As households cut spending, the big beasts of insurance need to get up to speed
When the economy is fragile, sectors must adapt. This is a truism repeated again and again because it is the nature of financial growth and innovation. As household budgets shrink, customers are shopping around for better deals – for food, for bills and almost all other outgoings. Insurance is no exception, though it is unique in how it operates. Over $2.4bn was invested in so-called “insure-tech” this quarter. And earlier this week, Lemonade, the New York-based insurtech giant, launched into the UK. The announcement is bound to ruffle some traditional provider feathers with Lemonade launching with contents insurance premiums as low as £4 per month.
Disruptors in other industries have raised customer expectations – promising cheaper policies, faster processing time and hyper-tailored client services. As with banking transformation over the last 10-15 years, those slow to move risk losing significant market share to more relevant players.
The very real challenge is how to create the business case for updating legacy infrastructure which can be up to 40 years old – internal and external processes as well as distribution channels.
What’s especially interesting about insurance is the established players reap a huge benefit from their “safe” brand name. People love to buy insurance from someone they know and they trust will be around for the next fifty to sixty years – this is especially true for life or health insurance.
But while this is important and longevity is appreciated, established insurers will not hold this advantage forever. Consumers are often at their most vulnerable when needing to make an insurance claim – tolerance for slow, complicated and admin-heavy claims processes is already waning.
So what serves both the disruptors and the established brands well is a partnership between the two. Lemonade’s launch is a good example of this. The firm entered the UK through a partnership with Aviva, an $11bn incumbent already extremely well established in Europe. Although Lemonade is a fully licensed insurance carrier in its own right, the company is in a much better position to make a mark in the UK, mostly because of Aviva’s brand recognition, deep roots and stable large financial backing.
Aviva is, of course, also benefiting from the partnership: the company is looking to target a younger demographic and introduce leaner processes.
Those who adapt with smart and agile offerings will continue to grow and gain market share. Those who fail to move with the times will fall behind and ultimately disappear. We have seen this time and time again. But this new kind of competition is good for the customer, as only the insurers that provide the most relevant service will survive resulting in a better quality market.
There is also a significant proportion of innovation in transforming incumbents from the inside out, using similar technologies to automate the claims process, increasing visibility and enabling handlers to focus more on customer service that adds real value.
Lemonade’s entry into the UK can only be greeted with open arms in the current climate, as it will motivate more traditional insurers to team up with disrupting newcomers to provide customers with the best service possible. Competition will always be good for the customer.