Michael LaRocco, has a blunt message for the insurance industry. “Macy’s, Sears and Kmart are dead. People want to get their products differently,” the CEO of State Auto Financial (STFC) told executives gathered at the Insurance Information Institute’s (III) annual conference in mid-January. “The power of change is coming, and if we fail to see it, we could be dead too.”
Overstated? Perhaps. But dozens, maybe even hundreds of new insurance products are coming to market. Analysts call them “the disruptors.”
These products are often the brainchild of digitally based startups backed by private equity firms that see the virtue of letting consumers use hand-held devices to purchase “one-click” insurance, pay their bill or get a quick claim payment.
Just how quick? One fresh-faced insurer, Lemonade, which has been in business for only four months, boasts that it paid one claim in three seconds.
Not every claimant will be that fortunate. But they’ll fare better than the old days when claims from the World Trade Center collapse languished in court for years while lawyers wrangled over policy language.
LaRocco and other “traditional” insurers aren’t retreating from the disruptors. But they’re running a lot faster to keep up, and in some instances, preempting the new technology by either buying or entering into strategic partnerships with these newcomers.
All this is good news for consumers, or at least for consumers who learn to shop online and get involved in “peer-to-peer” insurance between small groups who meet through social networking.
Here are a few examples of new ways in which insurers are marketing policies and handling claims:
- Amazon’s Echo Alexa Voice Service is now an insurance service, with nearly 100 insurance facts and terms queued up by Safeco, a Liberty Mutual subsidiary. But if you want rates, bear in mind that you’ll be getting those of Liberty Mutual.
- Nationwide says it’s the first insurer to offer renters insurance via a “real-time” mobile app, which also lets policyholders pay their premiums.
- CUNA Mutual Group sells a complete online term life policy in at least 30 states, with only two health questions and an instant approval decision.
- MIT Fintech claims it can offer car insurance quotes in real time from “dozens” of auto insurers at once. Trying to beat the GEICO offer of “15 minutes can save you 15 percent,” MIT Fintech maintains it can save you up to $400 in less than five minutes.
Europeans appear to be moving even faster than Americans in insurance technology, perhaps because the U.S. has a state-run rather than a nationally regulated system. Five of the largest European insurers are working together to use “blockchain,” a technology that supports the virtual currency of bitcoin. The insurers claim it will make transactions and data transfers instantaneous and seamless.
Advanced technology, access to huge amounts of data about everyone and algorithms to separate good risks from bad are the key to why new entrants are able to move so fast to sell policies, often based on only a few customer keystrokes. By using its artificial intelligence claims bot, Lemonade said it can run 18 antifraud algorithms and settle a claim for a goose down parka “without involving us humans.”
Startups have had no trouble obtaining funding. Venture capital-backed tech investment deals in the property-casualty sector hit a new high of $1 billion in the first half of last year, according to CB Insights, which helps companies find and access investments. Entrepreneurs who invested in other financial sectors are now switching to insurance.
Traditional insurers -- particularly auto insurers -- don’t have a good reputation with the public now, according to CEO Ralph Shayne of Oasis Financial, which offers financial aid to cover personal and medical expenses to people involved in lawsuits against the insurance industry. That’s largely because of the time it takes for a claim to be paid. A Harris poll conducted for Oasis showed that 73 percent of respondents believe that insurance carriers often drag out the claims process and delay paying compensation.
“If we can do it faster, at the same cost, and with nothing taken out of the equation, it should be ‘game over,’” said CEO Anthony Kuczinski of Munich Reinsurance America at the III conference.
So is there a downside to this new world of “one-click” insurance? The answer is yes -- because it has yet to show that it can work on a large scale.
“Public relations and marketing have been the best part of this movement so far,” said State Auto’s LaRocco. “But can they deliver?”
In other words, do these upstarts have the internal systems to implement the products they’re offering and keep clients safe from hackers? It probably means finding real people to answer questions -- both online and by phone -- and technical staff to run these high-tech systems securely.
“Customers may like what they see on the [computer] screen, but if they can’t reach a carrier when they want or through the channel of their choice, they aren’t likely to pursue the insurer much further,” said Kathleen Garlasco, who handles enterprise marketing at BOLT Insurance.
The newcomers have to clear the hurdles of state insurance departments in the fragmented U.S. insurance market, and they need more capital to reach critical mass. The U.S. insurance industry’s total premiums are upwards of $1 trillion, said CEO Michael Macauley of Quadrant Information Services, so a $1 billion investment doesn’t mean “the barbarians are at the gate.”
But it is a wake-up call. “Plenty of carriers are close to doing this right now,” predicted Jay Sarzen of Aite Group, a Boston-based consulting firm. “And those who haven’t will have to.”