Innovation and disruption are in reality two sides of the same coin (or Bitcoin, if you will). On one side, innovation may describe the driver of change, the creative thinking and ideas that lead to new technology, new methodologies and new approaches. On the other side, the by-product or necessary consequence of innovation is change to the status quo, the uprooting of traditional models and incumbents and the disruption of markets. And so in one sense, the much hyped concept of “disruptive innovation” might be seen as no more than a descriptor of human advancement. But there is a reason the expression has become the catchphrase of this generation of tech-savvy organisations; and that is because organisations are seeing disruption not merely as the consequence, but as itself a driver of innovation. Where markets can be disrupted, there is opportunity; and so organisations these days are quite proudly identifying themselves as disruptors as much as they are innovators.
The insurance industry is not shielded from disruption, and in fact has been subject to significant disruption in a number of forms already. In this age of the digital economy, it may be that the insurance industry is on the brink of even more seismic change. This article identifies current disruptive innovations affecting the global arena and discusses some potential areas where disruptive innovations have the potential to reshape the industry.
The key to digital disruption
The term “disruptive innovation” has only gained popularity since it was used by a Harvard Business School Professor, Clayton Christensen in his book called “The Innovator’s Dilemma”. Disruptive innovation is described as innovation that creates new markets by appealing to new categories of consumers. One aspect of disruptive innovation is the implementation of new technologies, but alternatively, it may involve the development of new business models and exploiting old technologies in new ways.
A major difference between innovation historically and disruptive innovation, as the expression is used today, is the digital aspect of the current surge of innovations. Innovators have capitalised on the availability of mass marketing through the “Internet of Things” and global connectivity and the collection and use of massive amounts of data and information stored on the internet. The expression digital disruption has been coined to describe this most recent movement.
Disruption in the insurance industry
Disruption has been occurring at pace in different forms in insurance. Alternative capital models have encroached on traditional reinsurance markets and are growing ever more popular. Technological advancements such as the use of telematics have encroached into traditional underwriting processes. Online platforms have encroached upon traditional broker-led distribution channels. Nevertheless, it feels as though we are on the cusp of much bigger and more significant change.
There are countless articles on the news every day about new innovation “disrupting” a myriad of service and product based industries including Uber, Groupon, Airbnb, Netflix, iTunes or Spotify, Skype and more recently, “Driverless” or autonomous cars. What these players have been able to capitalise on is the ability to reach the mass market, process sales quickly and target sales to appropriate markets. It may seem that these innovations are far removed from the insurance industry; but when you imagine targeted distribution of insurance products on the scale that the above players have achieved through digital markets, it is easy to see the opportunity and the potential scale of disruption.
Aggregator or price comparison websites
Price comparison websites allow consumers to filter and compare products based on price and other features. These websites have penetrated various markets worldwide. In Australia, websites such as iSelect, comparethemarket.com, Choosi and Canstar are providing comparison data for health and life insurance and motor vehicle insurance. Although they have been resisted by the large insurers and have therefore caused less disruption in Australia than in other markets, they continue to pose a threat to the status quo.
Aggregators have broad appeal due to the perception that they offer consumers the ability to compare products and identify the cheapest insurance option. That appeal means aggregators are becoming the consumer’s first port of call on insurance purchases and as a consequence, in international markets we are seeing aggregators become significant competitors to traditional intermediaries.
This distribution channel is one that is now attracting the biggest digital disruptors. In 2012, Google entered into the insurance industry in the UK by launching a price comparison site, providing comparisons on car insurance, travel insurance, credit cards and mortgages. In March this year, Google entered the insurance industry in the US by introducing ‘Google Compare for Auto Insurance’.
Where else for Google and other disruptors?
It is unsurprising that a great disruptor like Google is seeing the opportunities in insurance. It has the scale and the connection to customers to achieve mass distribution of insurance products.
However, intermediating insurance may only be the start. It can be said that the success of an insurance carrier depends on the skill of its underwriters. An underwriter’s skill is in identifying and pricing risk based on the information provided by its prospective clients. The amount of data collected by the big digital disruptors is staggering. Their ability to filter and utilise that data to personalise and direct marketing is well known. If they are able to utilise information on which sophisticated and automated underwriting could be performed, then the next disruption will impact insurance carriers directly.
Maybe the slogans of disruption and innovation are starting to sound more like spin than substance; but it would be unwise to be dismissive. Digital innovation is quietly, and quickly, shaping the insurance market globally. Insurance CEOs around the world are talking up the importance of keeping ahead of technology and abreast of developments in disruptive innovations. It is therefore vital for current players in the insurance industry to remain aware of potential disruptors and plan ahead to adapt to the inevitable changes the digital market will bring.