DAX CRAIG CEO and President, Valen Analytics WWW.PIA.ORG 2 9 e insurance industry has faced market shifts in the past, but never to the scale we see today. At the same time insurance continues to deal with consolidation, the industry is facing disruption from outside forces that attempt to take what they’ve learned about the consumer in other industries and apply it to ours. e conventional wisdom that has steered the market for over a hundred years is being challenged by a new reality: All companies are becoming tech companies. Many of the businesses that we see climbing our economy (e.g., Uber, Airbnb and Facebook), all have one thing in common: ey connect people instead of sell products. For insurance to stay competitive amidst this disrup- tion, professional, independent insurance agents need to become advocates for the data-driven approach and understand the market behavior that underscores tech companies. Innovation economy Why do we need to become data-driven? To put it bluntly, insurance is losing the battle for customer experience and satisfaction. According to a Comscore 2013 online auto insurance shopping report, traditional insurance is not meeting expectations: 68 percent of 18-34 year-olds are seriously considering changes to their auto insur- ance policy and 85 percent believe they can save if they compare prices. is well-known problem is the catalyst for why companies like Zenefits, Google Compare and most recently, Lemonade, have been interested in the industry. It also is an indicator as to why insurance tech investment has never been higher ($2.65 billion in 2015, according to CB Insights). When tech companies catch the scent of an industry that is ripe for disruption, it typically doesn’t wane. A study from Silicon Valley Bank shows that tech innova- tors often are aggressive when they see a particular busi- ness climate has large growth potential. However, there is plenty of room for agents and carriers to adapt and continue to have success in this industry moving forward. e recent announcement that Google Compare is termi- nating its services, despite its initial heavy growth expec- tations, is a testament that progression won’t move as fast or seamlessly for these companies as perhaps expected. In this same vein, the CEO of Zenefits, an online insur- ance broker once valued at $4.5 billion, stepped down due to compliance issues (i.e., allowing unlicensed agents to broker deals). However, this does not mean these compa- nies won’t break into the insurance industry eventually. How these factors disrupt insurance The innovation economy and market consolidation DAX CRAIG CEO and President, Valen Analytics —Reprinted with permission from PIA Management Services Inc.—
Transcript
dax craig CEO and President, Valen Analytics
www.PiA.Org 2 9
The insurance industry has faced market shifts in the past, but never to the scale we see today. At the same time insurance continues to deal with consolidation, the industry is facing disruption from outside forces that attempt to take what they’ve learned about the consumer in other industries and apply it to ours. The conventional wisdom that has steered the market for over a hundred years is being challenged by a new reality: All companies are becoming tech companies.
Many of the businesses that we see climbing our economy (e.g., Uber, Airbnb and Facebook), all have one thing in common: They connect people instead of sell products. For insurance to stay competitive amidst this disrup-tion, professional, independent insurance agents need to become advocates for the data-driven approach and understand the market behavior that underscores tech companies.
Innovation economyWhy do we need to become data-driven? To put it bluntly, insurance is losing the battle for customer experience and satisfaction. According to a Comscore 2013 online auto insurance shopping report, traditional insurance is not meeting expectations: 68 percent of 18-34 year-olds
are seriously considering changes to their auto insur-ance policy and 85 percent believe they can save if they compare prices. This well-known problem is the catalyst for why companies like Zenefits, Google Compare and most recently, Lemonade, have been interested in the industry. It also is an indicator as to why insurance tech investment has never been higher ($2.65 billion in 2015, according to CB Insights).
When tech companies catch the scent of an industry that is ripe for disruption, it typically doesn’t wane. A study from Silicon Valley Bank shows that tech innova-tors often are aggressive when they see a particular busi-ness climate has large growth potential. However, there is plenty of room for agents and carriers to adapt and continue to have success in this industry moving forward. The recent announcement that Google Compare is termi-nating its services, despite its initial heavy growth expec-tations, is a testament that progression won’t move as fast or seamlessly for these companies as perhaps expected. In this same vein, the CEO of Zenefits, an online insur-ance broker once valued at $4.5 billion, stepped down due to compliance issues (i.e., allowing unlicensed agents to broker deals). However, this does not mean these compa-nies won’t break into the insurance industry eventually.
How these factors disrupt insurance
The innovation economy and market consolidation
dax craig CEO and President, Valen Analytics
—Reprinted with permission from PIA Management Services Inc.—
PrOfEssiOnAl insurAnCE AgEnTs mAgAzinE3 0
Today’s industry leaders were not first to market. For example, Google was not the first search engine, nor will it be the last, but it perfected change and innovation in a way that blew the competition out of the water.
Market consolidationThe “Big 4” tech giants (Amazon, Google, Apple and Facebook) are consoli-dating industries all around them. E-commerce, consumer electronics, social media and advertising are just a few of the bigger niches affected by these tech giants. According to a report by The Mobile Majority, Facebook and Google collectively own more than 68 percent of the global mobile-advertising market share as of 2014. From 2012-14, Facebook advertising-market share shifted from 5.4 percent to a whopping 21.7 percent. These are just a few examples of the kind of growth tech companies can bring to the insurance industry. They aren’t just companies, they are “change agents.”
Internally, the insurance market also faces consolidation, accelerated by the disparity between carriers that are data-driven and those that are not. The personal-lines market has experienced this for a while—more than 70 percent of market share now belongs to the Top 10 companies. Unsurprisingly, analytics use was pervasive first in personal lines, and much of the consolida-tion happened when carriers such as Progressive pioneered the use of data and analytics to price personal-auto risks more efficiently and accurately. Now, the commercial-lines market is showing strong indicators of a similar market shift (Table 1).
Table 1. Growth in workers’ compensation net written premium by company
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The companies that found the most significant growth between 2009-14 (e.g., Travelers and Berkshire Hath-away), are well-known for their holistic use of analytics. Of course, many factors drive whether an overall line of business is profitable in any given year. Still, it’s no coincidence that as carriers became more data-driven in commercial lines, workers’ compensation became profitable for the first time since 2006. Adding to this effect is the continued growth of mergers and acquisitions, which saw an incredible 61 percent year-over-year increase in the U.S., according to a report by Clyde & Co.
Agents are the leading roles As the face of the carrier, agents have the ability to remain an asset as long as they learn to cater to this new generation of consumer. Recent research conducted by PIA National finds that small-business owners prefer working with independent insurance agents in today’s insurance environment, but ones who are using the Internet and technology need to be more efficient communica-tors. Today, consumers expect more engaged, immediate interactions and to provide this, agents need to work with carriers that have the tech-nology to offer the most competitive prices, especially during a time when price-comparison sites continue to flourish. This involves collabo-rating with data-driven carriers in a more hands-on manner. Predictive analytics not only help the carrier, they significantly help the agent as well. In addition to allowing under-writers a more accurate and full view of the market and risks associated with each policy, they also greatly
improve efficiency, including the communication and response times between agents and carriers.
Predictive analytics are tools that empower underwriters to minimize the amount of policy touchpoints on the fringe of carriers’ appetite, which helps agents spend more time on profitable business. Our research has shown that the winning combination of profitability for an insurer includes predictive models and underwriter expertise, which is great news for agents, since under-writers depend on them for a street-level view of the market.
Many of the recent innovations in the insurance industry have placed agents on the knife’s edge of the industry. However, learning from other industries how customers expect to be engaged and paying attention to the carriers that will empower agents to promote a better customer experience to their clients, is essential for remaining competitive as the industry continues to shift.
Craig is the co-founder, CEO and president of Valen Analytics, a provider of proprietary data, analytics, and predictive modeling for property/casualty insurers. Valen leverages its large contributory data assets to help carriers price insurance policies more accurately and achieve lower loss ratios. He can be reached at [email protected].
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