Nick Ford on October 6, 2016
Nearly half of insurers worldwide say they lack an achievable plan to carry out a successful digital transformation. The insurance industry is trailing behind other industries when it comes to adopting digital tools and business models. P&C carriers have an average digital index score of just 48 out of a possible 100, and life carriers have an average of 45. New Bain & Company research suggests the lag is due to a lack of confidence among insurance executives in their ability to execute digital transformation and deliver disruptive insurance product innovations.
This lack of confidence comes from the idea that insurers, and especially digital insurers, need to create completely new and disruptive technologies in order to innovate and create value for their customers. In a previous article, we discussed that disruptive innovation is not always necessary, and that focusing on adjacent innovations is a more achievable way to innovate rapidly. Many of these adjacent innovation opportunities are right under insurers noses, but they need to know where to look.
New technologies like the Internet of Things can open up opportunities for growth and innovation in the insurance space. IoT is ultimately changing what consumers know and how they interact with insurers.
With the plethora of sensors leading to massive amounts of data, risk determination can now be based on individual customers’ characteristics and behaviors. This change can impact the core business model and create the opportunity to shift from reimbursement to prevention. By leveraging digital technologies and customer data, providers can take existing products and tailor them to the customer.
A great example of this data and technology driven product innovation comes from John Hancock. The insurer offers policyholders discounts of up to 15 percent for wearing Internet-connected Fitbit wristbands. The fitness-tracking service is part of John Hancock’s Vitality program aimed at integrating wellness benefits with their life insurance product. Customers earn points for various activities, which are calculated for policy discounts.
John Hancock’s use of Fitbit follows similar initiatives in the auto insurance industry, such as Progressive Insurance’s SnapShot and State Farm’s InDrive, that use Internet-connected devices to transmit information about customers’ driving habits in exchange for lower rates. Going forward, these types of technology-infused products will become the norm across all segments of the insurance industry, as providers look to attract and retain digitally savvy audiences.
Adjacent innovation opportunities can also be found in new channels and business models. Taking your existing product and changing the way your customers interact with it allows you the opportunity to create a better experience for them and to eliminate any friction in the process.
One company that is taking their existing products into a new channel is a specialty insurance company that wished to implement a new model allowing them to eliminate intermediaries and instead sell directly to the customer.
By cutting out the middleman (broker) and selling directly to the customer, this insurer can offer products at a lower, more competitive price because the cost of sales decreases. In turn, they can immediately increase revenue.
This is a high transactional model, so they created a multi-channel solution that is self-service and fast. They built an application for liability insurance, which allows end customers to get quotes and buy and manage their policy without needing to do any interaction offline. This flexible, automated solution supports the new business model of selling directly to customers, with the advantage of being able to come in with lower prices.
Focusing on new demographics can help reshape an existing product to create a new offering.
The “Millennial” or “Generation Y” age group is becoming a significant target segment for insurers. 21 percent of young adults remained uninsured in the U.S. by the end of 2015. This large market represents the next generation of core customers for insurers, meaning the competition for this market is high.
This is an opportunity for insurers to offer products and services that meet the specific needs of distinct customer groups. For example, baby boomers might be interested in products that protect their current standard of living, while younger consumers may want to spend some of their disposable income on products that help them purchase new homes or cars when credit is tight. And targeting a younger consumer means that online and mobile access becomes a key. The idea is to identify and prioritize groups of customers that offer untapped business opportunities in order to repurpose existing products for a new demographic.
Many insurance companies already have valuable assets required to build these innovative solutions, including extensive distribution networks, partner relationships and products that can be re-purposed for other customer segments or distributed via new channels. Many of these assets are not fully utilized to offer relevant value propositions to customers beyond the standard set of insurance products. The reality is that these existing assets make it easier for insurers to innovate faster.
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