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Here comes insurance disruption

I was asked to speak at a conference for insurers recently, and I decide to rattle their cage. Their old business model, I told them, is already over. It’s just that they may not know it yet, because the many changes that will upend their business are invisible right now.

To understand why insurance must change, consider this: global studies show that only around a quarter of insurance customers actually trust their provider. Three out of four do not think their insurer will live up to its promises. That is damning indeed, and it is why the sector is ripe for disruption.

To give you a personal example: I find it difficult to trust insurers myself. I have paid massive premiums over the totality of my lifetime to date, but have only made claims three times. In all three cases, the insurer in question fell woefully short. A medical insurer quickly refused to renew on the same terms once a close relative fell seriously ill; a computer insurer found my computer too expensive to replace once it had a problem, though it had had no qualms about collecting the higher premiums; and a travel insurer put me through a prolonged, indifferent online claims process for months before refusing to pay out on an airport event that was actually recorded in the news.

You will have your own examples, I am sure. This is the problem with insurance as it is run today: the products are complex and difficult to explain; they are repeatedly mis-sold and oversold, taking advantage of poor consumer understanding; payout terms are hidden behind arcane jargon; there is little differentiation of people who are prudent from those who are bad risks and likely fraudsters; and when you finally make a claim is when you’ll find out just how serious your insurer was about protecting you.

Ask youngsters if they buy insurance. Most only buy the policies required by law, like motor insurance. Or they get medical insurance if their employer pays the premiums. That’s it. Ever wonder why your market needs to be forced or financed to buy your product, insurers, or why people would rather take their chances with life than with you?

So here’s the news for insurers. Last year, an estimated $2.6 billion was invested globally in ‘InsurTech’ firms: the nimble new upstarts using technology to revolutionize the industry. That number will only grow.

These startups, combining fresh know-how around digital technology with deep understanding of the poor customer experience currently being offered, will strike deep into the insurance heartland. They will expand reach by offering quick and simple products via mobile phones; they will use algorithms to analyse risk very differently, using the new data streams created by the digital revolution; they will offer pay-as-you-go protection, where you insure your activities as they occur; they will create peer-to-peer risk-pooling systems; they will monitor your record via smart devices and offer you lower premiums if you are revealed to be a low-risk client.

And of course they will do away with the endless form-filling and re-proving of identity that our paper-happy insurers are so stuck on. In one digital transaction, you will get assessed and approved and your biometrics will be recorded for future reference. Your mobile computing device will be where most customer relationship management will take place.

Science fiction? Let’s see. Personally, I think traditional insurers have no more than five years to get real, before the things I have described become the new business as usual. Young Africans will make up a large chunk of the world’s youngsters in the coming generation, and I don’t see them buying insurance at all in the bad old ways.

Unfortunately, most current insurers are not going to get it. They are steeped in tradition and captive markets. Many don’t even view insurance as their core business; they operate more as investment companies raising funds via premiums. Why else do the fortunes of most of our insurance companies go up and down with the stock and property markets? They pay more attention to their investment portfolios than to their customer experience.

To change, you have to fix what’s broken in the user experience. You have to collaborate with new technology providers. You have to attract fresh and innovative minds to work with you. You have to change your cost base. But first, you have to wake up and pay attention. Your old business model is already gone; we just haven’t held the final rites yet.

(Sunday Nation, 13 November 2016)

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