Over the past weeks, I’ve talked a bit about innovation in insurance (my trip to San Francisco and a look at VC’s perspective), and concluded that while there is no sign of true disruption (i.e. in the Uber sense), there is plenty of innovation to be excited about.
Just to be clear on what “disruptive innovation” means, here is what it might be like. Actual, real disruption in insurance would mean that in the space of a few years, the $3+ trillion insurance industry would need to find something else to do with their cash and investments because almost nobody would need their services and products anymore. Somehow, everything from cars to homes to private jets to container ships would need to be replaceable in the event of an accident; paid for in some entirely new way. Liability would need to be reduced to a fringe aspect of our society. Medical expenses would need to be handled in some currently unimaginable way. These ideas seem unattainable, and they probably are. Disruptive innovation is unlikely to take out insurance, because insurance is nothing less than one of the foundations on which our society is built. Truly disruptive innovation is rare, and anything less than the shattering of an industry is an over-use of the term.
However, just because the innovation won’t be disruptive doesn’t mean it won’t be important. There are two types of innovation that insurance companies need to be thinking about:
- those that make their business more efficient, and
- those that improve insurance for policy-holders.
Improving efficiency focuses on smoothing out the sales process, reducing underwriting and claims leakage, and automating processes that demand to be automated. Improving the product is about making insurance more relevant for insureds by improving coverages, with better terms and conditions, and customer service. These are the innovations I have explored in the past weeks.
Most insurance companies are chasing after these two types of innovation by adding solutions to their existing systems, chasing innovations as they come. However—and this is the real nugget waiting to be found—it’s a perfect time to actually start an insurance company from scratch because the technology exists right now to handle ALL these innovations, across all parts of a business, with a single platform system. If an insurer were to create a platform on which to build the entire business, it would handle ALL the nuts and bolts, plus deliver value and service in a way that makes all this innovation-talk seem outdated already. This approach to an insurance company might be the closest thing to A16Z’s vision of innovation, and this might be the only way software can eat insurance.
