Talk about interesting times in the business of insurance. The year 2015 saw the attention-getting launch of Google Compare and its hibernation about 12 months later. Traditional insurers like Mass Mutual and Shelter Mutual got busy and launched their own direct-to-consumer digital quoting and sales businesses. State Farm was busy filing patents for by-the-trip car insurance and the means to measure just how stressed drivers were behind the wheel and rate their insurance accordingly. Prudential recognized that previously scary diseases were now chronic conditions that could be medically managed, launching life insurance coverage for HIV positive customers. AOL saw an opportunity and is now selling insurance to its members. And we at Forrester have been busy keeping track of over 700 disrupters across FinTech that have been capturing market attention and venture capital. Some of these firms like Lemonade are returning to the social roots of insurance. Lemonade's founders also appreciate that consumers are irrational economic animals and decided to hire a behavioral scientist to help them anticipate the crazy actions of homo sapiens. And yet some people out there still call insurance a boring industry!
Small business is booming in the US. The US Small Business Administration declared this week as “National Small Business Week” to promote the role that small business plays in the US economy. Why should insurance companies pay close attention to the needs of small business? For starters, small businesses mean:
Big economic impact. Small business spells substantial opportunity. These small businesses comprise about 49% of private sector employment, and about 43% of private sector payrolls.[i] And as small business grow, that growth translates into the need for more insurance to cover employees, vehicles, and other liabilities.
New revenue streams. With self-driving vehicles tests planned in 30 cities by 2017, there’s trouble ahead for the industry’s cash cow, private passenger auto insurance.[ii] Small business insurance is one revenue stream that insurers can increase to counterbalance premium declines.
American and Canadian insurers are facing some big challenges in 2015. Customer experience expectations, their willingness to consider a growing array of new options to buy insurance, and new competitors creeping into the business of insurance are pushing traditional insurers into new digital strategies. It’s no longer a question of digital channels or “other” when it comes to the customer journey; they’re now intertwined. Digital-dependent customers are eyeing new and more digitally savvy market entrants, while demanding more control over the experience and how their personal information is used. This year, digital insurance teams are crafting agendas that satisfy their firm’s hunger for increase market share and revenue balanced with changing demographics, adaptations in response to extreme weather, and regulation that has lagged the changing realities of digital. One thing’s for sure: Insurance eBusiness teams can’t afford to wait around, but they also can’t afford to make the wrong digital decisions.
Just what are the factors propelling North American insurer agendas this year? For starters, it’s about:
Uneven economic growth in North America. The 2008 financial crisis? It’s a distant memory in much of the US, but not for all. By most measures, the US economy is thriving, driven by rising consumer demand for homes, cars, and consumer goods, and, by extension, insurance. And in oil-producing Canada the decline in gasoline prices isn’t good news: Canada is threatened with recession.
Spring is finally here, and with that, a time for wild animals to emerge from their winter sleep. We humans don’t really hibernate, but we can find it difficult to get out of bed to face a rather frosty environment. This applies to companies, too.
As we researched our new report about trends in European digital insurance, it became clear that no one is really disputing the value of direct insurance. European insurers have suffered seven lean years, as premiums in property, casualty, and life insurance largely stagnated. Direct sales have often been an area that continued to deliver growth. Because of this, we expect most European insurers to step up their investments and efforts in this area.
Like most of us, you probably made a few resolutions you’re hoping to keep in 2015—eating better, exercising regularly, and reading more. Why not add one more resolution that will help you, your company and more importantly, your customers and agents? Keep your mobile insurance strategy current with new technology; customer, employee, and partner expectations; and pressures that are coming from competitors and more importantly, non-insurance competitors. Because one thing’s for sure—the pace of change in mobile and insurance is crazy, as evidenced by all the new examples of mobile insurance innovation that we uncovered while writing our soon-to-be published update of our 2012 report, “The Future Of Insurance Is Mobile”.
Need some help in updating your mobile strategic plan? Earlier this week, we published a major update to the Strategic Plan chapter in Forrester’s Mobile Insurance Playbook. The report, “Get Mobile Insurance Strategy Right By Designing For Customers' Mobile Moments”, answers two essential questions: How do we build a strategic plan, and what should be in that strategy? It also provides a framework for the plan that encompasses four processes:
Identify mobile moments and context.
Design the mobile engagement.
Engineer processes, platforms, and people for mobile.
Analyze results to monitor performance and optimize outcomes.
In casting an eye forward, we predicted seven events that would change the insurance landscape in 2015. A major force informing all seven predictions is the fact that smart insurers are recognizing that in the need to generate more good ideas faster, they have to radically change how they develop and execute new thinking. That means that insurers need to short cut the industry’s traditional “we’ll build and control” culture and instead go into the market, spot a hot business technology start-up that brings a lot of what’s needed to create a minimum viable product, and partner with them. And the smartest of the smart insurers are employing two unique industry forces—a very regular flow of premiums and the dynamics of equity markets— to get even closer to the source of new ideas: By investing in them. In 2015, we’ll see more insurance venture capital startups form in the wake of similar VC business launches from insurers like American Family, AXA, MassMutual, and Transamerica.
Calculating and avoiding risk is at the core of insurance. So what are we to make of the fact that insurance executives top our list of professionals who think that the digital disruption of their industry is imminent?[i] We should take it seriously, seeing it as admirable clairvoyance rather than blind fear. Unlike many other industries, at least insurers know the risks they’re facing. But will they act upon this vision? They might have no other choice.
Digital disruption has arrived in insurance. In our new report on trends in European digital insurance, we show that years of slow growth, low consumer trust, and heavy regulation have weakened incumbents. Meanwhile, customer expectations have been rising, fuelling the appetites of startups and companies not traditionally associated with insurance, such as digital platforms, car manufacturers, utility companies, telcos, and sensor and wearable manufacturers, whose utility and access to consumer data has placed them dangerously close to the core of insurance.