The End of Insurance as We Know It

by Rob Galbraith

  Who is behind the new product/service/venture?

  •Do they have insurance experts involved or not?

  •If backed by traditional players, how truly disruptive will this new product/service be?

  •Kodak was at the forefront of digital photography - and gave it up because it threatened their traditional stronghold in providing products for film cameras, ultimately leading to their decline.[226]

  •If backed by VCs or founders, how committed are they to seeing this product/service become a success?

  What is the nature of the marketplace that the new product/service is entering?

  •Is it a “winner-take-all” like blockchain and IoT where there may be incremental benefits to offerings but the true gold mine will be to unlock the network effects or linking up disparate blockchains or devices to seamless work together as one large network (similar to the Internet?)

  •Research will pay off, but you can’t simply rely on data or surveys - you need to do a “ride along” to truly understand that world within the insurance ecosystem before you make an informed judgment.

  Who are the entrenched defenders of the status quo?

  • This is related to the previous section on obstacles, but should be considered separately as the methods employed to overcome an entrenched “special interest” are different than one used to overcome built-in technological or adoption barriers.

  What are the largest use cases and are there historical parallels?

  • Being clearly able to articulate one or more use cases to help identify the value proposition(s) is critically important

  • Historical parallels are often instructive as well to help anticipate how a new product/service might develop and the obstacles that may be encountered along the way.

  FUNDING YOUR BANKROLL

  One dilemma that founders have is how to secure funding sources to allow them the time and flexibility to work on building out their idea into a full-fledged business. Guy Fraker of Insurance Thought Leadership shared at a recent innovation workshop at InsureTech Connect in Las Vegas this drop of brilliance.

  There are two things guaranteed to kill innovation at your company:

  1.Lack of senior-level executive support

  2.An unlimited checkbook

  Guy’s point is that the resource constraints that are often imposed on innovation efforts are necessary: they force tradeoffs and tough decisions. Given that this holds true, it is still a critical problem to secure enough funding at various points along a startup’s journey to ensure its continued success. As a startup, you have three main options for funding:

  •you can bootstrap (self-fund),

  •you can crowdsource, or

  •you can accept funding from a traditional incumbent/CVC, technology VC or other source of investor capital.

  The benefits of bootstrapping are fairly obvious: the more you can self-fund, the more control you retain over your operation and the more you could potentially see a reward if your business really takes off. The downside of bootstrapping are threefold:

  1.You and your family may have to make sacrifices, such as selling your home or quitting your job and losing health care, that you are unable or unwilling to make.

  2.Your business cannot achieve scale as fast as possible due to funding limitations.

  3.You do not gain access to all of the many resources and expertise that VC funding often comes with.

  Crowdsourcing can be an attractive model for funding but likely is right for only a narrow segment of insurtech startups. Most people do not fully understand insurance. A great business idea for improving insurance may not resonate with the vast majority of investors on crowdfunding platforms.

  VC funding funding can come from a variety of VCs; some of which are aligned with traditional incumbents and some that are not. Traditional incumbents are likely looking for startups that can help them with their business on the operational side as well as earning a rate of return on their investment. Technology VCs may care less about collaboration and be more open to startups seeking to compete with incumbents, but they also care deeply about earning a return on their investment. Incumbents may be more patient with their capital than traditional VCs as they are accustomed to the longer timeframes that characterize the insurance industry. However, simply because a traditional incumbent has provided funding does not always guarantee success for startups when they look to collaborate. Often times the VC team and the business areas at incumbents are two entirely different groups, and simply because a startup has backing from the VC team does not guarantee that the business area will want to partner.

  PLACE YOUR BETS

  While none of us can perfectly predict the future, you can certainly improve your odds of successfully navigating our new insurtech world. Regardless of what perspective that you are coming from, using these mental models along with others (and your own) will sharpen your thinking and improve your decision making. Asking tough questions is important: so is finding a diverse group people whose have unique perspectives and whose opinions you trust and value. The answers in many cases will not be clear. However, knowing what the “known unknowns” are compared to the “unknown unknowns” is essential for critically evaluating opportunities no matter where your place is in the insurance ecosystem.

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  CHAPTER 24 - INSURING TOMORROW

  THE TALENT WAR IS JUST BEGINNING

  While the future cannot be predicted with any certainty, the mental models outlined in the last chapter can provide a helpful framework to guide your thinking. In this final chapter, two additional key points will be emphasized:

  •The need to win the talent war long-term

  •The most likely path forward for insurtech and the insurance industry as a whole will involve some combination of traditional insurance “old school” concepts thought of in new, innovative ways with a heavy dose of hard work

  The looming talent gap in the insurance industry has been recognized and highlighted over the past decade. Insurance Nerds co-founders Carly Burnham and Tony Cañas wrote a terrific book called Insuring Tomorrow on this vitally important topic. The wave of retirements that was previously predicted is now a reality and will continue over the next few years. McKinsey & Company estimated back in 2015 that 25% of insurance industry professionals would retire by the end of 2018.[227] The Bureau of Labor Statistics estimates that 400,000 jobs will retire from the insurance industry in the next few years.[228] On top of this, the skills that the next generation of employees is changing - and radically so if any of the new technologies and potential game-changing impacts are indeed felt by the insurance industry in the next decade.

  According to Jacobson Group in their 2018 Insurance Labor Market Study:[229]

  “The insurance industry continues to face an unprecedented talent recruitment environment. Today’s increasingly challenging labor reality is being impacted by increased staffing demands, a growing mid-level talent gap, impending retirements, virtually non-existent industry unemployment and a shallowing talent pool.”

  LOST RESERVES OF HUMAN CAPITAL

  Many traditional players have historically promoted from within, which is one reason the insurance industry has been a stable and rewarding career for those in the field. However, this appears to be changing for a few major reasons:

  The bi-modal demographic glut

  Demographically, there has been a “glut” of talent from the baby boomer generation and the millennials while the much smaller Generation X is currently mid-career. The glut at the top has delayed the upward mobility of those underneath.

  Reduced training

  While difficult to quantify, there has been a large reduction in the amount of time and investment devoted to training in the insurance industry over the past 25 years. This has several causes, but no doubt, some of the motivation has been the desire to reduce the tangible expenses associated with training while the ROI of this investment is hard to measure.

  Tony Cañas shared
the following anecdotal observation which others have validated:

  “My friends that started their insurance careers 1995 to 2006 got awesome training and made manager level just before the 2008 recession, and those of us that started 2009 and after have had a MUCH harder time getting either.”

  Technological advancements

  Technological advancements have also contributed to the elimination of training. Jobs that previously required a lot of knowledge and specialized training have now been automated. Professional, salaried positions can now be done by hourly call center employees or offshore. This leads to a bifurcation of jobs with fewer, highly skilled jobs needed and a larger number of lower skilled jobs to perform the essential tasks of operating an insurer. The lack of upward mobility and lack of investment in training and careers, along with the advent of the Internet and social media, has made it easier than ever to see the “greener grass” and switch employers for a better position - including leaving the industry entirely.

  All of these changes - demographic, the nature of jobs themselves, the awareness of alternatives and ability to switch employers - are now creating challenges for carriers looking to replace their long-tenured talent that is retiring in droves. PwC stated in a 2016 report:[230]

  “Most US employers are woefully unprepared for the business realities of an aging workforce and face a potentially massive loss of skilled, knowledgeable workers. Companies that effectively recruit, train and develop dedicated future staff and leaders will differentiate themselves and set themselves up for success into the future.”

  PROMOTING FROM WITHOUT

  Companies are increasingly hiring from the outside rather than promoting from within at higher levels. PwC states, “Insurance recruiters have two options – to hire experienced candidates or recruit and develop raw talent through effective training programs.” Based on anecdotal evidence from most companies, training programs are being cut back, not expanded. This creates a “war for talent” that is being fought in the short-run. While poaching executives, managers and subject matter technical experts from competitors can fill gaps, it comes at a cost. These new employees can certainly bring new ideas from their previous roles which can be highly beneficial and spur innovation. Just as likely, they can struggle to learn “how things are done” at their new employer. Often, who you know within a firm is as important as what you know. My friend MC Razaire summarized it well: “Insurance is outdated so expertise in the subject is too niche”.

  The opportunity costs between getting it right and not doing so are huge. Meanwhile, all this time spent trying to get external hires to work out often comes at the expense of developing internal talent, often millennials. Often, they are walking out the door as well. According to Scott Kotroba, President and Co-Founder of GreatInsuranceJobs.com, discussing their 2018 Insurance Industry Employment and Hiring Outlook Survey:[231]

  “Insurance employers were very clear this year. They are having a difficult time finding experienced talent not only to keep up with new job requisitions but to replace retirees and short-term millennial workers who are only staying 12-18 months. With record employment and a huge push for younger workers, talent acquisition in the insurance industry is being forced to change strategies, so they can connect their message to this group.”

  GIRDING FOR BATTLE

  Firms in the insurance ecosystem - whether traditional players or insurtech startups - need to have a true talent management strategy designed to compete in the long run. Lots of companies say they have a talent management strategy but few truly do.

  Why for the long run?

  Because this industry - or at least the basic consumer needs that insurance solves - is not going away anytime soon.

  Why is talent so important?

  While some - perhaps many - jobs will be simplified or eliminated altogether as insurance evolves to truly become a digital product, it takes talented professionals across a variety of functional disciplines to translate the unprecedented explosion in technological advances and successfully apply them in an insurance context.

  There are innumerable ways to “get it wrong” - how can you avoid the many traps and pitfalls to successfully execute a coherent business strategy? Only people can do this! To achieve enduring success, you need to have a long-term plan for attracting, upskilling, retaining and replacing talent. People are the ultimate differentiator in any organization.

  Are companies changing their hiring practices to fit the realities of this new job market? Not based upon these passages from the 2018 Insurance Industry Employment and Hiring Outlook Survey from GreatInsuranceJobs.com:[232]

  “According to surveyed employers, most companies recruiting strategies are pretty much the same as they have been for the last few years. However, most realize they have to make changes to their strategies if they want to stay competitive. Implementing a new way to market to and recruit insurance professionals is a daunting task and for most of the surveyed employers, they are not even in a position to consider taking this project on at a high level.

  The top three recruiting strategies to attract talent to the industry doesn’t even require technology. According to surveyed companies, to attract top talent, it will need a thorough overhaul of the way things are currently done. Technology is essential but the challenge to recruit talent to the insurance industry first and foremost is the underlying worry.”

  The report also notes this interesting survey result:

  “Only one company out of 64 are using chatbots or artificial intelligence products to help find insurance candidates for open jobs. When we ask why, the number one reason is they don’t know anything about this type of technology.” (emphasis mine)

  CULTURE CLUB

  Perhaps one of the largest barriers to recruit and motivate talent within the insurance industry is the corporate culture that most employees find. Despite low unemployment, job stability and good pay, FastCompany in 2015 reported on a survey by TINYpulse[233] showing that only 22% of employees at financial services and insurance companies were truly happy in their jobs. Three main drivers for worker dissatisfaction were identified based on survey responses:

  1.Dissatisfaction with colleagues

  2.Dissatisfaction with managers

  3.Low employee appreciation and recognition

  Colleagues

  The top complaints that workers had about their colleagues were having poor attitudes, not being motivated or taking responsibility, and not being qualified for their role.

  Managers

  53% of respondents in the survey reported that they were indifferent or dissatisfied with their manager. The three most cited reasons were poor communication, failure to allocate time to their employees and teams, and not allocating time to their employees’ development.

  Lack of recognition

  Research has shown that the number one driver of happiness at work is recognition from colleagues. However, an overwhelming number of workers surveyed in the finance and insurance sectors (80%) said that they were poorly valued at work. Worse, respondents indicated that they were only evaluated on what they did wrong or opportunities to do better.

  The Fast Company article that reported on the survey results from TINYpulse also included this quote from Trey Taylor, CEO of Taylor Insurance Services: “Did you know that for every 100 people who will join the industry this year, that only 11 of them will still be in the job in 36 months? It wears on people.” One bright spot: 85% of respondents reported that companies did an excellent job communicating their organizational goals and how employees could contribute to the organization’s success.

  Is insurance an appealing industry for millennials? The answer to that question is complex. Research by the Griffith Insurance Education Foundation and The Institutes[234] found that insurance careers had elements that lined up with characteristics that millennials value in a career. For example, 61% of millennials surveyed said they personally would like a job that includes analyzing risks and recommending solutio
ns. Working with people to solve problems was appealing to more than 8 in 10 millennials, and careers involving with helping other people was selected frequently (57%). However, less than one in ten said they were very interested in working in insurance. Why the disconnect? Perceptions of the insurance industry among younger generations is poor and non-existing to a large degree. Only 5% of millennials surveyed reported that they were very familiar with the insurance industry while 8 in 10 reported they were not at all familiar. The top reasons cited that people did not want to work in the insurance industry is that they did not want to sell insurance (52%) and the insurance industry sounds boring (44%).

  BACK TO THE FUTURE

  Turning now to the other critical success factor, it is unreasonable to assume that the future will continue to be entirely dominated by the status quo. The exact recipe for how this change will occur is unknown. Whatever the future holds for P&C insurance, there is little doubt it will consist of lots of technologies, processes, experiences, products and services. In short, an entire ecosystem. There will be one or more true technologies, products, services, companies that fundamentally disrupt some part(s) of the current insurance ecosystem. However, the opposite is also true: it’s unreasonable to assume that the future developments will entirely replace the entire status quo with a brand new ecosystem. Some - perhaps most - parts will remain in parts for years or even decades. The insurance ecosystem is likely too large, too entrenched, too diverse to fundamentally disrupt every single part of it.