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When people think about insurance innovation and InsurTech, they often think of the highly-visible activity in individual life and personal lines. The reality is that similar exciting digital innovation opportunities are quietly happening in commercial and specialty lines.
Disruption and change are reshaping industries and the businesses within them that use “traditional” P&C commercial/specialty products. It is creating both challenges and opportunities. As a challenge, just consider insurers with personal and commercial auto. Pundits have been predicting a rapid decline in personal auto premiums and questioning the viability of both personal and commercial auto due to the emergence and adoption of autonomous technologies and driverless vehicles, as well as the increasing use of alternative options (ride-sharing, public transportation, etc.).
Finding alternative growth strategies is “top of mind” for CEOs. Opportunities for alternative growth strategies can be captured from the disruption and change within commercial and specialty insurance. New risks, new markets, new customers, and the demand for new products and services may fill the gaps for those who are prepared.
In our recent Executive Roundtable, Strategic Path to Accelerate Growth with New Products and Business Models, Seth Rachlin from Capgemini and Denise Garth from Majesco brought together a powerful panel of insurance industry leaders to discuss the evolving market and product opportunities for the commercial and specialty insurance segment. The lively discussion highlighted how changing trends in demographics, customer behaviors, technology, data and market boundaries are creating a dramatic shift from traditional commercial and specialty products to the new, post-digital age products redefining the market of the future.
New technologies, demographics, behaviors, and more, will fuel the growth of new businesses and industries over the next 10 years. Many of these businesses will grow within completely new industry types, setting the stage for new insurance market expansion. Commercial and specialty insurance provides a critical role to these businesses and the economy—protecting them from failure by assuming the risks inherent in the production and delivery of goods and services.
Industry statistics for the “traditional” commercial marketplace don’t yet reflect the potential growth from these new markets that may still need traditional insurance, but also may need new types of insurance. It is a diverse group that embraces new technologies, social shifts, demographic shifts, new economies, and more, focused on narrow segments that will increasingly demand niche, personalized products and services. Many do not fit neatly within pre-defined categories of risk and products for insurance, creating opportunities for new commercial insurance software and services.
Small and medium businesses are uniquely at the forefront of this change and at the center of new business creation, business transformation and growth in the economy.
Small businesses in the US are increasingly owned by Millennials and Gen Z—two groups that prefer to do as much as possible digitally. Their views, behaviors and expectations are different than those of previous generations, and will be influenced by their own personal digital experiences.
The sharing/gig/on-demand economy is an example of the significant digitally-enabled changes in people’s behaviors and expectations that are redefining the nature of work, business models and risk profiles.
The rapid emergence of new technologies and the explosion of data are combining to create a magnified impact. Technology and data are making it easier and more profitable to reach, underwrite and service commercial and specialty market segments. In particular, insurers can narrow and specialize various segments into new niches. In addition, the combination of technology and data is disrupting other industries, changing existing business models, and creating new businesses and risks that need new types of insurance.
New products can be deployed on demand, and industry boundaries are blurring. Traditional insurance or new forms of insurance may be embedded in the purchase of products and services.
InsurTech is re-shaping this new digital world and disrupting the traditional insurance value chain for commercial and specialty insurance — fostering the creation of new products and new channels. They are already helping small business owners to find and purchase unique, specialty protection for a new era of business. Just consider InsurTech Startups like Embroker, Next Insurance, Ask Kodiak, CoverWallet, Splice, and others. Not being left behind, traditional insurers have created innovative business models for commercial and specialty insurance like Berkshire Hathaway with biBERK for direct to small business owners; Hiscox, which offers SBI products directly from its website; or American Family, which invested in AssureStart, now part of Homesite, a direct writer of SBI.
The Domino Effect
We all likely played with dominoes in our childhood, setting them up in a row and seeing ‘hands on’ how we could orchestrate a chain reaction. Now, as adults, we are seeing and playing with dominoes at a much higher level. The domino effect, or chain reaction between events, is being played out in today’s fast-paced, ever-changing world. Every business has or will likely be impacted by a domino effect.
What is different in today’s business era, as opposed to even a decade ago, is that disruption in one industry has a much broader ripple effect that disrupts the risk landscape of multiple other industries and creates additional new risks. We are compelled to watch the chains created from inside and outside of insurance. Recognizing that this domino effect occurs is critical to developing appropriate new product plans that align to these shifts.
Just consider the following disrupted industries and then think about the disrupters and their casualties: Taxis and ridesharing (Lyft, Uber), movie rentals (Blockbuster) and streaming video (NetFlix), traditional retail (Sears and Macys) and online retail, enterprise systems (Siebel, Oracle) and cloud platforms (Salesforce and Workday), and book stores (Borders) and Amazon. And consider the continuing impact of Amazon with their announcement of acquiring Whole Foods last week and the significant drop in stock prices for traditional grocers. Many analysts noted that this is a game changer with massive innovative opportunities.
The transportation industry is at the front end of a massive domino-toppling event. A report from RethinkX, The Disruption of Transportation and the Collapse of the Internal-Combustion Vehicle and Oil Industries, predicted that by 2030, 95 percent of U.S. passenger miles traveled will be served by on-demand autonomous electric vehicles owned by fleets, not individuals, in a new business model called “transport-as-a-service” (TaaS). The TaaS disruption will have enormous implications across the automotive industry, but also many other industries including public transportation, oil, auto repair shops, gas stations, and many others. The result is that not just one industry could be disrupted … many could be affected by just one domino … autonomous vehicles. Auto insurance is in this chain of disruption.
And commercial insurance, because it is used by all businesses to provide risk protection, is also in the chain of all those businesses affected – a decline in number of business, decline in risk products needed, and decline in revenue. It could decimate traditional business, product and revenue models, while creating new growth opportunities for those bold enough to begin preparing for it today with different, unique risk products.
Transformation + Creativity = Opportunity
Opportunity in insurance starts with transformation. New technologies will be enablers on the path to innovative ideas. As the new age of insurance unfolds, insurers must recommit to their business transformation journey and avoid falling into an operational trap or resorting to traditional thinking. In this changing insurance market, new competitors don’t play by the traditional rules of the past. Insurers need to be a part of rewriting the rules for the future, because there is less risk when you write the new rules. One of those rules is diversification. Diversification is about building new products, exploring new markets, and taking new risks. The cost of ignoring this can be brutal. Insurers that can see the change and opportunity for commercial and specialty lines will set themselves apart from those that do not.
For a greater in-depth look at the implications of commercial insurance shifts, be sure to watch our on-demand roundtable, Strategic Path to Accelerate Growth with New Products and Business Models.