People concerned with insurance have been using the terms- ‘innovation’ and ‘disruption’ interchangeably, perhaps because both correspond to building something ‘new’. However, there is a fine line between the two. All disruptors are innovators whereas, not all innovators are disruptors. Let’s delve deep into the difference between disruption and innovation in insurance.
Who are the ‘Disruptors’ in Insurance?
Disruptors drastically alter prevalent businesses, services, or products. They tend to be more creative, useful, impactful, inexpensive, time-savvy, and most importantly – scalable.
As an example, Lemonade took in $57 million in premium revenue from 4,25,000 customers in 2018. This four-year-old startup was able to sell premiums to millennials- 90% of whom were purchasing insurance for the first time.
Reason- instead of an all-encompassing insurance package, Lemonade is keen on distributing micro policies as low as $5, which the customer perceives as useful. They’ve simplified the claim settlement process and within 3 minutes, a customer can get his refund credited to his account. While Lemonade sells its insurance policies through chatbot Maya, chatbot Jim handles claim settlement. Such AI-powered bots can handle multiple customer requests just as human agents and are better in detecting fraud.
The disruptors are prone to adapt to changing customer preferences, which the traditional insurers are reluctant to because of the fear of losing existing customers. Disruption in insurance can break the barrier of the lower market penetration rate.
What’s Innovation in Insurance?
Innovation is independent of drastic changes in businesses. It focuses more on bringing positive business development by delivering convenience to the customer and improving operational efficiency.
Innovation is not always about introducing new technology. It is also about harnessing existing technologies to build innovative solutions. For instance, blockchain technology has been there for decades; but the insurance industry has recently utilized it for algorithmic trading, smart contracts, policy distribution, and claim settlements.
For example, AXA Fizzy provides paperless flight insurance based on blockchain technology. Every user interaction is recorded and executed in the ledgers- from buying a policy to claim settlement without any human intervention.
Other examples of innovation in insurance include Robo-advice, NLP (Natural Language Processing) to understand customer queries, insurance for IoT devices, AI-powered underwriting, automating insurance workflows, and Machine Learning technologies.
Also, read – Innovative insurance products of 2109.
However, according to McKinsey’s report on Digital insurance in 2018, most of the P&C, health, and life insurance innovations revolve around marketing and less towards product development and claims. This gives an idea of the scope of innovation in insurance.
What’s Next in Insurance: Disruption or Innovation?
The traditional insurance business is known to be resilient to technological advancements and innovations in terms of consumer-centric products. To stay relevant and competitive, insurers should shift focus from digitization to strategic disruption according to the changing market dynamics.
In fact, Insurers are willing to fund insurance startups to gain a first-mover advantage in terms of technology and innovations. These investments illustrate a clear goal of improving customer experiences and supporting their existing operations at the startups’ risk.
For instance, “Axa provided seed funding for five European start-ups under a fund set up in France in 2013, before launching Axa Strategic Ventures in 2015. The €200 million ($223.47 million) venture capital fund has the mandate to invest in innovations in insurance..”. (OECD (2017), Technology and innovation in the insurance sector)
Innovation from Insurtechs has the potential to contribute to the insurance value chain; however, managing disruption is still quite a challenge. Disruption alters the business and behaviours in such a short span that most of the outcomes remain unanticipated. While innovation takes time to catch the stream, disruption can make or kill a business. The best is to blend incumbents’ years of experience with innovation from startups to bring an accountable disruption.
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