In the eight years since Uber was founded, they cut the market share of classic New York yellow taxis in half and doubled public access to hired transportation. Wiping out this “taxi gap” in cities around the world, they emerged at the top of their sector almost overnight.
Over the same 8-year period, and despite billions of investment, almost nothing changed in the life insurance sector. Agent distribution still dominates. The mid-market protection gap is still growing. Whilst there are some promising signs in terms of viable new forms of distribution (e.g. Policy Genius), these are anomalies for the market as a whole. It is basically business as usual.
The lack of progress begs the question
When life insurance disruption arrives, what will it look like? Will it take the form of better mousetraps – brand new carriers with new business models as we are seeing in personal lines? Will these new carriers come to dominate the industry?
Or will disruption emerge from established carriers finding new ways to meet customers’ needs? Will elephants learn to fly?
In the mid-2000’s, I would have bet the farm that we would see new disruptive carriers. But I no longer think so. I think that large traditional companies will play a huge role in disruption. They have the required capital strength. Some are embracing new options to become agile. But more importantly, I believe that customer demand and market structures do not favor a dominant, Uber-like, disruptor. There are far more flying elephants in our future than we might have imagined a few years back. And, as one would expect, flying elephants will be highly disruptive.
One big reason I support this flying elephant hypothesis is that life insurance is a tough ask for venture capitalists (VC’s). It is very difficult to fund a sub-scale life insurer in a traditional VC portfolio. The huge size and low velocity of capital required to innovate in our industry does not fit the tech funding model. Building a modern life insurance company requires massive scale – greater even than needed by cash-hungry Uber. It is much more capital-efficient to reform and accelerate an existing carrier – if not an elephant, certainly a hippo. And those hippos will be readily acquired by elephants.
The link between disruption and the rate of innovation is also very important
Across all industries, a hallmark of disrupters is the ability to innovate faster than incumbents. No speed advantage = no disruption. In life insurance, the speed and scope of innovation is limited to some degree by regulation. Until recently, it has not been very difficult to outpace carriers. But over the last 12 months, risk ecosystems have emerged that deliver complete value chains almost instantly. se2, NTT, DXC, EBIX and iPipeline all offer extensive solutions that, while limited in scope, are far more advanced than what was available a few years ago. Our iptiQ platform goes even further by consolidating best of breed components with product innovation, balance sheet relief, underwriting and digitized sales capabilities in a single package.
With these solutions, carriers can become “instantly” digitized. New products that focus on specific niche-needs can be designed, filed and launched in weeks. Customer journeys can be modified and tested in hours. The industry has a long way to go, but the fact remains that any improvement in carrier speed will to that same degree neutralize the speed advantage of new entrants.
The most important driver of disruption is customers who overwhelmingly and increasingly demand greater choice. They want to choose between products and companies, and they have diverse needs that cannot be accommodated within a single carrier model. Customers and distributors want more agile, customer-centric choices. Unlike apps where phone real estate limits the number of choices, the insurance market doesn’t desire or support the idea of a single, dominant disruptor. Customers and distributors want a variety of more agile, customer-centric choices.
So is it inevitable that all of the incumbent companies win?
No. There will be winners and losers. Carriers large and small will be differentiated by their ability to accelerate their game while controlling risk.
Interestingly, the biggest impediment to disruption in traditional life insurance companies is not technological but cultural. It is cultural change that will help elephants fly. Many traditional companies will not adapt well to a more agile, customer-responsive reality, but carriers are not tech start-ups. They cannot afford to become reckless in their pursuit of speed. It will take tremendous vision and leadership to create dynamic-yet-responsible approaches.
As time passes, the cultural and leadership gap between the industry’s most innovative companies and the rest of the pack will expand. This “innovation debt” will accumulate in the same way as the technological debt existing carriers already struggle with. At some point, it will become overwhelming – making it culturally impossible for them to be even “fast-followers”. Yet there’s an unprecedented opportunity for carriers of all sizes to gain a competitive advantage by changing their culture and leadership style to accommodate more innovation.
As an industry, we are hungry to achieve breakthroughs in customer experience and resilience. The tools and ability to make this happen are in our hands. But we will not see the emergence of a single dominant start-up player a la Amazon, Google or Uber. We will instead see the rise of flying elephants.