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A 2019 book by insurance expert Rob Galbraith explores the future of the industry. He discussed the origins of the book and his thoughts on the major trends shaping insurance with Efma’s Boris Plantier.
What led to the writing of “The end of insurance as we know it?”
The crazy part is that I didn’t set out to write a book. Having been in the insurance industry for 20 years, I started interacting with a new type of technology vendor starting in 2015 coming from Silicon Valley – now classified as an “insurtech” startup. These new firms were applying cutting edge technology to long-standing challenges in the industry in new and creative ways. I often left meetings thinking to myself “Wow! I’ve just caught a glimpse of the future!!! This is what insurance will look like a decade from now.”
Over the holidays at the end of 2017 going into 2018, I took two weeks off of work to be with my family – but I couldn’t stop thinking about all of the implications of insurtech. So, I did what people tell you to do when you can’t stop thinking about something – I wrote it down. The problem was, new thoughts constantly popped into my head – so I kept writing things down. After my “thoughts” exceeded 25 pages single-spaced, I knew I had to write a book.
A year later, The End Of Insurance As We Know It was released in February 2019. The book has sold over 2,500 copies in 12 countries and hit #1 in its category at some point in the month for the last 12 months. Due to popular demand, I contracted to have an audiobook version professionally recorded which was just released in January 2020. And we just signed a deal for the first foreign language translation to be done – in Mongolian! It’s been incredible to see how much the book has resonated around the globe.
What will change in the coming years?
Everything? Perhaps not entirely, but I think we’ll see more change in the insurance industry over the next decade than the past 3 decades combined. Although insurance is a centuries old product that still plays a huge role underpinning economies in today’s world, in many senses it is the perfect digital product. Unlike other industries, insurance does not require massive investments in factories or global supply chains. It is the original “big data” industry that will consume even more data from sources closer to the actual risk exposure, and rely on AI and advanced algorithms to make sense of this flood of bytes streaming in. Traditional insurance firms will compete on algorithms, expertise, and customer experience. For many firms, this means unlocking the value hidden away in their stores of data and integrating their core systems with third-parties to become platforms rather than silos.
Are traditional insurers threatened by insurtech firms?
I have two answers: no, and not as much as they should be. One remarkable thing about the insurance industry is how friendly and open it is to startups. I consistently hear from startup entrepreneurs that the insurance industry has welcomed them with open arms when most other industries have fought them at every turn. I think most traditional insurers welcome new ideas and are actively seeking to partner with one or more startups to help them innovative and remain competitive in the 21st century.
Having said that, I think it’s still exceedingly difficult for startups to successfully partner with traditional firms. The sales cycle is almost comically long, typically 12-18 months, requiring numerous meetings and stakeholders to weigh in. Meanwhile, these startups still have to pay their programmers and data scientists! Venture capital, incubators and accelerators certainly help keep startups viable and provide critical resources as they get off the ground, but startups who seek to partner with traditional firms risk insolvency if they can’t get beyond what some term “pilot purgatory”. However, even when pilots do not advance to full-scale solutions in production, startups are learning valuable business lessons about the industry, which they can use to refine their value proposition and strategy.
By contrast, while few startups have decided to directly compete head-to-head against incumbents, some have found success with Lemonade being the best-known brand. Backing by reinsurers for many of these startups certainly provides an interesting dynamic that will be fascinating to watch over the next decade. I’m of the mindset that we’ll see a hybrid future notable for some successful long-standing partnerships between traditional players and startups, as well as brand new firms that have become established and competitive forces in their own right, similar to some of the challenger banks that have found success in Europe.
What are the major trends shaping the insurance industry at the moment?
There are so many opportunities for improvement in the insurance space, it’s fascinating to see this flood of insurtech and where it has chosen to concentrate its efforts. I talk about what I call the seven “fatal flaws” of insurance in my book – longstanding thorny challenges that the industry has struggled to solve for decades. Solving even one part of a single of these flaws can become a sustainable business due to the sheer size of the $5T+ global insurance industry. I think early talk of disruption has given way to a focus on partnership – I call it an “insurance romance” – that will last for a while longer.
I’d call out three specific trends I see that are pretty fascinating to follow in 2020. The first is distribution and figuring out how to serve the digital customers, mostly millennials. Should you use an agent or broker, or go direct to consumer? For which lines? Should you use aggregators and comparative raters, or focus on carrier portals and quote/bind capabilities online? And there are seemingly infinite takes on platforms and marketplaces of all shapes and sizes. I see a lot of great minds thinking deeply in this space, and I think we’ll start to see some “winners” emerge over the next 1-3 years.
The second trend is the nature of the insurance product itself. It is tied to distribution in some cases, particularly with the idea of embedded insurance where it’s part of a larger purchase. For instance, purchasing on-demand coverage for your drone flight or e-scooter ride as an in-app purchase experience. There are a lot of new product offerings and focus on personalization, and even parametric cover and smart contracts that do not rely on the traditional model of indemnification – putting claimants back to their pre-loss state (less deductibles and subject to limits), no better off and no worse off. I’m sure ever more novel products will be developed – the question is whether the insured will buy them, or even find out they exist (hence the distribution focus) ?
The last trend is one I don’t see as much conversation about but I think may ultimately prove the most disruptive. It is a fundamental paradigm shift away from using proxy variables for risk to real-time streaming data. For example, instead of using factors such as age, gender, and marital status to rate auto insurance that are correlated with exposure in aggregate, replacing this with telematics measuring actual driving behaviors. I call this the SCALE model of insurance – sensors, cloud, AI, learn, expand – whereby insurers who capture the most data points and have the best algorithms which learn and constantly are refined gain a massive edge on competitors, similar to what we see with Big Tech.
What is the biggest challenge when it comes to insurance + tech startup collaborations?
Size and speed. The difference in size between the two organizations dictates that they move at different speeds. Large organizations are slow and cautious, which makes sense – you don’t want to “move fast and break things” at their scale, especially in insurance where trust is critical. Small organizations are nimble and can move much faster – and have to in order to survive. This fundamental mismatch also drives differences in corporate culture and makes it exceedingly difficult to partner successfully on a long-term basis – but not impossible.
Tell me about your experience as a jury member for the Efma-Accenture Innovation in Insurance Awards?
I was honored to be a jury member for last year’s awards and am thrilled to serve as a jury member again this year. While I literally wrote “the book” on insurtechs and innovation in the insurance industry, it’s impossible to keep up with all of the great work that companies are doing around the globe. Being a jury member exposes me to so many tremendous companies with creative ideas and the passion to execute, ultimately resulting in better products and service for customers and making the insurance industry better as a whole. I love insurance and the societal benefits it provides to insureds, and anyone who is working hard to make it better earns my heartfelt respect and appreciation. While it’s exciting to see who the winners are, ultimately it’s about celebrating all industry leaders and professionals who are working hard to make the industry more responsive to customer wants and needs.
What do you expect from the insurers this year?
I expect the unexpected! I tend to get the most excited about new innovations that are creative and go beyond anything I have ever considered or heard about while still being tightly focused on serving unmet customer needs. Finding ways to serve a segment of the population who had never had a product offering that meets their needs or deliver a significant upgrade on the status quo are always thrilling in my book!