Do small and mid-sized insurance carriers stand a chance?
Like many others, our industry is feeling the pressures of the ever-increasing pace of staying competitive, while also experiencing new opportunities and threats that come from new practices. Data sophistication, analytics, big data, and real-time information are the new normal, giving carriers access to more information with which to segment risks than ever before. Segmenting based on data and analytics isn’t new, but the pace of technological and analytical change make it so that more and more segmentation can be done faster and faster. And since segmentation is the name of the game, this new normal is only going to accelerate.
P&C carriers (and now, some life and health carriers, too!) that have invested in telematics have taken risk profiling to a new level, with the extreme volumes of data that come from their real-time data collection programs. And now, from Stage Right: the Internet of Things brings the next level and volume of new information, much of which will be huge haystacks that carriers will be clamoring to look through, trying to find the needle(s) that are the next Secret Sauce separating them from the rest of the competition.
Then, there is the ever-increasing threat of disruption that comes from outside our industry, epitomized by the likes of Uber, Airbnb, and others that have disrupted entire industries…but that were imagined and built by people who had nothing to do with the industries they disrupted. In fact, in a 2013 survey of P&C executives by Accenture, a full 76% expected new, external competitors to emerge by 2016. And it is happening now, with the emergence and growth of companies and services such as:
Google Compare (https://www.google.com/compare/autoinsurance/form?p=home),
ZoomCare (https://www.zoomcare.com), and
Oscar (https://www.hioscar.com), to name just a few.
So, do small and mid-sized carriers stand a chance? Having spent time working at carriers both large and small, I have seen and lived with the advantages and disadvantages of both. Armed with this experience, I have to say yes – smaller carriers do stand a chance. But not without looking to change how they get business done.
Large carriers bring scale and resources – both people and money – that can be applied liberally, both in running the day-to-day business operations and towards new capabilities. Many priorities and initiatives get worked simultaneously rather than having business imperatives stand in long lines waiting for resources to free up from other initiatives. If these carriers see new opportunities, they often have enough scale that they can redeploy staff and money without feeling hardly a pinch, if any at all.
There is a downside to being large, too. Often (not always), the silos of function – claims, finance, underwriting, marketing, IT, and others have pretty solid and tall walls. Communication between these silos is difficult, and when it’s time for strategic analysis and decisions, these walls can cause confusion and delay. Also, large companies often have large and complex business process and technology ecosystems in which new solutions must be fitted; this can take considerable time and energy. Speed to market is often the casualty.
Smaller companies can capitalize on this Achilles’ heel that large companies have. They a real opportunity for an “agile” advantage, in that their silos are shorter and less solid. Managed well, their walls can more easily be broken down, allowing a free flowing of information and collaboration across business functions that, often, can only be accomplished through specific project / program teams at large companies. Decisions can be made faster, and with more informed cross-functional stakeholders working together more dynamically.
But, there is a catch. Smaller companies spend a much, much higher percentage of their resources just having to run the business operations, and keep them going in the face of the accelerating competitive landscape. When new opportunities arise, it can be very difficult to invest or redirect resources towards these opportunities. As an example: how many small to mid-sized carriers of Personal Auto insurance have invested in telematics? The business case is hard because the economics are hard (including the economics of poking a sleeping giant in the eye!), and because the scarce resources they have are already booked solid.
How will small to mid-sized carriers be able to keep up with ever-quickening advances in running the business, let alone turn attention to disruptive competitors or technologies? How will they gain intellectual and operational expertise in the sharing economy, consumerization and digitalization of health metrics, by-peril rating, and advancing BI / analytics? Will they be able to zig and zag as the new demands of wearables, the Internet of Things, and drones emerge and take hold? Most simply don’t have the resources to scale to these needs.
Likely, the answer lies in turning to external expertise for counsel, guidance, and often times, execution – something this particular demographic of carriers is not overly accustomed to. For these carriers, it will mean adopting new business and management models along with growing expertise in identifying and managing external partnerships at new levels. In the small to mid-sized carrier demographic, these new capabilities are a particular challenge; but for those that make the true effort, the payoff will be big.
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