Tipping Point : What will change for David & Goliath?
A 2009 study by Kaufman Foundation highlighted, over 50% of Fortune 500 companies were started either in a bear market or full blown recession. Whether century old companies like GE(1890) or IBM(1896) or powerhouses like Disney(1923) or Microsoft(1975), adapting to the downturns teach David a great deal about starting and running a business.
In March 1918, the Spanish flu pandemic’s first wave began, followed by another in the fall of that year, ultimately receding in 1920. Insurance coverage was much different than what it is today, there being no such thing as health insurance. Life insurance was relatively new and carriers reportedly paid out $100 million in death claims. After the pandemic subsided, life insurance business saw a big upswing, helping Goliath recover.
Around the time of the Spanish flu, another plague that swept the US was of reckless city drivers. That sent coverage rates soaring debilitating several groups, but also created new opportunity. It was the time when entrepreneurs created State Farm, Nationwide and USAA more than a century ago.
What impact will Covid-19 have on insurance?
Tracing through digital footpints via search trends, when compared with a covid-era term “distancing”, searches on insurance lines can be seen to be trending down immediately and then slowly retracing.
Similar behaviour is repeated in multiple other sectors, showing a dip-n-turn effect.
Despite the downward trend which saw many companies reporting declining sales, few bucked the trend: large growth for GetSafe (Ger); ~40% for Policybazaar (India) and Zhong An has seen a ~30% premium increase.
The country wise trend shows that recovery across lines of businesses has been mixed. Travel has yet not picked up, while motor and health insurance are inching back to pre-covid levels, a result of the dip-n-turn effect.
In a Generali survey done in 22 countries, reported by Anoop Khanna, Consultant, Asia Insurance Review in this article, a third were considering purchasing life insurance covers as a result of the crisis and for income protection. It goes on to predict that awareness about insurance is one of the many changes from the COVID-19 pandemic.
If we look elsewhere, in banking and health industries, there are KPIs that jumped up as the pandemic spread and now continue to stay at those new levels. Teleconsultations and novel users on online health platforms, for instance.
Similarly, in banking, mobile payments have seen a substantial jump in usage, starting from when the restrictions were being put in place.
Is such tipping possible in insurance? The author decided to dig for cues in insurance and find similar tipping points. Tipping point, as Malcolm Gladwell opines, is that magic moment when an idea, trend, or social behavior crosses a threshold, tips and spreads like wildfire. Influencers in the insurtech space were polled with few options. The results of the poll are shown, with a clear winner emerging.
As Matteo C, Founder and Director, IoT Insurance Observatory, asserts in this thought provoking piece, “Nothing happens overnight in the insurance sector, a period of five-ten years is needed to adequately evaluate a trend.” He shares his skepticism for any long term structural changes brought about by a few weeks of lockdown.
In this backdrop, the author set out to explore, in the context of the four tipping point probables in the poll — partnerships, digitization, new segments and long term strategy.
To understand what impact #openinsurance and partnerships might have, 3 regions — UK, Australia, India — were studied for increase in partnerships since the pandemic started. The chart shows the results.
We see there is a substantial rise in the number of partnerships forged in health segment, likely from an opportunistic trend to sell covid policies and service customers. Also, the analysis showed that David was already active in establishing partnerships, while Goliath made more partners in the downturn to sell and service through more channels.
We also looked at banking, which reported a spike in mobile payments. But, API banking had the same dip-n-turn effect.
The conclusion is that while partnerships are on an uptrend as our influencers surmised, it doesn’t seem at the moment to be a breakout trend.
Next, to understand what the extent of digitization impact was, we first turn to the Flexera State of the cloud report. This shows that many executives (a third) do intend to substantially accelerate their cloud investments. Interestingly, this chart in the same report shows that the move is restricted in scope, while excluding critical and sensitive processes. However, those who aren’t digital first can still leverage this increasing trend to optimize channel strategies, among others.
An early example of a digitization tipping point is the Lloyds trading floor. Lloyd’s shut its “underwriting room” in its London tower on March 19 in response to the coronavirus pandemic and will not reopen before August, marking the first closure of physical trading in the commercial insurance market’s 330-year history. The market reports it has run smoothly with greater use of existing electronic systems and are in no hurry to return to the office.
Hugues-Bertin, CEO, Digital Insurance Latam, in a recent Chisel.ai interview says, “In the new normal world, retailers and experts are talking about a walk-in decrease of 60%. Carriers .. are especially focusing on the digital channel (direct or embedded), for example, initiatives to improve UX/UI, or to develop new digital channels. The crisis has convinced every stakeholder to put “digital sales in insurance” at the top of the agenda.”
Thus, digitization shifts which were already underway are clearly accelerating and we can expect to witness few irreversible shifts.
The third tipping point probable was new risks and segments. The ones that have caused the highest buzz are: pandemic, parametric, usage based, event cancellation, cyber, trade credit and business interruption insurance. There is momentum in each of these areas with new launches, partnerships. However, widespread adoption isn’t around the corner. Parametric cover, which had been subject of a lot of deliberations, is gradually witnessing few launches. UBI is trending thanks to the lockdown induced restrictions, however, people have been quick to report that it works very well in several cases, but not all share the same enthusiasm. The previous partnership chart shows the same trend.
David and Goliath will have to look at the multitude of new signals the current time period will generate and devise strategies to identify product niches and wrest share.
That brings us to the last tipping point probable, which is preparing for the next crisis. Research from WEF (with Marsh & Zurich) found, “Pandemics have traditionally suffered from a panic-neglect cycle. Quiet periods see no action, early warnings of an outbreak tend to be overlooked, significant response and funding are late and uncoordinated, and valuable lessons from the crisis are not institutionalised.”
Nassim Taleb, who coined the term “black swan”, says the current pandemic is not one, since people had predicted the pandemic. To overcome a black swan crisis, his theory goes, the solution is to be anti-fragile. Antifragility is beyond resilience or robustness. It is the capacity to improve under stress instead of being weakened. As per Taleb, only the companies that prepare and gain from stress will prevail, while the others that get hurt would eventually fall away. Some ways for a system to become antifragile are through leveraging a) networks b) diversity c) distribution d) regeneration e) learning.
One such framework, in the context of insurance of pandemics and crises has been propounded by Patrick Kellahan under the tencsproject.
Frameworks such as tencs will help David and Goliath collaborate and work with governments to prepare for the next crisis. There is an initiative from the UK, where insurance executives took a step towards developing a public-private risk-financing mechanism for future pandemics with the creation of work streams under “Pandemic Re”, templatised similar to UK government-backed terrorism mutual, Pool-Re, set up in 1993 to provide a backstop for terrorism risks. It is good to see that work is underway for the fourth of the tipping point probables, which rightfully so, very few of the influencers, expected to see much continued enthusiasm for.
The end of the tunnel for the pandemic onslaught is still not clear. The extent of the losses to the global economy and to insurance industry have been predicted, but will very likely be iteratively revised, as explained in my earlier article. No doubt the industry will be crippled in the near term and struggle to get back on its feet, but it will soon recover and thrive.
While the premise that dramatic changes do not happen overnight has been acknowledged in this article, there is little doubt that the solid steps being taken whether in forging platform partnerships, digitization, new risk markets or preparing for the next crisis are here to stay.
Originally published at https://www.linkedin.com.
