Trends Disrupting the Insurance Industry, Part 2

This is the second in a series of posts, in which we’ll describe the trends disrupting the insurance industry – and how Lean can help incumbents survive and thrive amidst the disruption. If you missed the first post in this series, read it here.

Trend #2: Emergence of High-Tech Competitors

“It is not typhoons or earthquakes that insurers should fear most, but geeks alert to their businesses’ inefficiencies.” – The Economist¹

Recognizing that the insurance industry is massive, with a reputation for being antiquated and untrustworthy, it’s no wonder tech entrepreneurs have taken interest in reviving it.

With brazen tag lines like: “Forget everything you know about insurance,”², tech-powered startups are making noise in the insurance industry. Unburdened by legacy systems or mindsets, these companies are leveraging new technologies and innovative business models to meet the demands of the modern insurance consumer.

Take for example, NY-based peer-to-peer insurance company Lemonade, which founders say began when they recognized that the insurance industry suffers from misaligned incentives: Insurers lose money when people make their claims, which creates a system in which brokers and agents aren’t incentivized to work in the customer’s best interest. As a response, customers who are normally responsible and respectful feel justified in attempting to defraud their insurer (something 25% of Americans do).¹

Lemonade revives this broken model by shifting the incentivization structure, while adding in an element of social good: It takes 20% of its customers’ premiums as a fee, and rewards under-claiming customers by giving a share of unclaimed funds to their chosen charity.²

Instead of underwriters and brokers, Lemonade relies on algorithms and chatbots. Leveraging A.I. technology enables this tech-savvy startup to boast game-changing statistics: like the ability to pay claims within three seconds. This, plus a user-friendly app, appeals to the millennial generation: Over 80% of the 2,000 policies sold in Lemonade’s first 100 days of business were sold to first-time buyers.²

The Lean Approach: Leverage Customer Data, Practice Lean Leadership

Luckily, large insurers have access to the same technology as these startups, and have a clear advantage over companies like Lemonade: data. A.I. bots learn through an abundance of data, something that large insurers have the unique ability to generate given their market share. In order to truly disrupt the industry, high-tech startups will have to grow quickly enough to generate the data needed to develop truly intelligent A.I. systems. If incumbents are able to quickly embrace this and other new technologies, they can still thrive amid the disruption.

Insurtechs are leveraging cutting edge technology to provide better, more informed customer experiences.³

The biggest challenge to leveraging new technologies will be to transform the culture of organizations who have been conducting business for decades without them. The legacy systems aren’t the true issue – it’s the legacy mindsets. This is where Lean leadership steps in.

Tech-enabled insurance startups are focusing their efforts on eliminating waste and increasing value for customers.³

How to Get Started with Lean Management

Maximize Customer Value

At the root of all Lean thinking is the idea that companies exist to maximize customer value. Not to generate profit – but to maximize the sustainable delivery of customer value. Profitability is a result of sustainable value delivery – not the other way around. This way of thinking is a direct threat to status quo – so leaders need to step in to encourage employees to embrace it. Leaders need to create an environment in which investments in maximizing customer value are celebrated.

Because when companies focus on sustainable value delivery, they make decisions that are nimble, informed, and built for growth. Optimizing for value delivery keeps customers happy and profits high – a true win-win.

Practice Incremental, Continuous Improvement

Lean thinking is not something that can be turned on with a switch. It has to happen gradually, ideally led by the guidance of strong leadership. Lean leaders must lead gently, by example, ensuring that Lean principles are being applied with the right goal in mind: To sustainably maximize customer value. It’s the role of Lean leaders to create an environment that fosters continuous improvement, by asking guiding questions, supporting teams as they test hypotheses, and celebrating improvements, in both performance and process.

Eliminate Waste

In order to make room for true innovation, insurers need to critically examine their existing systems, processes, policies, and activities, and eliminate anything that will not serve their customer’s needs. This isn’t a job for only leaders – in order to be lasting and effective, it needs to be part of the mindset at every level of the organization. It’s up to leadership to empower every employee to eliminate waste and set the example by working to eliminate waste at the executive level.

Learn More

Stay tuned for the next post in this series, in which we’ll describe how Insurtechs are developing creative tech-enabled, human-centric business models – and what large insurers should learn from them.

To learn more about the topics addressed in this article, we recommend the following resources: