Insurtech Disruptors will defeat independent agents.
With over $1.7B invested in insurtech startups by insurers, reinsurers and venture capitalists in 2016 (according to CB Insights), there is no doubt the traditional insurance model is doomed.
The majority of these technology-first startups are taking aim at the independent agency value chain. Specifically, the marketing, sales, service and frontline underwriting of property & casualty insurance, traditionally handled by independent agents.
At TrustedChoice.com, we view ourselves as “Digital Defenders” of the independent insurance agency channel. Empowering independent agents through technology and education is what we do. We’re completely invested in the long-term success of the IA channel.
But what if we’re wrong?
What if we invest all this time and energy and in the end, like so many insurtech CEOs would have us believe, the IA channel is doomed?
Should we have seen it coming?
We should have.
That was the premise of my research for this post.
How do insurtech Disruptors win?
To defeat the insurtech startups, who would replace human connection with automated bots and artificial intelligence, we must first understand our enemy and how they would defeat us:
It is said that if you know your enemies and know yourself, you will not be imperiled in a hundred battles; if you do not know your enemies but do know yourself, you will win one and lose one; if you do not know your enemies nor yourself, you will be imperiled in every single battle. ~ Sun Tzu – The Art of War
It’s easy to dismiss these upstart Disruptors as something we’ve seen before.
Except we haven’t seen this before. The insurance industry has never experienced this pace of change before.
What if, despite our legacy and geographic entrenchment, insurtech Disruptors win?
Here’s how I would do it.
1) Attack the Customer Loyalty Loop
Insurance consumers are demanding a more digital customer journey. These digital consumers expect to use the communication channel most convenient at the moment.
Traditionally, independent agents provide limited communication options, often heavily skewed toward analog methods, such as the phone, fax and in-person meetings. These limitations create friction points in the consumer journey.
Reducing consumer friction is the most immediate opportunity for insurtech Disruptors.
This is why, according to CB Insights, 56% of insurtech startups are focused on marketing and distribution.
Customer experience is the insurance industry’s low hanging fruit.
Customer experience is too easy to commoditize through technology. Therefore, disruptors will not defeat independent agents on customer experience alone.
Once independent agents embrace the difference between customer experience and customer service, legacy and locality will help tip the scales of competitive advantage back in favor of independent agents.
Fancy chatbots and slick marketing will soon become commonplace and ultimately meaningless as a differentiator.
Disruptors must go deeper, to the core of the independent agency channel.
Insurtech Disruptors will win against independent agents by attacking the customer loyalty loop.Click to tweet
As detailed in McKinsey&Company’s article The New Battleground For Marketing-led Growth, we see the new consumer decision journey in its entirety.
The graphic above highlights the new battlegrounds in business.
Battlegrounds one (Consideration), two (Evaluation) and three (Purchase), which constitute the evaluation phase of the consumer journey, are where most Disruptors today are attacking the traditional insurance model.
1) Consideration – Leveraging paid advertising and high-powered PR firms through large venture capital-backed budgets, Disruptors are able to quickly crack the consciousness of their target market.
2) Evaluation – Focusing on the buy-side customer experience helps Disruptors efficiently and effectively communicate their value proposition.
3) Purchase – Simplifying the insurance buying process allows Disruptors to convert shoppers into policyholders in minutes, if not seconds.
If the independent agency channel refuses to act, (or act fast enough), winning these first three battlegrounds in the insurance customer journey will be enough.
I’m just not convinced IAs are ready to fade off into the night.
That’s why, if I were running an insurtech Disruptor, my attention would be squarely focused on battleground number four, the loyalty loop.
The graphic below is from a joint study by Google and the Harvard Business Review and gives us a deeper look into the customer loyalty loop.
According to Salesforce, 70% of consumers agree that technology has made it easier than ever to take their business elsewhere.
No matter how good you are at getting customers in the door, retention will determine future winners and losers.
As most independent agency channel professionals could tell you, a one-policy period client who moves their insurance on renewal is a net loss up and down the value chain.
Retention is the key to increasing lifetime value.
Today, the loyalty loop is where independent agents are winning against Disruptors. The Enjoy, Advocate and Bond stages of the new consumer journey are an independent agent’s bread and butter, and here’s why:
- Local – The vast majority of independent agents work within a geographic community and build connections based on common local interests.
- Relationship Driven – Connecting on a person-to-person basis is the core of the independent agent’s legacy.
- Carrier Agnostic – Where most Disruptors have a limited carrier pool or a singular carrier option to provide customers, independent agents are not bound to the limitations of any one carrier and are thus able to provide solutions throughout the consumer lifecycle.
- Professional – While the average age of an independent agent, (approximately 55 years old), is often held out as an industry negative to innovation, the positive spin is they are deep rooted in experience and expertise.
- Service-Oriented – Although sales is a core function, most independent agencies are built on long-standing relationships between customers and inside service professionals.
Despite the lack of a high-tech customer experience, there is a deeply personal bond formed between a customer and an independent agency.
This bond must be broken in order for Disruptors to win.
And, as the chart below from McKinsey&Company shows, more than any other product tracked, auto insurance provides an incredible opportunity for Disruptors who focus on the loyalty loop.
How to Attack the Loyalty Loop
Here are a few ideas for how Disruptors can attack the loyalty loop.
1) Reduce Claims Pain
Lemonade is paying claims ridiculously fast. Like 3 seconds fast. Loyalty happens when insurance works the way it’s supposed to work, and by “Work” I mean pay claims fast.
2) Bring Humans Forward
I’m not sold on insurance customer relationships that do not contain a human being at some point in the process.
3) Culture of Advocacy
Referrals will always drive insurance. Find ways to highlight your clients and get them talking about your business. Watch everything USAA does.
4) Sell More Products
You might have the most amazing renters insurance app that’s ever existed, but you’ll still only be solving one need. Very few insurance consumers have only one insurance need.
5) Customer Access to Information
While humans must be brought forward, there are insurance touch points that don’t require a human being. Remove humans from processes where they only cause friction.
2) Harness Carrier FOMO
Right now, in every traditional insurance carrier boardroom in the US, there is a serious case of FOMO, or fear of missing out.
These carrier executives are watching the insurtech startup revolution, worried they’ll get left behind if incumbent independent agents don’t adapt.
According to estimates by The Boston Consulting Group (BCG), about 17% of premiums in the US small-business market will be digitally underwritten by 2018.
That is four times the level of 2015 and represents about $13 billion in direct written premiums.
Traditional insurance carriers are faced with a choice: go after the digital market now or try to make up the ground later.
Some traditional insurance carriers will bet on independent agents in order to capture the digital insurance market (a bet TrustedChoice.com is helping to make a winner).
Others will view the laggard technology adoption of independent agents as a “canary in the coal mine” and seek out new digitally native options. These carriers view the lack of digital adoption by independent agents as almost a breach of trust in their role as the frontline sales and marketing arm of the independent agency channel.
This is where Disruptors come in.
Disruptors must find ways to insert themselves between the insurance customer and the carrier while providing increased value over traditional independent agents.
There are two primary ways to do this:
1) Increasing the frequency of customer usage (i.e more products per customer).
2) Increasing the aggregate size of the customer base.
Most Disruptors have chosen to focus on #2 because it’s obvious and seems easy.
How to Harness Carrier FOMO
Unfortunately, as many Disruptors who’ve chosen to focus on lead generation and aggregation have found out, increasing the aggregate customer base in a properly underwritten environment is incredibly difficult at scale.
For this reason, in order for Disruptors to harness traditional carrier FOMO, we must add a third method for adding value:
3) Increasing the overall quality of the customer base.
The trick for Disruptors isn’t getting lucky by picking the right value-add method and partnering with the right carrier, but rather figuring out how to do all three.
Disruptors able to create digital solutions that increase policies per customer, volume of customers and overall quality of customers will win against independent agents.
3) Speed to Value
Denise Garth of Majesco recently wrote:
Whether you are sifting through ideas to improve your competitive position, enter a new market, offer innovative products or launch a new insurance start-up or greenfield, the new mantra for insurers is … speed to value.
What does Denise mean by “Speed to Value?”
In her words, Speed to Value is…
- Speed to market – ready-to-use content to rapidly develop and launch new products
- Speed to implementation – in weeks or a few months versus years
- Speed to revenue – enable business growth rapidly with minimal upfront cost
While I agree with Denise, it’s important to understand that the Silicon Valley mantra, “Fail early, fail often, break things,” doesn’t work in the insurance ecosystem.
There are very few traditional insurance providers (agents and carriers) who operate with anything resembling speed. And while this borderline stagnation in technological advancement has created the very opportunity Disruptors seek to exploit, there is a good reason traditional insurance providers move at a laggard pace.
In insurance, speed without prudence equals death.
Disruptors who do not respect the regulatory, underwriting and claims-handling responsibility of the insurance industry will be dashed against the rocks, broken into a thousand pieces. Just another good idea wasted by the unyielding waves of the insurance industry.
How to Use Speed to Value
Disruptors will move fast. They’ll push out new products and new updates on lightweight, open-source platforms. They’ll launch, track, learn, and iterate over and over again.
In the digital marketplace, speed is an asset.
Speed plus value kills.
Independent Agent Response
— Jeff Roy (@jroy5) February 15, 2017
It’s time for independent agents (and the carriers willing to continue their support in IAs) to make some “No-Regret Moves.”
The idea of “No-Regret Moves,” is outlined in an article by the Boston Consulting Group titled, Digital Disruption in the US Small Business Market:
The agents and brokers with the best chance of surviving disruption will be big distributors that leverage carrier relationships and manage to quickly roll out digital services. Mom-and-pop agents will be the most vulnerable during this period of transformation because they lack the wherewithal to build digital capabilities and the brand awareness to attract millennial and Gen X customers.
This suggests a set of no-regret moves for both carriers and agents in the US. Carriers should create standardized, modular products; invest in strengthening their model-based pricing capabilities; develop new e-commerce IT capabilities; and establish digital, light-touch models. These moves will make their products easier to understand and to underwrite digitally, help them generate traffic, and attract the interest of top online agents. The actions will also allow carriers to leverage third-party big data and to tighten up and simplify the underwriting process.
The no-regret moves for agents include repositioning themselves to be part of an omnichannel world—a world in which disintermediated interactions between customers and carriers are as common as agent-led interactions—and solidifying their carrier relationships as a way of building stronger ecosystems. Agents will need to bring in new people and invest in their talent to make this transition. By taking these actions, agents will improve their ability to match customer needs with different carriers’ appetite for risk and to develop more efficient and customer-centric sales and service models.
Locality and strong person-to-person relationships between independent agents and customers are no longer strong enough competitive advantages.
According to the 2016 JD Power US Insurance Shopping Study:
Customers shopping for an insurance provider often go online to do so, as 74% of shoppers use insurer websites or aggregators for obtaining quotes and researching information. While nearly half of customers obtain a quote via insurer websites, only 25% actually purchase their policy online; 50% close through an agent and 22% phone a call center.
Bain & Company’s recent survey of more than 158,000 consumers in 18 countries found that the share of digitally active customers ranges from 35% to 70%, and over the next three to five years, 79% of consumers said they will use a digital channel for insurance interactions.
But digital tools and processes do not replace everything physical.
Insurance customers still benefit from talking with an agent or a claims representative when dealing with complex products or transactions.
Customers have woven together their digital and physical worlds so tightly and seamlessly that they can’t fathom why companies wouldn’t do the same.
In today’s marketplace, independent agents are able survive in both the analog or the digital world, but as commoditization continues and organic growth becomes more uncertain, a gap remains to be exploited for those agents (and carriers) who can excel in the brackish water, where analog and digital business coexist.
This is, of course, is an oversimplification.
The point is, independent agents win by cultivating analog relationships in the digital world.
“Connection and intimacy come from eye contact, from hearing and being heard, from an exchange of hopes and dreams.”
~ Seth Godin
Relationships are how we disrupt the Disruptors.
The secret to marketing is…. Build a great product.
— noah kagan (@noahkagan) January 9, 2017
Advertising may have commoditized the consumer perception of insurance products, but that doesn’t mean independent agents are now relegated to a commoditized business.
By focusing on customer experience and leveraging technology, independent agents can harness their most valuable asset, human relationships.
This is called, ‘Digitizing the soul of your business.’
But it requires a cultural change within the IA channel. As Seth Godin recently explained:
Sea levels are rising. It happens every day, and it’s been going on for a while. Most people aren’t noticing, and won’t, until it gets worse.
On the other hand, a hurricane or a flood captures everyone’s attention and causes us to leap into action.
The thing is, incremental daily progress (negative or positive) is what actually causes transformation. A figurative drip, drip, drip. Showing up, every single day, gaining in strength, organizing for the long haul, building connection, laying track—this subtle but difficult work is how culture changes. It takes a generation to change the political landscape or to build a hundred-year company.
If you want to cause action in the short run, the opposite is true. In the short run, drip by drip rarely puts people on alert. It’s the thunderclap, the coordinated, accelerating work of many people, that causes those in power to sit up and take notice. Do it a few times in a row, or fifty, or a hundred, each with more impact, and you can successfully intervene.
…we succeed when we combine the best of both worlds. When we settle in for the hard work of daily, bottoms-up institution building, and use thunderclaps not as a distraction, but as the rhythm of our forward motion.
These thunderclaps, as Godin describes them, are the result of independent agents tuning the analog and digital sides of their business into harmony.
As the actual insurance policy becomes completely digital (no paper policy or physical interaction whatsoever), we must find ways to bring the human being, the agent, into the process at the moments where they are most needed, and then be willing to automate the portions of the process where the agent feels like a burden (i.e. paying for policies, printing simple documents, making small changes to policies, etc.).
At the end of the day though, it’s all about T-R-U-S-T.
We can’t allow US insurance consumers to build more trust with a bot more than an agent, that’s the game.
The independent agents winning in the modern marketplace aren’t ‘selling’ insurance, but rather building relationships with would-be customers, one interaction at a time. This means being able to marry the physical, analog world with the digital.
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