Currently, it’s hard to find an industry that is more willing to deal with online business on one hand and less able to do so on the other hand at the same time than the insurance industry.
Why is the web currently so hard for insurers?
In Goodland online business stands for lower acquisition costs, far lower processing costs in self service und scalable volumes in new business while in Badland insurers face the internet as the place of transparency, price war and sinking customer loyalty, mainly driven by the aggregators.
So: traditional business faces lover margins from the web, while insurers have problems in finding new fields. Insurers are used to sell big products via agents and brokers while the online Business is increasingly demanding smaller products and more precise coverages – solutions rather than prebundled coverages.
And yes, of course: The Web helps them in finding insurance pieces – and more and more the pieces are already part of another value chain, so you buy your Insurance with the car, the TV set, the holiday trip – but not directly from the insurer anymore.
Customers are still willing to be insured – but not for 40years with stuff they might not need. They need a far more flexible protection that might only last for their next trip to their trusted ski resort or their summer fun car.
What is hindering insurers from offering smaller coverages?
Insurers are used to look backwards while creating products. There was a big flood? That costed XX.XXX.XXX$ – so let’s take that as a basis for the flood insurance coverage.
New Cyber risks for example show a high demand for insurance products – but they are hard to predict – that’s one thing. Internal costs are far too high to sell products that only drive in 10 Euros per year – especially when tied agents do already ask for a 40€ commission upfront to sell them. Apart from that the development cycles for insurance products take two years – almost no time in the stable insurance industry, but maybe a 180 degrees turn in the world of Pinterest and kickstarter.com.
Insurers need smaller online products to survive – a couple of good examples show that this is giving a better flexibility in strategic options: The little Insurance for your glasses, accidental protection for ski-weekends, maybe instant life insurance for your next flight.
Insurers will still sell the big contracts – even in 10 years. But there is a growing demand, especially online, for smaller products that are far more tailored to customers’ current needs rather than their needs in 2045.
Insurers need the courage for experiments – and that is not in their DNA
To properly target that market demands, insurers need to understand the online sales cycles far better: there are no 10 years strategies any longer, not that many 20years life insurance contracts anymore.
That also means: smaller pieces of IT, no 500.000€ strategy upfront, but the courage to do smaller tests, do them quicker and do them really web based together with the relevant target group. Insurers who are not focussing on developing real WebProducts will be dinosaurs, sooner than expected.