Oct 27, 2016
When things are about to be disrupted, big money always gets there before most. It starts with a unique idea that gains traction. A greater number of consumers embrace a new way of experiencing a product or a service, venture capitalists lead the way and other investors then flock to the party. We have seen this in the case of taxi industry, e-commerce, on-demand music and entertainment among others. As clichés go, I have to cite Uber, Amazon, Spotify and Airbnbs of the world which are valued in billions of dollars made possible by visionary designers and venture capital, ahead of the curve.
I might ruffle a few feathers here and this may even sound alarmist – the investors who are seeing stagnated returns in the traditional financial market are heading to the financial services industry, particularly insurance, in their hunt for higher gains. Unlike existing players, they do not have to take an incrementalist approach to insurance. They are redefining customer experience. More importantly, the regulations and rules which have protected existing competitors will be rewritten to suit the new entrants. Uber, for instance, has had to nuzzle its way through labyrinths of existing regulations in the many markets they enter as well pressure, still the company faces up to this challenge.
First Round, a seed-stage venture firm has invested in the rabble rousers of transport (Uber), payments (Square) and eye care (Warby Parker). It’s now investing in a healthcare insurance startup called Clover Health. On the Property and Casualty side, Trove is an on-demand insurance startup in Australia with a mobile-first approach. Its Series C funding was recently led by Oak HC/FT. Closer to home, there are several entrants that are challenging the existing distribution model. Companies such as Lemonade, Slice and Friendsurance are offering revolutionary models, increased transparency and tailored products to the end customer. You see a pattern emerging and it’s by no means a set of random occurrences.
Today, in much of insurance, products are complex and the service leaves a lot be desired. The industry, a conglomeration of giants is now in the danger of crumbling beneath its own weight. Insurers believe they know the ins and outs of insurance market, rules and regulation, the agent market and what they think the customers want. In reality, they are doing business much as they did in the 1970s.
Whether we agree on where we are today, the reality is that there is a tremendous amount of capital being invested in revolutionary approaches to product, delivery and improving customer satisfaction. The industry is at a great juncture to help determine the future. It starts with renewing clunky and outdated technology. As I write this, I realize few insurers maybe considering buying out insurance start-ups. It is a worthwhile option, but needs to be taken up with a lot of deliberation, especially factoring in the new age skills required to come up to speed with the market and the customers. As an insurer, what is your response – to build or to buy? Or is it a bit or both? Or better still, giving a new lease of life to existing technology. More on that soon.