The Evolution of Insurance
Insurance Experts' Forum, July 3, 2014
The Friendly Society Evolves
The concept of risk and spreading the risk has been in existence for as long as there have been humans on this planet.
Humans have found various ways of managing and “insuring” against risk. The first written insurance policy can be traced back to King Hammurabi (1750 BC). The Hammurabi Code offered basic insurance to a debtor who couldn’t pay back his/her debt due to a personal catastrophe.
The history of insurance in the US, however, is not that old. It dates back to 1736 AD when The Friendly Society, operating under a royal charter from England, was created as a mutual company in South Carolina. It covered fire related losses for its participating members. Unfortunately, The Friendly Society didn’t survive beyond a few years, and it was dissolved after a massive fire in Charleston destroyed hundreds of buildings.
Benjamin Franklin, amongst other notable achievements, is credited with the creation of “Philadelphia Contributionship For The Insurance Of Houses From Loss By Fire” – the first mutual fire insurance company in the US whose policies could be bought by the general public. The industry hasn’t looked back since then and grew as the money economy grew.
The US demographic is shifting very dramatically.
- 26% of the population started going into retirement in 2011
- By 2020 32% of the population will be Gen Y
- By 2050, 54% of the US population will be Hispanic, Asian or African American
These shifts indicate a change in buyer behavior that the carriers need to understand and adapt to.
The next generation of policy owners is digitally very active and socially networked. They demand and anticipate a level of flexibility from carriers that is currently not available at all the points of contact between the carrier and the policy owner.
The key component in the creation of The Friendly Society and The Philadelphia Contributionship was the understanding of the consumer. The consumer was part of the creation of the enterprise and, therefore, provided an intimate understanding of his/her needs to the carrier. Today’s market calls for the carrier to rediscover the consumer.
How can carriers rediscover the consumer?
- Know Your Customer: It’s time to dust off the business intelligence and analytic programs to focus on consumer insight rather than on internal process improvement and improvement of operational metrics.
The analytic programs need to drive a better understanding of the next generation of policy owners and their needs / buying patterns while identifying / creating the next logical product to sell.
- Target your Customer: In the era of digitally active and socially networked consumer, making the consumer an integral part of product design, pricing, marketing, sales and service is critical for insurers to differentiate and grow.
Building sponsored communities to create awareness of new products and leveraging such communities and the user generated content for market research, product development / improvement, influencing purchase decisions is key for the next generation carrier.
From 1736 to 1999 the industry had relied on essentially three channels to sell and distribute their products.
The last decade has seen an explosion of channels with disruptive platforms provided by the emergence of digital commerce.
While there has been a lot of conversation around disintermediation, the reality is that it is not the carrier that determines the channel it will use or not use to interact with the consumer, it is the consumer that does. For that reason alone channels need to co-exist, however, the distribution of revenue across the channels is a function of the product(s) sold and the consumer targeted (and, perhaps, even the stage in life of the consumer).
For the next generation carrier, it is also imperative to set up a multi-channel model that is in-tune with changing consumer preferences that aligns to their product portfolio.
How can carriers change consumer preference?
- Sell & Service: Increased penetration of smartphones, tablets and wearables and the growth of the social networks are trends that need to be understood and appreciated as carriers begin to explore a multi-channel distribution model.
While apps that provide self-service (e.g. what’s the status of my claim or find me an agent) provide some benefit, the power of the emerging channels is in generating new revenue and leveraging them for cross-selling / up-selling.
- Performance Management: While setting up a multi-channel system is required, equally important is ensuring adequate governance and minimizing conflict.
This may include using concepts like Life Time Value of the Customer and making decisions that will align the right customer to the right product in the right channel – at the right time.
The Next Generation Carrier
From the time of the Friendly Society and the Philadelphia Contributionship, the industry has redefined itself a few times to cater to changing consumer needs.
The former was the ultimate in an effort to involve the end consumer in the design of the product and the latter played a critical role in establishing building codes and guidelines that lowered the risk that they had to carry on their books.
Historically, Insurance has always been about a “community” of customers. The Next Generation carrier, however, will have to focus on the individual. The key element of the strategy for such a carrier will be the consumer and the carrier will evolve the product portfolio, the multi-channel distribution channel and its marketing and service programs keeping in mind that tomorrow’s consumer will be very different.
That will continue the evolution of The Friendly Society.
About Sanjay Mohan
Sanjay Mohan is Senior Vice President and Head of Global Insurance Market Development at
Polaris Financial Technology. Sanjay has been working with insurance executives globally for more
than 20 years and has developed extensive business knowledge coupled with deep understanding
of technology and information systems, to design and deliver complex business cases and
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