The question is not whether the future of the insurance industry is bright.
“Few industries are better positioned for outstanding growth over the next 15 years,” insists Verisk’s Mark Anquillare.
Anquillare points to the giant global protection gap between what could be and what is insured. Less than half of the worldwide properties that could be insured against loss actually are. Among them are the many homes without flood insurance. He also points to new threats, such as cyber risks, that will continue to fuel demand for insurance.
So, he offers, the question should not be whether the future of insurance is bright. The question should be, who owns the future of insurance?
“We are in an important fight for the future of our industry,” he told viewers at the Verisk Elevate 2021 virtual conference.
Anquillare, executive vice present and chief operating officer of Verisk, used the insurance industry’s favorite tool — models — to look ahead 15 years to 2036. He obtained three possible scenarios that answer his ownership question.
“I think the models point to possibilities that can be highly helpful for us to consider, that can help us prepare for the future and to also do our part in shaping it because the insurance industry itself has a very bright future,” he said.
His first model suggests that in the year 2036, the industry has been completely disrupted and the familiar insurance organizations are few, with most insurance players now being technology firms.
“Long-standing companies that were centuries old have disappeared. In their place are a few survivors, some significantly weakened and one or two have thrived. The rest are new and their heritage isn’t insurance, it’s technology or retail or automotive,” is how he describes this scenario.
This future has already happened over the past several decades to once-thriving industries. “Think about music, network TV, travel, telecommunications, taxi service, newspapers, postal service,” he said.
In this future, nearly everything will be connected, contain smart technology, be mobile, produce data, and analyze in real time. He said this means insurance will be connected to vehicles, alarm systems, appliances, weather sensors, retailers, banks, energies, even building materials.
“So the question is who will make those connections most efficiently, most effectively? The existing insurance industry or the tech companies? In short, we’re in a race.”
In this first scenario, those who are first to develop a fully connected and integrated insurance ecosystem win the future insurance marketplace.
But not so fast. To get to this future, the tech whiz kids face considerable obstacles, according to Anquillare. These include the complexity of insurance, extensive regulation and consumer confidence.
“Complexity is a double-edged sword and solving it with technology offers substantial benefits,” he said.
He cited a recent Verisk-backed study in which a number of insurer chief information officers said they were still using Excel spreadsheets to make underwriting decisions and that it takes months to get new products to market. He said other studies have found that insurance CEOs are more likely than others to see the speed of technology change as a threat to growth. Also, they are concerned about shifts in consumer spending and behavior.
The second barrier for insurance industry disruptors is the heavy regulation the insurance industry faces. This is unfamiliar territory for tech companies. They have mostly enjoyed protections and immunities and been allowed to grow without a lot of oversight.
“It’s fairly clear that when they are faced with regulation, big tech isn’t very adept at handling it,” Anquillare observed.
That does not bode well because there are signs this regulatory honeymoon may be ending given the government’s antitrust suit and lawmakers clamoring for repeal of social media firms’ immunity for their content contained in a federal communications law provision known as Section 230.
Anquillare’s final barrier to entry to the insurance industry is consumer confidence. This first model of tech winning the future assumes that big tech and startups succeed in “convincing huge swaths of the population to dump venerable long-standing insurance companies and go with a company with very little prior insurance experience.”
Anquillare notes that while consumer loyalty is a “major strength for the insurance industry among the silent generation and many baby boomers, there are signs that loyalty is eroding among baby boomers and it appears weak among younger generations.
“Generations who grew up with technology often trust technology providers more than they do original companies who built the industry,” he said. It starts with customer experience and investing in design and layout. “They target consumers by substantially simplifying existing complex experiences. An important part of that process is how the experience looks and feels.”
His second model describes an industry that fends off most of its disruptors and sees many incumbents adapting and surviving and retaining the trust of customers. With some exceptions, the attackers find insurance to be “much more complex and difficult to crack” than they expected. “They also learned that without very careful management, it’s a highly effective way to lose a lot of money very quickly,” he added.
This second model is much like the first in terms of the market pressures, changes in consumer attitudes, and other threats. “But in this case, established insurance industry wins the race and builds a highly effective and ever-evolving insurance ecosystem,” he said.
In this second scenario, many ambitious startups crashed and burned, while others succeeded. Similarly, some long-established companies couldn’t change rapidly enough while others managed to change and become stronger than ever, with some uncovering new markets and ways of conducting business.
He made it evident that this second scenario is the one Verisk advocates and is working toward.
He said there are many reasons this second model could prove true.
One is the advantage of thoroughly knowing the industry, its strengths and its weaknesses.
One thing that the insurance industry understands perhaps better than others is how to respond to a challenge — in part because it deals with catastrophes. “Adapting and responding quickly is in our DNA. It’s literally built into the way we do business,” Anquillare believes.
He cites as an example the devastating 1906 San Francisco earthquake, which Lloyd’s of London turned into an opportunity by paying all claims – more than a billion dollars in today’s dollars– and almost went broke in the process. The fear was the industry would pull back and make future insurance more difficult to get. But that’s not how the industry responded. “Instead, it started new practices still used today, more sophisticated risk transfer strategies, construction and neighborhood analysis, diversification using insurance discounts to encourage development of better buildings, use of models, and much more,” the Verisk executive said.
Perhaps the most unforeseen consequence of that billion dollar expenditure more than 100 years ago was its sales power. “It was perhaps the best marketing moment in the history of insurance as potential customers saw the devastation and how Lloyd’s kept the promises,” he said. “The demand for insurance soared and the industry entered a bright new era of growth and innovation.”
He said what the industry did was more effectively adapt the insurance ecosystem, embrace productivity and open systems, and become a new kind of insurance industry that “competes on tech and wins on insurance savvy.” It utilizes automation to reduce costs and improve customer satisfaction. It makes its digital experience user-friendly. Its automated AI systems allow underwriters to fine tune portfolios and position companies to respond quickly to new markets, opportunities and threats.
In this scenario favored by Verisk, “the insurance industry wins the race to reduce complexity and provide a customer experience that builds loyalty” and at the same time, it builds “digital trust” with its use of technology.
The third model points to a world that looks a lot like it does now. Not much in the industry changes, yet the pace of new technology continues.
This third scenario has its proponents, although Anquillare thinks their numbers may be dwindling.
This model represents those who downplay the threat of disruption and claim the fear is exaggerated. They note that the industry is still talking about the same threats it did 15 years ago.
“In this model, it turns out that hundreds of years of refinement and experience are still solid and difficult to assail,” he said.
This third model assumes the necessary changes are already happening and disruptors will be discouraged. Proponents of this model argue about the speed of change, not the reality of change and they tend to believe the industry has more time to adapt than the first two models suggest.
“Since the industry is already evolving, they suggest there is no need to rethink the model that has worked for hundreds of years,” he said.
Some in this camp have concerns about too much data and connectedness and wonder when too much information becomes synonymous with no information.
He said Verisk is committed to working to build the second model. And he believes much of that scenario is already here and much more is on the way. Also, while there are some problems with data, he says they are being solved.
“We are in a race to build a better insurance ecosystem,” he said.
“I firmly believe the insurance industry controls its own destiny.”