Are Insurtech product innovations something that traditional insurances should let startups take care of? What are some of the opportunities and challenges that insurance companies face with regards to Insurtech innovation? In this article I will elaborate on how startups use flexible insurance products to get a foot in the door in the world of insurance. Next that that, I will highlight some of the missed opportunities that corporate insurer should start to address, right now.
The way we work is changing
The market movement to more flex-workers, freelancers and self-employeds is a big opportunity for insurance companies as well as a challenge. Contracts are not made on a company wide basis, but on an individual level and the terms don’t always suit the working conditions of the worker. It is fair to say that it is just a matter of time, until we’ll see the number of flexible jobs increase dramatically in the German Speaking language area – and mainland Europe. This is mainly due to the nature of the work that we do and the personal preferences of the new generation of millenials that are “coming our way”.
In Switzerland we see that currently >15% of the total workforce is self employed. In countries such as the Netherlands and Belgium, the number of freelancers as risen by >20% in merely 5 years (close to 18% of the total workforce in 2016). In Italy the number of self-employed workers is even higher, with nearly one in four being self-employed.
Especially considering the fact that traditional working methods and the place where the work is done, is not as clear cut as it would be with traditional companies, this trend poses a number of challenges for insurer. Yet, we see remarkably few innovations within the Swiss Market by the larger traditional insurance companies. When we hear or speak about Insurtech Innovations, Knip is pretty much the only relevant customer-facing product that comes to mind for many.
So what needs to be done to change that? Let’s take Flexible Insurance Products as an example.
Flexible Insurance Products
Flexible insurance products can be an interesting means to an end. Startups such as Zego and Dinghy see these products as strong market niches, but actually they are far more than that. When used in the correct manner, they can have a strong multiplying effect for any other service that insurance companies have to offer.
To name one example: the explosive growth of companies such as Deliveroo and Uber has led to a massive growth in demand for flexible insurance for drivers and other self-employed workers. Drivers must have professional insurance but their only options are expensive annual policies which can come in at thousands of pounds, paid upfront or at an eye-watering financing rate. Completely impractical for a Deliveroo driver who works two evenings a week. Few traditional insurers have covered this ‘niche’ sector and their cost base (where they pay their software house for every change to a policy) does not allow insurance to be sold by the hour.
Zego: is a smarter insurance option, giving you the cover you need, exactly when you need it — Zego is a car insurance that you can start or stop by the hour, whenever you use your car. You only pay for the hours that you actually drive it. Targeted at UBER or Deliveroo-Drivers, a great way for self-employed drivers to keep cost under control and only buy the insurance that they need, when they need it.
These types of products are generally difficult for traditional insurer to create and manage. Hence, startups step into the game to close the niche that has naturally been created. This might not be an insurance disruption as such, but these startups are building up new types of customer relationships. In the long run, customer relationship management is what drives growth. And although these startups only serve one single purpose, the options value that they have on the newly acquired customer base, is substantial.
Opportunities to get closer to the customer
Customer brand loyalty is not easy for insurance companies. Insurances are merely something that you “must have” and customers are willing to switch as soon as they get a better offer somewhere else. I believe that the main issue is that insurer lack the proximity to their customers. Insurance companies are generally perceived as hard to reach institutions with inflexible lines of communication, that are maybe there when you need them. However, there are very few touch points between insurance companies and their customers, when everything is “okay”.
Using non-traditional and more flexible products can help insurer build up a personal relationship with their customers
New customer-centric products can help insurance companies work more closely with individuals. As an added benefit, these trends give us the allow us to collect more customer-information, tailor the products better to their needs and build up a stronger relationship. This can help create more possibilities for up-selling and cross-selling new services.
I feel that insurance companies are doing a lot to get closer to their customers. But these efforts do not always solve an actual need. An example of this are health seminars. These seminars generally help the customer lead a healthier lifestyle, but the customer will always have the feeling it is doing it to reduce the insurer’s risk. There is an “obvious” upside for the insurance company, with a limited perceived benefit on the customer side. The seminars only solve the need of a few who really – already – need it. By creating new insurance products that are closer to “perceived” customer issues, the insurer is able to reap far higher long term benefits.
Create stand-alone insurance products people need and love
A good example of this is the household versicherung (Haushalt Versicherung) of the Axa Winterthur in Switzerland. One of the added insurances that they have added to the package, is an insurance on mobile phones, tablets and laptops. If you break the screen of your phone, you can get it repaired for a mere 50 CHF. But there is one thing that bothers me about this insurance; Although this is a great service and there is a clear usecase for this, the consumer is only allowed to buy this product as an add-on in a larger product package. This is probably due to the nature of the product and to make sure that it is not “abused”, but it would be an excellent product for a single-purpose consumer product.
Need-based property insurances will become more relevant and bring insurances closer to the customer than ever before
This is the type of product that has the potential to create an intimate relationship with the customer. People love their phones, and if they can get it repaired quickly and swiftly at acceptable extra cost, this could be a real winner. I firmly believe that the Axa Winterthur has missed up on a great opportunity with this product. By including it in a package deal that is to complex for the common consumer and hiding it, the real potential of the product is lost.
Innovation is about testing new things
What is interesting, startups like “Zego” have jumped the bandwagon of UBER and Deliveroo quite early. A startup such as Zego might lack the underwriting compentence of traditional insurance companies, but their time to market with an innovative niche product is remarkable. Their focus is not on providing the cheapest or best value product, but a product that looks great, is easy to use and serves a single purpose.
What strikes me though, is that it appears to be so difficult for insurer to “create” corporate startups from within their own organizations. All the tools, products and potential customer contacts are right at their finger-tips. I believe that insurance companies can do a lot more than they think.But it is imperative that they start to deploy the right resources and dedication to product development and their innovation (hubs).
In a world in which lean and agile product development has brought the time to market for many new ideas down to only a mere few months, traditional insurer need to develop more than a gameplan. Excellent and quick execution are just as important as getting it right. At the heart of Insurtech innovation is a mindset change as to how we perceive our customer base and how we work. Societal changes and ways of working will influence how we choose our insurances and the products that we need. Therefore it is incredibly important that traditional corporate insurances learn how they can join the innovation game. A game of rapid product prototyping, a/b-hypothesis testing and lean product development.
Sure it sounds so easy, but why haven’t they…?
Why don’t traditional insurer seize the opportunity?
One of the biggest challenges for Insurance Companies, such as the ones we have in Switzerland, Allianz, ELVIA, Vaudoise and Mobiliar, is that their product portofolio dictates the company structure. What we see with our customers in Switzerland, is that the product silos determine who works on what. For example, Health Insurance is completely separated from Car Insurance or Wealth Management. Oftentimes, the customer data and contracts that are made with the customer are made with separate entities, that are not allowed and able to exchange customer data or insights. There is a high degree of conflict of interests between these separate entities within the companies – and this is something that is hard to change.
Next to that, insurances are used to thinking in “standardized products”. Everything needs to be legally sound, checked and double-check for compliance and mistakes can simply not be made. This way of working has deep-rooted cultural ties within the organizations – a history and burden that startups don’t have to deal with. This cultural mindset change to innovation and product development is not something that can be done overnight. But innovation management and education can help to speed up the process. I don’t think that insurer need to be afraid of startups at this point in time, but they need to learn to appreciate the way startups think about their industry – possibly adopt a thing or two of their ways of working within their traditional corporate organizations.
At GANDT Ventures we help and guide our clients to create more digital traction. Product innovation can be a strong means to an end for insurer to digitize sales processes, bring traditional product silos closer together and learn more about the end-consumer. The true Insurtech-Innovations are still “waiting to happen”, but I think these startups are showing us that it is time to get a move on.
I am looking forward to hearing and reading your thoughts on these developments. Feel free to leave your response below, or reach out to me directly.