Prepare Now For Digital Disruption

By Linda Koco
InsuranceNewsNet

Which “digital disruptors” are going to try to eat the lunch of the established players in insurance?

If you ask life and annuity advisors, many will answer “maybe Google or Amazon,” because they’ve heard these giants are warming up to insurance. But advisors often draw a blank on other digital “outsiders.” They just don’t see that much disruption going on in their business.

However, other disruptors are definitely moving into the financial sector, according to TABB Group.

The New York researcher just completed a study on the subject. The study focuses on disruptors in banking and financial services, but author Paul Rowady said the disruption issues have broad applicability, including to the insurance sector and to advisors in life insurance and annuities.  Rowady is principal and director of data and analytics research at TABB Group.

Recent developments reinforce this message.

A digital revolution

A “digital revolution” is going on, Rowady said. This revolution is threatening to disrupt businesses and influence operating strategies of incumbent financial firms, he told InsuranceNewsNet.

Most large and traditional banking and financial services firms have enjoyed three to four decades of avoiding much in the way of renovation, he said. But that’s coming to an end as new entrants from other industries start to compete.

These new entrants come equipped with better data, analytics and applications than established players, Rowady said. They can deliver at lower cost, too, because they are building on a blank slate using the latest tools and methods without having to renovate older complex infrastructures.

As a result, they’re able to meet consumer demand for greater functionality; smarter, more personalized solutions; and cheaper, faster and easier-to-use “mobile-first” approaches, he said.

Of interest to insurance professionals is his comment that disruptors are expanding into “self-directed investment advisory, wealth management and related investment services.” They started out by impacting retail workflow and processes, and they’re still doing that, he noted. But now disruptors are casting wider nets.

Who are these disruptors?

The chart below shows some disruptors that are now making noise in banking and investing.

Rowady concedes that those disrupters, including the large firms, have a “much less diverse spectrum” of financial products and services than big, well-known financial brands. Even so, he said, they’re moving ahead of incumbent players, or trying to do so.

Often they come bearing a bouquet of mobile apps for access to information and cloud services for storage.

Also, some of the biggest disruptors, like Google and Wal-Mart, have a lot of cash. “That’s threatening….and it’s changing the sense of urgency and speed” of businesses they enter, he said.

Two years ago, he recalled, banks rarely allowed customers to deposit checks using a mobile device. Today, most banks allow that.

As for impact on advisors, Rowady predicted some will see their workflow disintermediated. “That will be bad news for advisors who don’t already offer a good value proposition,” he said, because why would customers stay if they can get the same products and service faster and cheaper online,?

“But it will be good news for advisors who do have a strong value proposition,” because customers who want personalized service and customization will gravitate to them.  

Where is disruption now?

In insurance, disruption is already coming through the doorway of property/casualty insurance. This has put life and annuity experts on alert, watching closely for signs of entry into their own business.

Rowady said disruptors in auto and homeowners insurance allow consumers to do everything online. “That appeals to consumers who don’t want to talk to anybody unless they have to.”

In recent weeks, some other examples have emerged. For instance, Allstate is now making available a “digital disbursement method” for auto and property insurance claims — the first U.S. company to use this method, the carrier said.

The method enables consumers to use an email address or mobile phone number to have their claim payment made directly into their bank account in one day, Allstate said. The insurer’s co-collaborator on this initiative is a biggie, Bank of America Merrill Lynch.

It “simplifies and accelerates the payment process,” Allstate president Matt Winter said in a statement reminiscent of the language often used by digital disruptors. 

Another example is Google’s move to start an online auto insurance comparison service. Writing in a January blog, Forrester analyst Ellen Carney noted that the Google Compare Auto Insurance Services is slated for a pilot-testing in four states (California, Illinois, Pennsylvania and Texas) in early 2015.  A similar firm, Google Compare UK, rolled out in 2012, she said.

Carney said her research of state regulators revealed that the company already has secured licenses  to operate in more than half the states.  Her conclusion:  “Google Compare is going to have big implications for U.S. insurers.”

Some industry watchers may discount Google Compare as just another aggregator website for searching, comparing and selecting insurance, commented Denise Garth, a partner at Strategy Meets Action, in a recent blog.

That would be “foolish and dangerous,” Garth said. “This move has much bigger implications for insurance. It represents a major disruption by a recognized innovative giant who brings an outside-in approach to customer-driven engagement and empowerment.”

Other potential disruptors are coming from health-related businesses. One example is the “wearable device” business that includes “activity tracker” wristbands, “smart” watches, and "smart" apparel such as diapers and jewelry with embedded sensors.  The devices can collect health-related information for personal guidance, but some may also have options to send the data on to health care providers — in the future if not today. It’s not too far a stretch to see that this data would be of value to insurance underwriters, too — again, tomorrow if not today.

A forerunner can be seen in the car-tracking programs that some auto insurers are starting to offer. The programs use devices that track a driver’s mileage and driving habits, which carriers may use as a basis for offering discounts.

Mobile apps function as disruptors too. A recent example is the Care4Today Mobile Health Manager app that Aetna just added to its health and wellness digital platform. Developed in conjunction with a Johnson & Johnson business unit, this app lets people track their own progress in reaching goals for physical activity, sleep, nutrition and medication usage.  The hope is “to help people shift from thinking about health care to taking care of their health,” said an executive.

Then, there is social media. TD Ameritrade just began allowing retail investors to do “social research” on publicly traded equities through their password-protected TD Ameritrade brokerage accounts. They can do this online via social media giant Twitter even if they do not have a Twitter account, said the firm. 

A number of insurance firms and associations already show Twitter feeds for various topics and events. Might some of them offer a Twitter research function of some kind too?

Future possibility

According to a recent poll by LIMRA, 57 percent of financial executives said they believe an outside source, such as Google or Amazon, will become a disruptive force in the life insurance market within the next five years.  In a separate survey, LIMRA found that 21 percent of middle-market consumers would be willing to buy life insurance online from a non-traditional source, such as Google or Amazon.

Any urgency that firms may be feeling about these trends will only grow in the next two years, predicted TABB’s Rowady. “Those who do not develop a culture of innovation and brand awareness will be inherently at risk of being disintermediated in about four or five years.”

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].