Saturday, June 15, 2024

Insurance Digitalization Is Not Disintermediation

Insurance technology, or “insurtech,” has taken over the technology landscape and challenges the role of industry stakeholders and incumbents. The industry’s potential is evident in the investment dollars now flowing towards it. In 2016, there were over 170 insurance tech deals globally, totaling $17 billion dollars, and representing a 518% rise in deal activity since 2012.

The trends in insurance are widespread: analytics and big data, the internet of things and connected insurance, and artificial intelligence, just to skim the surface. Net premiums totaled $1.3 trillion in 2015 alone, and with a bevy of tech-savvy millennials coming into the market as insurance buyers, there is little doubt that the insurance industry is a market ripe for transformation.

However, in capitalizing on the opportunity insurtech offers, it is important to understand that digitalization does not necessarily mean disintermediation. In insurance, the heightened focus on distribution – particularly those business models that favor enhanced value-chains without completely disintermediating existing physical channels like agents and brokers – stand out above the rest. Perhaps the best market tested proof of this is Zenefit’s recent announcement to pivot from a broker replacing solution to a broker-enabling one.

In this enhanced model of insurance distribution, digital plays a massive role in the interactions between incumbent insurers and traditional brokers. Many of these interactions are apparent in the technologies that have empowered the traditional brokers to more effectively deliver the services for which they are so valued: expertise, empathy, and education.

New marketplaces, sales technologies, and marketing platforms enable insurance agents to access and compare insurance products across multiple lines, and markets with ease and simplicity, which in turn enable them to better serve customers and carriers alike. In this industry, artificial intelligence, robots, chat bots, or software will not completely replace existing delivery and distribution models in the foreseeable future. Yet, the digital tools referred to above, have helped to reposition brokers and agents in a digitally enhanced sales and services marketplace. There are still great efficiencies that can be achieved in the insurance value chain by automating mundane processes that typically occupy the valuable time of physical channels, and repositioning brokers and agents to the role of “chief communicator” where they add the most value.

The shift towards digitization in the insurance industry is inevitable. This is particularly true for carriers: 94% of carriers view adopting platform-based models and forming digital ecosystems as critical to the success of their business, and 81% of all insurers plan on digitizing their sales process. While the idea of complete disintermediation of the value chain and the eventual disruption of an old and complex industry sounds sexy in principle, the reality for carriers is very different. The deep, long-standing relationships brokers and agents have with their customers and the sales they generate make the switching costs towards a disintermediated landscape extremely high. Moreover, brokers and agents continue to play a crucial role in plan selection: 80% of employers believe brokers help them pick the best products and 76% of employers believe brokers help them get the best price. Therefore, it is important for carriers to leverage their existing broker and client relationships as they reshape the insurance value chain with new technologies and new solutions.

Insurance is not alone in this nuance, as other industries serve as relevant examples as to where digitalization can exist without complete disintermediation. Amazon, LinkedIn, and Zillow have over the last decade redefined customer expectations in status-quo driven industries like logistics, human resources, and real estate. Amazon thrived alongside UPS, LinkedIn made HR reps’ jobs easier, and Zillow enabled real estate agents to increase their sales.

In spite of trying to redefine customer experiences in traditionally-driven industries, these companies understood the key to success was two-part: (1) enabling an instant flow of information with a marketplace approach and, (2) improving industry infrastructure with technology. Most importantly – leveraging the capabilities of the existing intermediaries, and prioritizing to significantly improve their shortcomings.

The sooner each party realizes the answer is not to perpetuate the status quo of doing business in insurance, but to fully embrace the power of technology to connect, standardize, speed up, and unclog the countless bottlenecks in the insurance shopping experience, the faster the industry can deliver a customer experience that stacks up against the likes of Amazon. The massive shift currently underway in insurance will force carriers and brokers alike to rethink their digital priorities. Brokers and agents, who adapt well to the emerging digital ecosystems, will continue to serve as the key providers as sales and service to employers and consumers. By optimizing their roles through inventive technologies and digitized service models, all stakeholders will continue to grow in size and consumer satisfaction.

About the author

Sally Poblete, CEOWellthie

Sally is the chief visionary, growth officer, insurance geek, and cheerleader at Wellthie. She spends most of her time listening to customers, envisioning new ideas, and building the best team.  She envisions a future world where purchasing insurance is a satisfying and confident experience.