Lemonade are the most high profile example of an online insurer breaking away from the traditional model to disrupt a $5 trillion industry. They typify the modern customer experience - constantly engaged but non-invasive, immediate, amenable.
Lemonade offer low-cost insurance coupled with online automation and speed, rather than the heavy contractual selling and awkward policy changes we’ve come to associate with traditional insurers. 81% of their customer base are 25-44 years old.
The insurance industry is aware that it needs to change its delivery model, providing a much higher degree of customer experience, but whilst traditional insurers may not be as threatened by digital challengers as their compatriots in the banking industry, they do risk having their revenues severely eroded.
87% of Lemonade customers have never had a home insurance policy, clearly suggesting technological innovation presents more of an opportunity than a threat to traditional insurers. The new breed are sharing the stage and lapping up untapped revenue rather than providing an existential threat, but this could easily change.
Lemonade are now in a position to grab a large proportion of the basic ‘contents insurance’ type revenue from traditional insurers and may even begin to grow outside of low value policies; traditional insurance needs to respond by leveraging its trusted status, making contents policies flexible and the conversation required to initiate them more dynamic.
Examples of these types of companies are now occurring throughout Europe where laws on competition can be less prohibitive. Trov specialise in policies which don’t bind consumers to expensive annual fees, whilst Cuvva provide temporary car insurance if you’re driving somebody else’s vehicle.
The Role of Artificial Intelligence, Machine Learning and Blockchain
Ernst & Young identified that in mature markets 44% of customers have had no interaction with their insurer in the last 18 months. This is welcome in some respects but disastrous in terms of customer ‘leakage’ (switching).
Two-thirds of customers would recommend their policy provider to friends and family, yet still exhibit a clear tendency to change insurer. Changing circumstances paired with annual insurance renewals are clearly the stumbling block.
To prevent customers seeking better deals, intelligent conversations and adaptable policies could be coordinated through automated conversations and even Alexa integrations; this would have a huge impact in preventing leakage as well as customer on-boarding.
Perhaps in the longer term blockchain or more accurately, smart contracts based on a distributed ledger, will deliver operational efficiencies such as frequent verifiable updates, audit trails, and the automatic execution of claims.
But before probing too far into the future, insurers need to confront the current realities of what they can offer. This may be clever user-centric apps, conversational UI, or Amazon Alexa integrations for spontaneous customer interaction.
Alexa will play a big part in customer experience strategy. As well as being a very practical medium for spontaneous dialogue and adaptable policies, it would generate a lot of commercial intrigue around the insurer’s brand; Alexa also has a clear ‘smart insurance’ capability for policies like home insurance, orchestrating the security gizmos around your house with your policy.
As a company with a strong history in financial services, we understand how innovation within the industry works. Our Futures department have already prototyped working examples of how voice interaction, conversational UI, and push notifications could offer a streamlined customer experience in certain segments of the insurance market.