Instructive to review the insights of a serial disrupter who until recently was Chief Innovation Officer of global insurer Legal & General. Maarten Ectors lays out three strategy planning scenarios. Where do your plans stand relative to his strategic continuum?
The full article is reprinted below.
Innovation-Scenarios Management applied to Car Insurance
- Published on August 12, 2021
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Can you predict the future and make sure today, tomorrow and in a decade your company is winning? Most would say no. Let’s give it a try though and let’s use the car insurance industry as an example.
Three future scenarios
What will the future bring?
Scenario 1: Evolution
This scenario assumes that the future is a more efficient version of the past. We will see linear change, never exponential change. In the case of car insurance that means that current trends will evolve. What are the current trends?
- More people churn and use comparison websites to find the cheapest car insurer because they see the product as a commodity. So premiums will continue to go down.
- People love the Amazon and Google experience in which they click and get an immediate solution. Waiting on a call centre queue is not that immediate solution so more digital solutions and automation to bring costs down and speed up service.
- In-car driver data will become available in more quantity, either because of more webcams, ODB-II boxes reading how the user drives or in-car analytics. The more you know about the driver, the better you can predict risk.
In a decade, we predict that these trends have grown linearly which means that:
- In October 2020 75% of customers used a comparison website when their car policy expired. So let’s assume that in 2031, 99% uses a comparison website.
- Let’s assume in 2031 that over 90% of customers use a digital claim handling solution which does not involve a call centre.
- Given the constant improvements of AI, cameras, storage capacity,...; car manufacturers are likely to be able to store more data in the vehicle. Thanks to 5G/6G and WiFi 10 [we are currently at WiFi6], data will be able to be downloaded from the car very quickly. The data volume will have also grown substantially. So by collaborating with car manufacturers and with the driver’s consent, insurers would be able to get access to gigabytes of data for each driver. So let’s assume that the driver’s data is like open banking, owned by the driver and as such they can choose to share it with others.
Scenario 2: Revolution
What if the world is not evolutionary but is facing exponential changes? What is likely going to happen in this scenario?
- AI and Car companies race to get to level 5 autonomous cars. In 2022 they get to level 3. In 2024 to level 4. In 2025 they get to level 5.
- Thanks to autonomous cars, driver data is now irrelevant because computers start driving cars.
- In 2031 robot taxis will be used by 40% of families instead of owning a car and for each robot taxi, five families no longer need to own a car. The total addressable market of people owning cars goes down at the same moment selling internal combustion engines has become illegal in the UK. Families are switching massively to transport as a service. Car driver insurance sees its addressable market shrink with 95% compared to 10 years ago.
Scenario 3: In-the-middle
Not everything is evolution and not everything is revolution. What would this scenario look like?
- 100% comparison websites but level 5 is reached at the end of the decade.
- Call centres are as cool as DVD rental.
- Data generated by cars has gone up exponentially so downloading it elsewhere is impractical. In-car processing is needed for which whoever controls the brains of the car knows how people drive and when they let the vehicle drive.
Now let’s do innovation-scenarios management, #InnoSceMa
Based on all scenarios, what should we do more of, do less of, stop doing and start doing?
Do more of
- In all scenarios the data a car generates will go up and the car manufacturer's role is going to change from having some data to holding massive amounts of data about the driver and their car. So partnering with car manufacturers and AI companies to increment knowledge would fit scenario 1 and 3. Even if scenario 2 is the final scenario, it would give us an inside when level 5 can be achieved. Being part of a quote and buy journey inside the car or at purchase, is really important.
Do less of
- Comparison websites or in-car purchases are the future, this means direct sales will decrease, so should also the investment in direct sales channels because none of the scenarios points towards major growth.
- Manually handling quote and buy or claims via call centres. They are not the future so aggressively investing in getting rid of them is the right thing to do in all scenarios.
- Both in scenario 2 and 3, driver insurance is out in a decade or more, while margins will be cut throat in scenario 1 so growth is unlikely. Instead of waiting for Netflix to kill the DVD business, isn’t it better to diversify before. If we know certain innovations are going to come, what new customer needs will they provoke and as such can we invest in products that solve them? Kodak got killed by digital cameras but Fujifilm diversified based on its core skills into other industries. Can you be a Fujifilm?
Why not divide the company into three groups:
- Milk the cash cow - 60% of people are tasked with keeping the lights on and optimising the comparison website quote and buy as well as claim handling costs. By reducing the group of people that need to keep the current business running, automatically costs are reduced.
- Evolve - 35% are tasked with do more of [partnerships, AI,...], do less of [in-car purchasing], stop doing [no call centre solutions]. This group is tasked with creating the end-to-end digital car insurance business in which car insurance is better, faster and cheaper. If successful, group 1 can always be sold to a competitor or all business gets migrated. You might think about launching a digital car insurance brand.
- Revolution - 5% are tasked with coming up with the next profit generating ventures. Once they start growing, people from the evolve group can be pulled in. Afterwards the new ventures soon become cash cows. You will see that each company in order to grow, needs to be creating the next profit generating ventures constantly instead of waiting for revolution to come.
Do not wait until the robot taxis are here because it is like all your family telling you how they love Netflix while you are still working for Blockbuster, at that moment there is only one scenario left and it is not a pretty one. Start planning your own innovation-scenarios management (#InnoSceMa) workshop? If you need help, why don’t you reach out ?
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THE EMBEDDED INSURANCE REPORT Momentive.ai & Cover Genius
“There’s no more dispute around whether robotaxis are real: they are real today,” says Karl Iagnemma, chief executive of Motional, the autonomous driving unit of Hyundai and Aptiv. “The question is whether the other guy can come along and do the same service, the same product, but at half the price. If you’ve got a competitor who’s in that position, you’re in big trouble.”