The Google executive stepped to the podium at a recent conference in London to confront an audience of insurance underwriting and brokerage executives. They had come to hear him talk about the London insurance market and the use of technology. They got an earful.
The executive was not kind to the industry, lambasting the labyrinthine broking system and its inferior use of data analytics in the underwriting process. The broadsides were just the warm-up. In between the lines was a clear message: We are coming.
The Google-ization of the insurance industry is inevitable. Like other outside parties jumping into the business, the launch pad will most likely be broking personal lines and small commercial lines business. But few doubt Google will stop there.
The company has everything it needs to take on big brokers and big carriers in selling and underwriting large commercial lines: huge customer lists, unparalleled data analytics and massive capital needing deployment. And the insurance industry offers a desirable target for this cash—it’s highly fragmented and resistant to change, and despite recent strides it’s long been considered a technology laggard.
These are the same reasons behind earlier outsiders coming into the business—Walmart’s walloping entry into the personal auto market, followed by giant online retailer Overstock.com, now competing in the same space along with homeowners insurance and small commercial. And Walmart recently announced it would be entering the health insurance arena. Analysts have long predicted Amazon and Asian upstart Alibaba, along with social media sites like Facebook, LinkedIn and Twitter, will soon blast into the markets as well.
But the potential emergence of Google as a competitor for large commercial lines is far more disconcerting than Main-Street-killer Walmart. Some industry experts predict Internet companies will take a big swing at broking employee benefits as well—and not just disability and dental insurance.
Chris Gagnon, who attended the London conference, offers this perspective: “They have the money and the smarts, and they pride themselves on being market disrupters.”
Gagnon is The Council’s director of Strategic Technology and president of Tiebeam Partners, a provider of strategic technology services to the commercial brokerage industry. The idea that Google could someday become a market disrupter has Gagnon and several other deep-thinking industry observers wondering just how the tech giant and its Internet brethren will shake up insurance. Whatever they decide, it is sure to be unique. And how does Google address all the second-guessing?
“We never comment on rumor and speculation,” says Google spokeswoman Alina Dimofte.
While some industry observers fully anticipate Google and others will initially disintermediate personal lines and small commercial, others see them jumping bigger hurdles at the outset. Either scenario could happen any day now or may take some time. No one underestimates Google’s ability to underwrite and sell personal lines insurance to millennials directly over the latter’s smartphones. The successful sale of large commercial lines is considered less of a sure bet, but no one discounts the possibility.
Many industry executives nonetheless are preparing. Among them is Kathleen Tierney, executive vice president of Chubb & Son and COO at Chubb Personal Insurance. “When we contemplate who can be in our competitive set, we don’t just look at the industry at large,” Tierney says. “We would definitely put Google and Amazon in our competitive space.”
And for good reason.
“We consider them to be experts in the consumer space,” Tierney says. “They also know a thing or two about efficiency and transactional elements and are incredible data aggregators.” She described the competition posed by Google in one word: “formidable.”
Other industry participants share this view. “Google and Amazon have the money, the data and a proven ability to offer a winning customer experience,” says Dax Craig, president and CEO of Valen Analytics, which provides insurance carriers with proprietary data analytics and predictive modeling services. “For a year now, we have been discussing and talking to anyone who will listen that there is a growing possibility this industry will be disrupted in ways it never imagined.”
Craig says he’s convinced that “a major threat” looms. “No, let me change that,” he says. “The threat is already here because we know they will come. Google, Amazon and others have active interest in the property and casualty market and are taking internal steps to come into it, beginning with selling insurance as intermediaries.”
If and when the Google-ization of commercial lines takes off, the newcomers will need to surmount a particularly high hurdle—the personal touch inherent in the commercial lines business. The traditional client-broker-carrier relationship is built upon trust. The question is whether technology can do the same.
What? Me Worry?
So what does the near-future look like? Here are just a few outside-the-box possibilities:
- Medical malpractice insurance sold on a per-surgery basis
- Automobile insurance with premiums that change by the minute, depending on where the person is driving
- Product liability premiums hinged to the sales of the product in each region
- Homeowners third-party liability insurance that turns on and off when someone is home—or not.
That’s the power of data analytics—accessing granular data relevant to the insured and the particular type of insurance sought, applying unique ways of slicing and dicing this information, and then subjecting these data sets to algorithms to produce all sorts of clever (and appealing) rating and coverage formulae. Certainly, this is what the traditional industry is trying to do. The question is, can Google do it sooner and better, developing a new model of insurance that would be as disruptive to the industry as the motorcar was to the horse and buggy?
Business history is littered with disruptive technologies that the target industry failed to appreciate until it was too late. Certainly the taxi and limousine industry never imagined a little company called Uber could upset their industry. Thirteen years ago, Uber founder Travis Kalanick was flat busted. Today, he’s a billionaire.
There is a sad litany of industries that failed to recognize the threat posed by tech startups offering smarter, better ways of doing things. Travel agencies have essentially been displaced by Orbitz, Expedia and Travelocity. Bookstores are increasingly under fire from Amazon’s Kindle and other reading tablets. Retail record stores are reduced to selling rare CDs and vinyl in the age of Spotify and Pandora. Then there’s neighborhood video stores, now a faint memory, outdone first by Netflix’s overnight DVD deliveries and later by its (and others’) on-demand streaming services.
The latter experience is particularly instructive.
“I remember reading an article back around 1990 that predicted the demise of Blockbuster,” says Kevin Stipe, president of Reagan Consulting, an insurance agency and brokerage advisory firm. “The thinking was that the Internet someday would be able to provide movies on demand. Not many people took this threat seriously at the time, and the future state did come slowly. But, as critical mass developed and fundamentally altered the existing paradigm, Blockbuster was no longer in business. Thousands of stores were shuttered.”
How did such otherwise intelligent corporate CEOs and board directors fail to preserve their companies’ impressive market leads? “There is this natural tendency to downplay unique threats,” says Robert Ployhart, Bank of America professor of business administration at the University of South Carolina.
Ployhart studies and teaches the impact of disruptive innovation—novel ideas that create new markets and value networks that eventually dislocate existing markets and value networks. “In many cases, leadership in the industries being disrupted is of the old-boys’ network variety—business leaders who are in their late 50s and 60s and have grown up in an industry doing things the same way their predecessors did,” he says. “They’re too proud or unimaginative to do things differently. They’d rather see change happen on someone else’s watch.”
In effect, such business leaders can only compete within the existing market paradigm. “They tend to focus purely on the competition within the existing industry’s set of players,” Ployhart says. “My sense is that, if you asked the executive leaders in each major insurance brokerage or insurance company for a list of their major competitors, the names of other top insurance brokers and carriers will be on it. They can’t imagine competition happening from outside the industry, yet this is where the disrupters reside. And, in many cases, they’re the real competition.”
Ployhart is not alone in these observations. “I’d say the insurance industry is ripe for a Big Bang disruption, ” says Paul Nunes, co-author (with Larry Downes) of Big Bang Disruption: Strategy in the Age of Devastating Innovation. Nunes is also managing director at Accenture’s Institute for High Performance.
“There are these new waves of technology like the Internet of Things that are creating value across all industries, insurance included,” he says. “The Internet has this wealth of information that can be connected to extremely sophisticated data analytics to discern key business drivers and risks. It doesn’t take a lot of experimenting to come up with new and better ways to underwrite or deliver insurance. This is an industry that has pretty much remained the same for a long time.”
He is right, of course. The property-casualty industry is not all that different fundamentally than it was in the days of Lloyd’s Coffee House in London. “Insurers have been fortunate for decades because the data needed to run an effective operation was theirs and theirs alone,” Nunes says. “That’s no longer the case. There are now great opportunities for savvy technology entrepreneurs to access even better data and carve big inroads into the business.”
He cited five factors that would give substantial early traction to Google and other high-tech superstars were they to penetrate the insurance market:
1. Customer intimacy. Each day tens of millions of people interact with these companies’ technology platforms, applications and other tools.
2. Unparalleled data analytics. By now, every consumer should know that his or her Internet search and browsing histories are captured by social media companies and provided to marketers in real time frameworks. Nunes calls this customer data “near-perfect market information.”
3. Lower prices. These companies can charge less because their data analytics far exceed those invoked at traditional insurance companies and brokers.
4. Their peerless automated, online transactional model. The model comes in handy at a time when the cost of technology is decreasing while Internet usage is rising.
5. The cool factor. We love our mobile devices. We beseech Siri for travel directions and ask her to read our new emails. We click and buy shoes with no shipping charges. We exchange texts with our millennial-generation kids, who simply detest the idea of a phone conversation.
“It doesn’t take a lot for any one of these companies to invent a better way of providing insurance,” Nunes says. “Once they do, they can be counted on to dominate the market quickly—I’m talking bullet time. While insurers may think they can slow down such potential progress through regulation, the march of technology in industries is inexorable.”
While there are many forward-thinking insurance CEOs, don’t discount the brilliant imaginations at work at companies like Google and Amazon. Driverless cars used to be the province of science fiction. No longer, thanks to Google. The company is even conjuring ways to mine valuable minerals and water from asteroids whizzing by Earth and then process these materials into rocket fuel to reach distant planets. Compared to these seemingly outlandish plans, the sale or underwriting of personal and commercial lines insurance is child’s play.
How susceptible is the insurance industry to disintermediation? Alan Dobbins, vice president at insurance research provider Conning, says the industry is ripe for new types of market entrants. “They sell a product that can be delivered digitally, are an information-based, data-driven industry,” Dobbins says. “And just on the property and casualty side of the house, the market represents a half-trillion dollars. Add to this the knowledge that income for brokers is in the form of recurring revenues, where a broker makes a deal once and 90% of it comes back every year with next-to-no effort, and why wouldn’t Google or Amazon want in on the game?”
Gagnon agrees. He predicts the first sallies by the technology giants will be to disrupt traditional broking. “When they start selling insurance to consumers and businesses, it will be a true disruption of the status quo,” he says. “It’s unlikely their insurance operation would in any way resemble existing agencies. They have the advantage of not being married to our habits and traditional worldview. Really, no one can predict how their model will work, but we can assume that it will be completely new and different, as well as cheaper and more efficient.”
He adds, “They will reinvent the wheel.”
Others agree Google and Amazon will make their insurance debut as brokers and agents first. “It is almost inevitable,” says Adam Kagan, chief sales and marketing officer at RiskMatch, a data analytics firm in Greenwich, Conn., that provides Web-based solutions to insurance brokers and agents. “I imagine they will play first as brokers in personal lines and small commercial, since these are essentially commodity products. I then see them moving up the ladder at a somewhat rapid pace into other lines of insurance.”
Kagan, an expert in data analytics, says it would not be difficult for a Google or an Amazon to broker the insurance for a specific profession or industry. “They are able to collect and analyze wide-ranging internal and external data on a particular class of risks,” he explains. “Take oil rigs, for example. There is a ton of data out there on the different types of problems causing losses that are related to oil rigs. If Google can get its hands on this information more quickly and efficiently, and get better data to boot, why wouldn’t it be as reliable a source of insurance as a traditional broker? After all, insurance is a data-intensive business.”
But what about the personal relationship that agents and brokers believe drives their business? Won’t this be still necessary in the future? Not really, according to some observers.
Imagine the insurance “conversation” after a fender bender. The Siri-like personal assistant on a smartphone is apprised of the accident via a series of clicks or verbal responses involving the time of day, the other party’s license plate number, the extent of damage and so on. Behind the scenes, the claim is filed. In minutes, a tow truck and a rental car arrive, and the person is on his or her way to work. Older drivers may balk at this scenario, but millennials? This is exactly the type of interaction they prefer.
Commercial Lines Vulnerability
Now to the big question on everyone’s mind: Could Google become an insurance company? Dobbins thinks so. He cites the case of BP, which covers the “upper layers” of its risk internally rather than through traditional markets.
“They made this decision based on their assertion that they understand their business better than anyone else,” Dobbins says. “They trust their own risk insights better than they trust the insights of insurers and reinsurers. It would be easy for a Google to amass knowledge about BP’s risks on a level approaching their own expertise. If it does, it may be able to offer itself a better-priced alternative to traditional insurance.”
Tellingly, he adds, “One of the barriers to the insurance market has always been capital. With someone as rich as a Google, this isn’t much of an issue anymore.”
Others agreed. “They will take on the risk side of the industry for a powerful reason—because they can,” Craig says. “They have the capital, and they have a relationship with each human being that is better than any other company has. You click on Google, and they tell you where to go on vacation, which hotel to stay at, what to wear.”
But could some of Silicon Valley’s richest residents actually sell large commercial lines insurance? Surely the nuances of commercial lines must demand one-on-one interactions.
“Not necessarily,” Kagan says. “While there is some value to the luncheons and golf outings in the typical buyer-broker relationship, culturally will millennials want to do this? I’m not so sure. Frankly, I hope they don’t lose the personal touch, but they will already be cutting so many deals electronically and through email that it’s questionable they’ll take the afternoon off to spend time with a broker on the links. Especially one that costs their company more.”
Millennials will not abide the “clunky mess” that the insurance industry has become over its very long history, Gagnon says. He’s referring specifically to myriad retail agents, wholesale agents, MGAs, E&S brokers, general agents, direct agents, captive agents, brokers, aggregators and all the other components on the customer-facing side of the industry that confound buyer comprehension. This transactional hairball is a far cry from the click-and-buy purchasing systems in place at Amazon. Is it even cost-effective? “Maybe back in 1955,” Gagnon says.
The technology expert says his own business is a victim of the insurance industry’s antiquated processes. “I have access to some of the best agents and brokers in the world, but when I renew my professional liability policy each year it is absolute torture,” he says. “And relatively speaking I’m an easy risk to write. Imagine a large company’s trials and tribulations. If the experience stinks for my company, where I’m asked the same stuff over and over again, it’s got to be far worse for so many others.”
How would the high-tech brotherhood penetrate commercial lines? Gagnon says the London Market is the likely entry point. “The London Market has a history of considering themselves just that, a market,” he says. “In the U.S., carriers, brokers and intermediaries don’t usually think of themselves as a collective unit. In London, on the other hand, there’s the concept of a bureau, which is a standard way of dealing with the transactions between parties.”
This more unified way of conducting business makes the London Market the easier point of entry. “In the U.S., you’d have to secure terms and integration with each individual carrier,” Gagnon says, “so the implementation of a digital layer would be more complex.”
Obviously, in this emerging competitive environment, the last thing insurers and brokers must be is complacent. “Companies in the crosshairs of disruptive innovation must get out of the mindset that it won’t happen,” Ployhart says. “Rather, they should be preparing for what the battleground will look like.”
It will look different, for sure, given that the unflagging creative genius of humankind guarantees innovation. Time and again, the sheer act of imagining a new way of doing something, such as streaming movies instead of watching them on DVDs, culminates in that idea’s reality.
“The economists who predicted the financial crisis and great recession were seen as crackpots back in 2006,” Ployhart says. “Today they’re thought of as visionaries. You can never discredit the possibility of something worse or better coming along.”
The property-casualty industry should not attempt to forestall change, pursuing the kinds of regulatory intrusions sought by the taxi, rental car and hotel industries in the respective aftermath of Uber, Lyft and Airbnb.
“Curtailing the momentum of a Google through regulatory interventions merely to postpone the inevitable makes an industry a prisoner of the same regulations,” Ployhart says. “The truth is that people were generally frustrated with taxi service and the high cost of and waiting time for rental cars. Now that something seemingly better is available to them, they will not appreciate it being taken away.”
Stipe agrees. “The answer is not to impede change,” Stipe says. “The answer is for the hundreds of thousands of people that work within this industry to figure out what they can uniquely do to add value to our products and services.”
So how can brokers and carriers add value, preferably before these imposing adversaries enter the marketplace? Turns out the brokers and carriers can do plenty, starting with more effectively employing their existing weapons.
“The industry needs to get a firmer handle on its customer data and become more efficient in its transactions,” Gagnon says. “It must recognize that insurance is a data-driven business, and the underlying technology used between agents, brokers and carriers must fundamentally change to allow for greater efficiency. Right now, a customer interacts with a broker, and the information resides all over the place. There are divisions within agencies that don’t even use the agency management system.”
The industry also must take steps to make its systems more user-friendly and transparent. “It’s common for an agent doing broad-based business with a commercial client to have its workers compensation, property insurance and employee benefits managed by different groups,” Gagnon says. “If I’m handling the workers comp for the client and want to take a look at it from a data perspective, I can’t push a button and see that the agency also services the benefits and property insurance. That has to be fixed.”
Craig also believes technology is the key to brokers and carriers retaining accounts. “They have to figure out how to continue owning the customer, and technology is a solution,” he explains. “Geico and Progressive get this, but most [other brokers and carriers] don’t. These direct writers are creating positive customer experiences through unique technologies, where, for instance, you don’t talk to someone you don’t really need to talk to. They’ve also created data-driven cultures, gathering a ton of data and starting to make effective use of it.”
The opposite is still largely in place in the traditional industry.
“The reality is that most brokers are not utilizing their data to the fullest capacity,” Kagan says. “There are a lot of things they can do for the client that they have yet to do.”
One of them is to devise new ways to make their products and services more efficient and less expensive.
“To add more customers or preserve the ones you have insists upon constant innovation, which costs money,” Nunes says. “This requires an organization to have truth tellers—people who clearly see the risks and opportunities and are unafraid to bang the drums. Look at Steve Jobs with digital music. He was a truth teller. He put a stake in the ground. And he changed how we listen to music.”
Tierney is a truth teller at Chubb. She recognizes the peril posed by the Silicon Valley stars and is intent on doing something about it now. “I see them as both a challenge and a great opportunity,” she says. “Anything that encourages us to rethink the core of our competitive advantage helps us to be better at what we do.”
In this regard, data analytics is crucial. “The winners will be those of us who best figure out how to make use of the proliferation of data out there,” she says. “This goes for our agents and brokers, as well. They need to become better at data analytics, without losing focus on the consulting part of the sale. Insurance is as much an art as it is a science.”
As the new competitive landscape begins to emerge, there will indeed be winners and losers. Well-known companies will fall by the wayside. Lesser-known ones may rise to prominence. Chaos is sure to ensue.
As Dobbins says, “It will be interesting to watch.”