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Back to the Future: 100 Years of Disruption

By Marik Brockman, Vice President, Strategy & Partnerships, CSAA Insurance Group

Marik Brockman, Vice President, Strategy & Partnerships, CSAA Insurance Group

When you’re sneaking up on your 105th birthday, it’s probably fair to say that you have seen a few changes in your time. In 1914, CSAA Insurance Group, the AAA insurer for 23 states and Washington, D.C., was founded by a small group of auto enthusiasts looking for an innovative solution to the high price of auto insurance. They created their own insurance company.

"The current state of marketplace innovation and business model disruption is breeding a seemingly infinite number of startups across every industry including retail, finance, transportation, and, of course, insurance"

Fast forward to 2018: the state of marketplace innovation and business model disruption is breeding a seemingly infinite number of startups across every industry, including retail, finance, transportation, and, of course, insurance. With few exceptions, every new idea purports to shatter the status quo, and deliver products or services better, faster, and cheaper.

Hundreds of InsurTech startups populate the competitive landscape, making it feel as if dozens more emerge every month. These innovators are attacking different areas of the insurance value chain and unbundling insurance in the process. But why is this happening? What are the micro and megatrends behind these new opportunities?

Megatrends that Matter

There are six megatrends that promise to impact insurance:

1. On-Demand, Sharing Economy: The sharing economy is “the new normal.” To the broader population, owning key assets, such as homes and cars, is less affordable and less necessary. Services and assets are available and shared on-demand. Personal and commercial behavior and related risks continue to blur, and car-sharing and vehicle subscription models are rising, requiring that we bundle multiple services and insurance.

2. Gen Z and Changing Consumer Expectations: Gen Z is 69 million-strong and has never known a world without the internet. They make user-driven and on-demand choices, and expect their experiences to be omni-channel, mobile, intelligent, and integrated with other applications.

3. Automation and Artificial Intelligence: A.I. is no longer Sci-Fi. It’s in our phones and our homes, and soon will be offering advice on finances and healthcare—and driving our cars! We are entering the fourth industrial revolution where automated processes and devices free up tens of millions of individuals to focus on more specialized activities and make our lives easier. It will also shift industries significantly, toppling businesses, and launching new ones, as with prior revolutions.

4. Connected Everything: It’s expected that the Internet of Things will result in more than 26 billion interconnected devices by 2020. This will create new, effortless abilities to connect to social networks, gadgets and experiences. In this world, data and analytics will rule, and integrated services will help mitigate risk and create new value. However, connecting more devices to enhance experiences will pose a growing, multi-billion-dollar threat to cybersecurity.

5. Faster Business Model Evolution: The increasing pace of change is evidenced by the decreasing average age of corporations in the S&P 500, down from 60 years in the 1950s to 20 years now. As industry lines blur, barriers to entry fall away, customer experience and speed-to-market emerge as the key differentiator for success. The ability to perform as a lean, agile, customer-focused innovator is required to avoid overinvesting time and money on the wrong solutions in a fast-paced, less predictable future.

6. Shifting Retail Landscape: Nearly 10,000 stores were projected to shutter last year, which is a 53 percent increase over the business failures during the Great Recession of 2008. The new consumer is interested in a purchasing experience, not amassing goods. Materialism is out, which means retail businesses need to rethink what they are offering and how they are offering it.

Adapting to Megatrends

These intersecting trends reveal key areas of market focus, such as the criticality of customer experience. Applications of artificial intelligence, including machine learning and chatbots, have paved the way for new solutions, supplementing sales, self-service, and claims capabilities and interactions. Early movers who master these solutions will likely emerge as dominant players in the new marketplace.

Of course, success is also tied to the rollout of new products, which is where established companies can face headwinds. While traditional companies have established and proven products in-market, the evolving risk of personal lines insurance, impacted by the sharing economy and ubiquitous smartphones, creates fertile ground for new concepts and insurance solutions. While nothing prevents companies from pursuing the latest channels, the nature of longer product development lead-times and rollout schedules leaves a substantial gap allowing upstarts to make their presence known.

However, for established companies, this is where the opportunity to level the playing field arises: via partnerships, corporate innovation, and investments. While traditional competitors may not be able to replicate the advantage of the smaller disrupters’ agility and customer-obsessed focus on the marketplace, they can certainly observe and identify the most useful approaches and strategies. By actively engaging with InsurTech start-ups, and in sectors that aren’t always obvious, traditional insurers can leverage the fresh product solutions that emerge as they delve into AI, IoT, transportation as a service, connected homes, etc.

Opportunities to Innovate

It’s important to recognize that innovation is rarely a destination; it’s a pursuit. CSAA Insurance Group has an established reputation for partnering with disrupters, through a pilot partnership with Lyft, and early-stage investments in Automatic Labs, TechStars Mobility and, most recently, Owl, and Rapid SOS. These strategic decisions help the company adapt to an evolving marketplace, and continue innovating to meet changing customer expectations and needs. As people become increasingly conditioned to control nearly every aspect of life from smartphones, and receive products shipped to their doorsteps overnight—or the same day, in some instances—CSAA Insurance Group has not lost focus on creating the perfect customer experience. This means connecting seamlessly with the digital world, and nurturing innovations that might be incremental, differentiated, or even break-through or disruptive.

When CSAA Insurance Group celebrated its first birthday, there was no interstate highway system, no commercial airline travel, no television or computers, no smartphones, and no internet. These massive technological undertakings were incredibly disruptive, yet presented new found opportunities for the company to re-imagine ways of doing business in service of customers. As the journey continues, so does the opportunity to innovate.

Consumer expectations and demands for choice, price and convenience will continue to push the insurance industry to create better ways of delivering on the promise to be there in times of need. CSAA Insurance Group will continue to invest in lean, agile, and customer-centric innovation practices and culture that enable greater speed-to-market, driving change for current and future AAA members.

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