These new players mainly focus on redesigning (parts of) the insurance value chain, making it faster, simpler and more customer oriented. Insurers know they are facing rapidly changing circumstances, forcing them to readjust. However, compared to banks, their technological and innovative adoption rate is fairly low and change within the insurance industry seems to be lagging behind. So, why this inertia? What’s happening?
'Smells Like Lemonade'
It is not that nothing is changing at all in the insurance market, for the number of insurtechs continues to grow. According to McKinsey, annual funding in insurtech is increasing by 36%. During recent years, some promising startups have been emerging. One of them is Lemonade Insurance Company, a textbook example of digital disruption in the insurance sector.
Lemonade is an American non-life insurer that focuses on home insurance. Nothing fancy or disrupting so far, but what makes this company unique is the way it touches the very foundation of traditional insurers. One of its commercial statements summarizes it all: “If something happens, we pay superfast. That’s what you get when you have bots instead of brokers and algorithms instead of paperwork.”. The process from submitting a claim to cashing out takes about 90 seconds. 25% of the claims are even settled in 3 seconds. Imagine that. The introduction of technological innovations such as artificial intelligence (AI) and machine learning not only delivers significant administrative savings, it also takes the customer experience to the next level.
However, Lemonade does more. One of the most important aspects of its value proposition is a proactive trusted transparency with a social twist. They charge a fixed fee of 20% of the premium to cover their own costs. 80% is reserved for claims and reinsurance. The money that remains is donated to charity. This way, Lemonade gets to the nub of the matter and dissolves the opposite interest between the insurer and the insured: the insurer is afraid of fraud and the insured is afraid of not being paid out, he is frustrated with long lead times, often due to the lack of trust.
Lemonade is still relatively young, and time will tell how its innovative business model will impact the insurance sector. Fact is that companies are experimenting to see what works and what doesn’t. Some will succeed, others will fail and learn from it. But despite of all these upcoming insurtechs, change still isn’t really booming in the insurance industry.
The reasons why insurers are often idling are a result of different dimensions: from ideological obstacles – too big to fail; people will forever need insurance, over technological ones - legacy systems hinder innovation, to talent, generational, ’first we need a new organization‘ and system lock-in issues.