Insursance InsurtechCo-authored by Matteo Carbone, director of the IOT Insurance Observatory and co-founder of Archimede Spac, and Steve Anderson, a Trusted Authority on Insurance Technology, Productivity and Innovation. This article also appears on Matteo’s LinkedIn page.


The debate on insurance innovation has been dominated recently by comments generated as a result of the State Farm TV ad where this insurance giant celebrates the superiority of its thousands of human insurance agents compared to the AI-based chatbots.

Lemonade – a smart US InsurTech startup – has credited itself as the target of this ad, because their marketing story is that a Chatbot is just as good – if not better – than any human insurance agent. It does appear their platform does need to learn a bit more about how insurance works as AIs have regularly paid out more in claims than they’ve collected in premiums.

Many comments on various social platforms have called the commercial, “the worst commercial I’ve seen,” creepy, freaky and hilarious. Many blame the Insurance giant for releasing this “attack ad.” Even our friend Chunka Mui has written a well-articulated censure to this ad.

However, we love this ad. We hope this discussion will encourage two calls to action for insurance companies:

  1. Be proud of the way you do business
  2. And, master the art of communication.

Be Proud of Your Business Model

Let us start with the first aspect. In the past years, technology arrogance and a sort of “politically correct tech” speak have forced the storytelling of the largest insurers around the world to, on one side, shyly hide that real people generate the vast majority of their business. And, on the other hand, these insurers celebrate any InsurTech proof of concept as evidence of their innovation, even when it has an immaterial impact on the business profit.

It seems Insurance Companies have felt embarrassed by their agents, brokers and other distribution partners. Most of their innovation efforts have been on solutions that in some way challenge their greatest asset, the human agent and broker.

“The last agent is already born” is a slide title we have seen at industry conferences for the last ten years, but as of today all around the globe, the sale of P&C insurance continues to be dominated by agents and brokers (excluding a few exceptions like the retail auto business in the UK).

For life insurance, digital distribution accounts for less than 1% of global sales.

It is great news to finally see a large insurer that is very proud of its agents. We love this communication because it is not hypocritical and gives a clear message both to customers and to agents: this is the way (through agents) we do business, and this is the reason why we do it this way.

We are not celebrating or encouraging “old school” thinking. We are firm believers in insurance innovation – and agree with Chunka that chatbot, Machine Learning, and AI use cases are among the technologies which will have the greatest impact on the future of the insurance sector.

However, we are also pragmatic. We want to provide a view about InsurTech which is different from the superficial mainstream. We think it is a pity to let the innovation cheerleaders – people raising their pom-poms at any PR released news but are not able to distinguish a loss ratio from a combined ratio – guide the debate about the future of the insurance sector.

The mantra of our activities in the insurance sector around the world isall the players in the insurance arena will be InsurTech,” meaning organizations where technology will prevail as the critical enabler for the achievement of their strategic goals. So, we believe InsurTech is much more than digital distribution.

Our view is that InsurTech is a superpower for insurers, it is a terrific enabler for performing the job of insurance in a better way: to assess, to manage and to transfer risks.

The world is full of opportunities for reinventing each step of the insurance value chain through technology and data usage. Moreover, an insurance company has a key opportunity to share these superpowers with its agents, brokers and distribution partners.

Google Plus AppliedMany insurers already understand that not involving their distribution system in corporate innovation is a wasted opportunity, so these carriers have introduced technologies which can enhance the capabilities of their human intermediaries. Instead, we have seen only a few players communicating effectively and consistently to support their agents and brokers. Because of this, carrier innovations are frequently perceived as threats by agents and brokers.

Insurance companies don’t need to create this kind of barrier. Maintaining this conflict only pleases the innovation cheerleaders who not like and want to get rid of intermediaries.

Master the Art of Communication

Let’s move to the second call to action. The insurance sector has always experienced bad press and has never excelled ineffective storytelling. The new generation of InsurTech startups are demonstrating the power of a consistent and modern communication strategy. The startup which has started the discussion about this ad is the best example of this communication ability. From our perspective, their two years of case history must be studied in marketing courses at any university. There is a lot for the current industry to learn.

They have pretended to be the good guys who will be the remedy for a broken business. This home insurance startup has positioned itself as champions of trust. Everyone remembers the company for the fixed percentage of premium it charges – the iconic slice of pizza – while all the rest is used to ensure they will always pay claims, and whatever is left, goes to charities.

In todays age of post-truth, only a few people go deeper, study and try to understand fully. Therefore, that slice of pizza celebrated by InsurTech cheerleaders has flown twit to twit, article to article, conference to conference. Moreover, consistent and well-orchestrated communication has fed this mechanism.Presentación IoTWhat does “all the rest is used to ensure they will always pay claims” mean? In the long and wordy FAQs, the startup mentions the necessity to cover “internal reinsurance,” reinsurance costs, and other expenses. Therefore, at the end, the maximum amount available for the charity giveback is 40% of premiums.

The terrific 40% giveback happens only in the theoretical scenario where there are zero claims within the peer group. In a scenario with claims at 40% of the premiums (40% loss ratio) or above, the giveback is zero. This means there is a giveback only if the loss ratio is lower than 40%.

Insurance is a contract where someone promises to indemnify another against loss or damage from an uncertain event as long as a premium is paid to obtain the coverage. On average, the US home insurance business line had a loss ratio of 74% in 2017 (honestly an exceptionally high year, 46% has been the lowest loss ratio in the past five years). This means that 74 cents have been used to indemnify the policyholders for each dollar collected as premium.

In the age of post-truth, the InsurTech startup we talked about pretends to be the good guy who will fix a broken business model because it guarantees to pay – as claims or giveback – at least 40 cents for each dollar collected as premium within each peer group.

It seems clear to us that the insurance incumbents have more arguments for claiming they are the good guys, but they have only to develop consistent and modern communication storytelling.

Following are some suggestions on next steps insurance companies can take:

  • Be proud of and support your agents, brokers and distribution partners
  • Encourage them to be part of your innovation initiatives
  • Develop a frictionless process to help the people who distribute your products better engage with policyholders
  • Learn how to tell a better story – about your company and your agents brokers and distribution partners.

What ideas do you have for helping the industry to help agents and broker better protect their clients?

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Matteo Carbone
I’m working in Bain Financial Services practice and spent most of my time advising many of primary Players on Italian market. I’m recognized by the client and team as expert on key issue and emerging trends in insurance and wealth management sector. I dealt with Mid-level and Senior Clients, developing advisor status with Executive and earning confidence for contribution to quality output and recommendations. I have wide experience with major International Insurance Groups.