Voice of the Customer: They're Not Happy

Early in November 2014, immediately following the release of the SMA research report Crowdsourcing and Open Innovation: Powering the Sharing Economy, which explored the shared economy and its implications for insurance, I received an interesting email from the CEO of a shared shipping start-up. The CEO stated, “I just wanted to let you know that I have found the hardest problem to solve as the CEO is that, after talking with 12 different insurance companies, I am still stuck on finding someone to write a policy for me! I am not sure you can overstate the tsunami of change that insurers are trying to avoid. It is frustrating to me as a CEO trying to get my company going.” My instant reaction was … what a powerful voice, and what a compelling, if troubling, customer statement! I immediately reached out to him to discuss his predicament. In our SMA research, we have written about how the shared economy is empowering individuals and businesses to access specialized skills, resources, goods or services from anyone, anywhere, at any time based on an instantaneous need. The change is spawning new business models and leveraging the combination of crowdsourcing, open innovation and technology. These new business models are challenging decades of business assumptions, models, pricing and growth that were based on the principle of ownership, rather than access or subscription. As a result, the fundamentals of insurance, from risk models to pricing, products and services, are feeling shockwaves. My discussion with the CEO about his business provides a great but jolting example of the need for these new business models, new risk models and (especially) new insurance products. He agreed to do a webinar to describe his needs and his frustrating experiences for our SMA Innovation Communities. During the webinar, the CEO shared his experience and powerful insights for insurers: It was easier to obtain $2 million for investment funding than to find insurance. The funding would likely be completed within 30 days. Contrast that with finding insurance coverage: After talking to more than 20 insurers, brokers or agents, over nearly 12 months, there is still no coverage. He found two companies, one of which works with Peers (the non-profit company backed by shared economy companies), that are bringing insurance to this market segment. But he is still awaiting confirmation. Outdated insurance business models don’t fit today’s market needs. The old models are based on historical actuarial models, rather than real, point-in-time data (i.e. coverage when driving and shipping something). The lack of visibility into capabilities of insurers and independent agents and the language barrier (the coverage needed is inland marine, which implies the use of a boat rather than land surface shipping) make it especially difficult to find exactly the right coverage. Finding the right independent agent is “tricky” because of referral chains, lack of skill sets, unclear representations, and agent incentives. In seeking coverage, he was told by many in the industry that, “Insurance has not updated the business model since the 1800s, so you won’t find anything.” What does this mean for the insurance industry? Mildly put, listening to the voice of the customer should be a wake-up call. The lack of understanding and inability to respond rapidly to new market needs opens the door to new competitors and the potential loss of customers. Just like many other industries that are being disrupted and transformed, insurance must reimagine its business models – from the mission to the customer to the product, pricing, operational and revenue models. Historically, insurance has been about the transfer of the risk of a loss from one entity to another in exchange for payment. In today’s fast-paced, changing world of emerging technologies, new business models and shifting industry boundaries, is that focus limiting our opportunities? This experience by a “could-be” customer clearly suggests we are at least limiting our future, if not risking it altogether. Other industries (and companies) are noticeably redefining their visions and focus to compete in this new world. At the 2015 Consumer Electronics Show, the media noted that Ford CEO Mark Fields sees Ford as rethinking itself as a mobility company rather than being defined by its legacy as an automotive company, and Ford is delivering a wide array of new services and experiences via the auto. Even Google’s CEO, Larry Page, has acknowledged that its vision statement – “To organize the world’s information and make it universally accessible and useful” – is too narrow, as reported in a Nov. 13, 2014, Fortune magazine article, “Google's Larry Page: The most ambitious CEO in the universe.” Page is creating a future by leveraging emerging technologies to reshape the business beyond the legacy as a search engine. Yet the view that insurance vision and business models are shackled in decades or even centuries of tradition is, unhappily, very real. This notion is reinforced in a Jan. 21, 2015, Forbes article titled “Insurance: $7 Trillion Goliath” that compares banking with insurance relative to change and innovation. The article notes that 15 years ago banking was a lumbering, vertically integrated giant that was largely untouched by the technology revolution. Today, however, there are a group of “Davids” like CoverHound, Lending Club and Square that are challenging traditional banking “Goliaths” with some digital “slingshots.” The article further observes that insurance has also remained largely untouched by the technology revolution, but that we are beginning to see the emergence of “Davids” who will challenge the traditional “Goliaths,” leveraging the technology revolution to disrupt the traditional business assumptions and models of insurance. Insurers must redefine their vision and reinvent their business model, taking into consideration the new and emerging technologies, the growing amount of real-time data, new market trends and much, much more. If they do not, they risk facing a disruption that will be devastating, when it could have been transformational, creating new relevance in a rapidly changing world. The reimagination of businesses in the context of today’s world and tomorrow’s potential are already defining and revealing future market leaders and winners. Will insurance remain focused on risk transfer products? Or will we look more broadly toward offering products and services that provide much more, enhance the lives or businesses of our customers and meet the needs of a reimagined business model, like the shared economy? The possibilities are significant. Are you reimagining your business, considering the impossible as the new possible? Insurers need ingenuity and outside-in thinking to reimagine their business as a Next-Gen Insurer and ignite a vision of possibilities. If not you, then someone else will. So dream the impossible and become a Next-Gen insurer