The insurance industry has long had a well- deserved reputation for being slow to innovate. For the past few years, however, outsiders have taken a keen interest in InsurTech as the means to disrupt the industry’s traditional business model.1
According to venture capital (VC) database CB Insights, in 2014 alone, VCs invested $740 million in InsurTech startups. A year later, that figure jumped to $2.7 billion. Let that sink in: In just one year, almost $3 billion were invested in InsurTech — in de novo technology and in the brains driving it.
One only has to do a quick scan of the industry to unearth successful InsurTech startups and realize the capability they have to build, launch, and scale new businesses that focus on the insurance value chain — and do so in a fraction of the time of established companies.
These startups include health insurers Oscar and Clover, and Zhong An, China’s first online-only insurer. They are all less than seven years old.
That InsurTech startups are reporting private market capitalizations of more than $1 billion shows that the insurance industry is in the crosshairs of entrepreneurs intent on building disruptive new businesses in this market. The emergence of these new companies may eventually have an impact on incumbent talent recruitment and retention strategies, as young, smart, and capable individuals might see InsurTech firms as a “finishing school.” That is, they are workplaces where they can be paid to learn the industry’s intricacies before leaving to launch their own startups or work at nimble companies.
By now, a few questions might have risen to the surface:
- Why should insurance industry insiders or incumbents care about InsurTech
- What impact might InsurTech startups have on the life insurance product value chain?
- What pending revolutions might have a good chance of reshaping the life insurance landscape?
The Life Product Value Chain
When I ask incumbents to describe their customers, many respond in vague demographic terms. For the most part, they cluster their customers into broad age or income bands. Indeed, at many companies, the roughly 12 million 25- to 45-year-olds with a household income greater than $65,000 are considered one homogenous group! Typically absent are any defined segmentation, pertinent anecdotal heuristics, or quantitative insights into customer habits and behaviors.
However, if the conversation drifts to distribution, anecdotal heuristics abound. This might not necessarily be a bad thing, but I would argue it has played a role in maintaining an industry culture that continues to focus on optimizing, prioritizing, and protecting the agent-based value chain (Figure 1).
A key aspect of the existing agent-based value chain is that, given its large variable costs and its sequences, a logical incentive exists for incumbents to prioritize distribution process optimization and efficiency. This implication can be anecdotally confirmed by straw polls we conducted during product development sessions at two recent conferences, both of which are well-attended by incumbents.2 When asked which technology-enabled factor is most important in their organization’s product development strategy, a clear majority at both events responded “simplified issue/accelerated underwriting.”
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