Mark Halverson, Accenture’s global lead for Life Insurance Distribution Services
Insurance is becoming moot. The enterprise-centric business model that for centuries served the industry so well is proving to be its albatross, yet most carriers seem unable to see the threat. Consumers, aided by innovative technologies and abetted by new competitors from other sectors, are insisting on a new deal. It’s a stark choice that confronts insurers: embrace and help define the new order, or eke out an existence while clinging to an increasingly underwhelming value proposition.
We asked Mark Halverson, Accenture’s global lead for Life Insurance Distribution Services, how carriers should respond to the dilemma.
This is quite a dramatic picture you paint—aren’t you overstating the crisis?
Halverson: There are several truths I hold to be self-evident which demonstrate a stark case for insurers. First, the entire concept of pooling and underwriting could be viewed as an obsolescing one. Arguably the only reason the process was necessary was that the information did not exist to price risk directly; perhaps now we can price the risk directly per ‘usage’. As we approach the end of the information age, big data and artificial intelligence will take over from where the industry is currently operating.
Second, we have more and more evidence that core products are viewed as commodities by customers. In a few short years aggregators have come from nowhere to claiming the lion’s share of the British auto insurance market, in the process slashing the sector’s profitability. Google has just obtained licenses to sell insurance in 26 US states, and in the UK provides auto and travel insurance quotes. Walmart and IKEA are two huge brick-and-mortar chains that have taken on insurance distribution, as have a number of mobile phone companies. In a collaborative economy (a la Uber, AirBnB, etc.) individuals will own fewer assets and therefore need to insure fewer assets. In an age of autonomy (e.g. the driverless car) the basis of risk will move from the human being to the machine, eliminating much of the risk and consigning auto insurance to the museum of obsolete business models.
These are among the truths I hold to be self-evident.
So what are you recommending insurers do?
Halverson: Decide which business models they want to invest in. Every business model has a beginning and an end. Most insurers have been investing only in their current business model (loosely measured in gross written premium), but those that understand the new truths are repositioning themselves to move beyond insurance, to become more—in some cases much more.
Some carriers may be able to remain viable for some time by focusing on a clearly defined niche where their specialist expertise serves as a barrier to competition. Others may conclude that they can’t compete in the distribution arena with their own brand against the online giants, and may choose to embed underwriting capability within other new entrants that have strong, trusted brands.
The next step is to move from the passive role of insurer to that of a risk manager and advisor. This re-positioning allows firms to maintain relevance with a customer base to extend into new business models that are about advice and not about policies. To become a hub that brings together a series of offerings with the goal of addressing a higher and higher percentage of the needs and intentions of individuals and corporations. To become embedded as a trusted advisor and a positive part of their daily lives.
The other thing firms need to consider is going ‘back to the future’ with regard to the insurance industry’s role in society. It is to make new inventions a safe reality, just as they did when the horseless carriage first came onto the scene. That disruptive technology has entirely changed the way societies operate. And the advancements in big data, robotics, nanotechnology, genetic engineering, artificial intelligence, and many other rapidly developing technologies are likely to do the same. Where are those who are meant to protect us? Who is putting the moral and ethical bounds around these new inventions? Insurance has always served as a proxy and enforcement arm for regulation. It is time we took a short walk down memory lane to remind ourselves of the industry’s role.
It should be the insurance industry alongside Google, Nissan and others, defining the attributes that make autonomous driving a safe reality. It should be the insurance industry alongside robotics manufacturers making in-home robotic health care a safe reality. This is the role; this is the opportunity.
It sounds like you’re talking about a fairly drastic transformation—do insurers have the stomach for that?
Halverson: Most carriers have seen the writing on the wall. They know consumers have changed dramatically. Analytics is taking operations to an entirely new level. Technological innovation has transformed distribution and other aspects of the business. And the business landscape itself has shifted, with new ecosystems showing up the limitations of the stand-alone carrier. So they know they need to change. What’s more, our recent Digital Innovation survey has identified a group of about 25 percent of carriers—we call them the Digital Transformers—who have started this process. They’re looking beyond insurance, and have embarked on a journey that will take them to a brave new role.
One of the key things to understand is that most insurers cannot and should not attempt to go through a beyond insurance transformation within their four walls. The risk-adverse cultures, the large-scale governance, the time-consuming processes will negate any progress to re-invent. Firms need to have the courage to launch a ‘red-team’ or a separate entity whose role it is to detect new needs and intentions, spin up new services, and cannibalize the existing business. This cannot be done from within; it needs to be spawned out to attract a different type of thinking, different measurements, and a cross-industry, co-invention mindset. As an example, the most interesting ideas I hear these days around new services are much more likely to come from anthropologists or sociologists or linguists than from long-standing insurance industry veterans.
So are insurers more likely to initiate an evolution than sudden change?
These changes are upon us whether or not people wish to concede it. Some things do happen suddenly, like the arrival of a disruptive new competitor. This injects urgency into what is normally a slow-moving industry. But the reality is that few large corporations can reinvent themselves overnight. So in the spirit of the ‘red-team’ we recommend they think of their business as an investment portfolio. Their main investment is their traditional business model, which they enhance by adding digital capabilities which improve the customer experience, lower loss ratios, deliver more straight-through processing … all things necessary to ‘keep up with the Joneses’ in the existing cash-cow business model.
To diversify they will launch alternative models, most often outside their four walls, which they will test and take to maturity. As the graph (below) shows, these will overlap—with the shift in investment moving away from the cash-cow model as the newer models prove effective. Carriers need to move from their current passive role, to helping customers manage their risks, and then broaden their role ever further to address a higher and higher percentage of needs and intentions. They need to become a trusted advisor on the same side of the table as the customer, offering frequent, highly personalized advice.
And is that what you mean by ‘beyond insurance’?
It’s an important part of it, but there’s much more. One of the other ‘truths’ about the industry is that there is a negative connotation to the word ‘insurance’. In most surveys customers cannot differentiate insurance products, and view insurance companies as passive, faceless organizations that are not on their side of the table. So to remain relevant, embrace new value propositions and re-position their role in society, it will be necessary to go beyond insurance.
Instead of thinking about better ways of selling conventional insurance, carriers should be engaging with customers to discover new sources of value for them. This might be a two-hour life insurance policy offered to skydivers when their mobile phone informs the carrier that they’ve arrived at the airfield. Or a senior-citizen monitoring service, offered by an ecosystem of specialist providers, that manages video and wearable information of elderly people who want to maintain their independence.
There’s all kinds of innovation happening, and we believe these beyond insurers can be at the center of the new economy by proactively defining a role for themselves within this innovation. But it requires an unorthodox mindset, like collaborating with regulators to ensure that new ideas not only have their support but are fully aligned with the best interests of the consumer. So perhaps for the next Uber horseless carriage opportunity a beyond insurer will engage at the outset and develop an innovative scheme that makes the innovation a safe reality and allows innovative businesses to grow exponentially.
The role of a beyond insurer is to monetize disruption, serve as a proxy for regulation, make new invention a safe reality, and be embedded in the upward march of humanity. These make for some inspiring truths.