With the flurry of startups seeking to break into the insurance market by offering alternative, consumer-friendly models, industry incumbents have finally woken up to the call for change. There is an important distinction to be made, however, between intelligent innovation and recklessly leaping on the latest bandwagon.
Facebook’s founding mantra was “Move Fast and Break Things”. While even the most traditional firms are now embracing the need to adopt disruptive technologies, it seems unwise to cast aside all qualms about ‘breaking things’. By definition, ‘innovation’ means to introduce change in something that is already established. To successfully innovate, therefore, requires an intimate understanding of the pre-existing industry fundamentals – for startups that lack in-depth insurance experience and insight, “Move Fast and Be Broken” may be more apt.
These trendy alternatives tend to portray traditional insurers as relics of a bygone era. The marketing angle of Lemonade, the health startup marked out to be the Uber of the insurance industry, is a rather reductive “insurance sucks”. Oscar Health, another American startup, expresses its distaste for the industry with cartoon ads plastered all over New York’s subway stating, “We didn’t start this company because we love health insurance. Quite the opposite in fact.” Rather provocative marketing – and with $13 million of seed funding and a value of $2.7 billion respectively, one could argue that Lemonade and Oscar can afford to be cheeky – but insurance is no laughing matter in the long run.
In the complex, highly regulated and sensitive arena of long-term protection, trendy is not enough.
Revolution or evolution?
Insurtech ventures present a strong case for the uberisation of insurance provision, and names like Guevara certainly signal their revolutionary intent. The impulse to bring about revolution is understandably attractive – particularly given the industry’s stubbornly low popularity ratings. Yet, while revolution might be fine for a taxi ride, for an industry as heavily regulated as the insurance industry, evolution through innovation is more likely to succeed than reckless revolution.
This point is played out in Michael Lewis’ The Big Short. As the protagonists demonstrate, challenging the prevailing market view only pays dividends when backed by a thorough understanding of the industry and a long-term view. In the currency of consumer value, surely it can only be progressive that Big-Short thinking has seeped into insurance to challenge dated market propositions. There remains, however, one crucial caveat: being intelligently innovative like these investors is very different from attempting revolution without understanding the industry fundamentals.
Failing at the fundamentals
From the startup that Business Insider claimed you “could bet your career on”, Zenefits increasingly embodies a rather sick startup when it comes to health insurance. The American Cloud HR platform has been accused of violating regulations – according to one report, 80% of deals in Washington State were done by unlicensed brokers. Compounded by a lack of professionalism amongst staff, these regulatory indiscretions led to the replacement of the CEO, the layoff of 250 staff and a substantial markdown in Zenefits’ valuation.
Alongside regulatory compliance, scale presents another major hurdle – one at which startups often take a spectacular stumble. Unlike small-claims policies such as car and home insurance, life insurance demands long-term commitment. Large traditional insurers not only have the benefit of anonymity over P2P groups, but also a much larger pool to offset costs. While the bigger insurers use their weight to leverage better prices from healthcare services, many Oscar Health adherents have found that their current doctor or healthcare provider is not even listed in the startup’s network.
Bought By Many CMO, Sam Gilbert, encompasses the trajectory of many of these alternative insurance competitors in his theory of the hype cycle of insurance disruption.
When a new technology emerges, it engenders a surge of interest and an influx of venture capital, only to crash when the venture meets the inevitable barriers of regulatory compliance, technical difficulties, and most crucially, consumer adoption and value.
(Don’t) move fast and break things
On-trend startups proclaiming that “insurance sucks” may generate a lot of hype for now, but in the complex, highly regulated and sensitive arena of long-term protection, trendy is not enough. In that world, it pays to bear in mind the hype cycle of insurance disruption.
Industry giants must embrace digital advances, but rather than breaking things, it would seem wise to thoroughly test digital initiatives in the crucible of consumer insight and experience. As Facebook itself acknowledged when it updated its original mantra to the rather less pithy “Move Fast with Stable Infra”, it is often better to be right than to be fashionable or cool.