global Insurance Fund
We have touched on the endeavours of Insurtechs Trōv and Slice in creating more fit-for-purpose insurance products, but it is important to bear in mind that the confrontation between insurers and Insurtechs is not a zero-sum game, given that it is happening in the context of an expanding addressable market. We asked our local commentators to go into a bit more detail on how they see this ‘confrontation’ playing out.
As we see in our other regions, there is a trend towards collaboration between incumbent insurers and Insurtechs. While the disruptive intent of some players is clear, many of them, strongly backed by none other than insurers themselves, will end up as components of the overall technology stack. In some cases, the Insurtech start-up is in fact just an incumbent appearing in a nimbler guise.
Insurance Solutions Group's Stephen Applebaum gives the example of Canadian insurer Economical, which last year created brand-new start-up Sonnet as a way of innovating more quickly than they would be able to in-house.
‘Economical traditionally was an agency distribution model, so all of their insurance was sold through agents,’ clarifies Applebaum. ‘Sonnet is a direct-to-consumer business, so that’s the way Economical is going to walk both sides of the street.’
"There will be an evolution of customer experience. Economical is the first to launch as a coast-to-coast, fully digital service and there is education required in the marketplace, but my expectation is that others may well follow our path and this will be the customer’s expectation."
Michael Shostak, SVP and Chief Marketing Officer at Economical Insurance
Josefowicz stresses the role of Insurtechs as trailblazers over and above their much-hyped role as predators.
‘A lot of the new entrants are pointing the way. I don’t know how many of them will become significant competitors in and of themselves, but they are clearly demonstrating to insurers that there is an opportunity to engage differently with customers and that customers are hungry for a different type of engagement,’Josefowicz explains.
‘To put it in a capsule, I don’t think Lemonade is going to become the biggest personal insurer in the world, but I do think a lot of personal insurance is going to look like Lemonade in the near future.’
Following Insurtechs down this route, be it through imitation, partnership or outright buying, will allow insurers to open up and serve those market segments that have hitherto been cut out of traditional forms of distribution and service – much like prospectors returning to bypassed reserves in mature oilfields – and this is where they should set their sights.
‘I think the most successful Insurtechs will be purchased by insurers, similar to the Allstate purchase of Esurance from the previous generation of e-insurance start-ups,’Josefowicz concludes.
That concludes our Regional Profile on North America. Up nexy the Regional Profile on Asia-Pacific, with insights from Steve Tunstall, CEO at Singapore-based Insurtech start-up Inzsure, João Neiva, Head of Innovation, IT and Business Change at Zurich Topas Life in Indonesia, and HK-based David Piesse, Chairman of IIS Ambassadors and Ambassador Asia Pacific at the International Insurance Society (IIS). Key discussion points include:
- The high-growth, high-competition dynamic inherent in the Asia-Pacific insurance market
- The new calling for customer-centricity and the related question of disruption
- Using data and analytics to create more customer-centric products, such as personalised, on-demand insurance
- APAC distribution landscape and what insurers are doing to ensure scale for their products
- How to successfully manage back-office digital transformation
As ever, you can read ahead straight away and gain access to all our Global Trends, Key Themes and Seven Regional Profiles, by downloading your complimentary copy of the full Trend Map whenever you like.
