How on-demand insurance will shake up the industry

(Courtesy of Jacksonville Business Journal)

On April 6th, The Wall Street Journal reported that a fintech startup called Trov (“fintech” refers to any technology innovation in the financial services industry) had raised $45 million to bring on-demand services to the property and casualty insurance market.

Trov is an interesting case of how digital technology is disrupting traditional insurance markets. Unlike traditional homeowners’ or renters’ insurance, which provides blanket coverage, Trov enables customers to insure individual items “with the swipe of a credit card” and without talking to anyone.

At this time, Trov insures only consumer electronics and photography equipment, but they intend “to cover jewelry, sporting goods and other property that can be priced reliably.”

What are the implications to the insurance industry?

The CEO, Scott Walchek, sees his company unbundling coverage for single items the way Apple unbundled music albums with iTunes. If that is indeed the case, it would precipitate a disastrous decline in the insurance industry’s total revenue.

For comparison, total revenue of the U.S. music industry was $11.8 billion in 2003 when iTunes was introduced. Ten years later in 2012, total revenue had declined to $7.1 billion, down 39 percent. Trov may thrive, but traditional insurers will not.

While acquiring disruptive startups is an essential part of an overall innovation strategy for any established firm that can afford it, it’s not enough. It’s impossible to acquire all the latest greatest technologies. Companies must drive organic innovation and growth as well. Even Google with tens of billions of dollars of cash on hand for acquisitions is driving innovation internally, too.

What can insurers (and all of us) learn from this?

There are a number of significant hurdles that traditional insurers must clear to succeed at innovation, such as:

  • Acquiring new skills and capabilities in such things as digital technology and dynamic pricing
  • Regulatory hurdles
  • Understanding customer needs

One hurdle that is unnecessarily hindering innovation, however, is the misbelief that customers cannot tell us what they want. This misbelief keeps innovation a mysterious hit or miss event when, in fact, it can be executed as a predictable business process.

Customers can tell us what they want as long as we ask them what they want to accomplish rather than asking them for solution specifications. A skilled interviewer asking the right questions can easily identify that there is a segment of insurance customers who want to insure only a few items rather than pay more for blanket coverage.

The essential questions that every business leader must ask customers to determine are:

  • Why are you buying our product/service? What does it do for you?
  • What objectives does it enable you to accomplish?
  • What problems does it help you to prevent or resolve?
  • What metrics do you use to measure success?

Because customers can provide the answers to these questions, companies can uncover important unsatisfied needs, unmet needs that are opportunities for innovation. This is how leading companies are driving innovation and growth.

Despite claims to the contrary, consumers’ needs for insurance have not changed much over the decades. People still want to protect themselves from financial loss that could occur from the theft or damage of personal property.

What has and will continue to change, however, are the solutions that insurance companies develop to help customers accomplish their objectives. Solutions continually get better and better at satisfying consumers’ needs.

The only way for traditional insurers (and all of us) to thrive in this environment of tumultuous change is to relentlessly focus on helping target customers get their tasks done better than the competition.

Customers don’t care if the solution is a product, service, or technology; they just want to get their tasks done. As Theodore Levitt pointed out many years ago, every business must define its purpose according to the customer needs it satisfies, not the solutions it sells.

Jeff Brandes Files Bill to Curb Insurance Fraud

(courtesy of Sunshine State News)

Sen. Jeff Brandes, R-St. Petersburg, is going after insurance fraud in the Sunshine State.

On Friday, Brandes filed legislation to tackle insurance fraud by requiring insurance companies to develop anti-fraud plans and submit them to the Division of Investigative and Forensic Services.

legislation

Brandes’ legislation would also require companies to provide anti-fraud training and would require companies to provide anti-fraud statistics.

“Insurance fraud in Florida is evolving, and policyholders are forced to pay for it through higher premiums every year,” said Brandes. “This is a hidden tax on every Floridian who drives a car, owns a home, rents an apartment, or pays for health insurance.

“If left unchecked, the cost of fraud will grow and consumers will continue to pay the price,” Brandes explained.

Brandes teamed up with Chief Financial Officer Jeff Atwater on the legislation, which is likely to be one of his last collaborative efforts as Florida CFO.   “We’ve made significant strides in our fight against insurance fraud,” said Atwater. “With this bill we hope to further improve our processes and hone our techniques so that we can continue to stay a step ahead of the criminals who seek to defraud Floridians.”