August 19, 2020
Consumers have changed. They would have anyway, eventually, however, Covid-19 has sped up the change for buying behaviors and expectations. More emphasis on value and convenience with many more customers for all products moving quickly to on-line fulfillment during this crisis.
McKinsey & Company released a thought-provoking article, Meet The Next-Normal Consumer (August 17, 2020) that discussed just how much things have changed for shoppers of all products. While this article is not insurance specific a wise person would see the parallels and heed the warning signs. Understanding the impact of these changes is important for the insurance industry. Even more important, is for insurers to be able to react in a timely and necessary fashion.
The insurance industry has been incredibly resistant to change. Complexity and regulation are obvious barriers to innovation that make change more difficult to come by. Indeed, some hopeful “Insurtech” companies have overlooked the regulatory requirements to their own peril.
However, now is the time for insurers to meet the “Next-Normal Consumer” and give them what they want. Consumers are far more willing to shop on-line, switch suppliers and seek better values in the products they buy. Insurers must overcome their natural resistance to change and take the opportunity to reinvent the way they present themselves and their products to their customers.
Take the product attribute of price, for example. One famous “insurtech” comes to mind on how they feel about price and insurance. This is no small insurtech, having raised over $160 million with many of their investors being insurance companies. Here is a quote from their website on their answer to the critical issue of price:
Can we get you a cheaper price for insurance?
No—but neither can anyone else. Insurance rate tables and premiums are filed with and regulated by your state’s department of insurance. That means you pay the same price for a given insurance company’s product, wherever you buy it from.
While insurance rates and rules are filed with state regulators, there are huge opportunities for insurers to lower costs through technology. Incredibly the cost of distribution in insurance equals almost 1/3 the total cost of an annual policy. That means that if insurers could find a way to reduce their final premiums by a portion of that (maybe even 25%) do you think that would make a consumer switch? According to Covid-related product research studies on price and customers the short answer is “YES”.
Another cow chip of information is on how that “insurtech” makes their money:
How do we make money?
We’re an insurance broker, so we get paid a commission by insurance companies for each sale. Insurance commissions are already baked into the price of an insurance policy, so you’re not paying any extra for using our service (or any broker’s service for that matter).
The ONLY WAY to restructure and fundamentally improve the experience and lower the cost of insurance for consumers is to re-think how insurers and agents/brokers work together in the sales process. This is not advocating a broker-less world, insurance brokers provide essential services to their customers including advocacy, errors and omissions protection, independent advice and choice. Uber did not get rid of people who drive the vehicles that supply ride services, they just re-imagined how technology could improve it.
There is a new insurer/broker sales model that can help meet Next-Normal Consumer and that will be powered by technology led innovation. Without diminishing the role of the broker but by reducing the manual processes between brokers and insurers in the sales process consumers can get more from insurance. So sorry, insurtech, insurance commissions aren’t baked into the price of an insurance policy.
If you are an insurer that wants to give Next-Normal Consumer what they want, please call us to discuss selling your products with a far better customer experience including lower prices.