Imagine being a CEO and knowing that you will lose half of your revenue within the next 30-50 years. Imagine being part of a 1.2 trillion-dollar industry where today your company is doing quite well. It’s doubtful that you will still be leading the company when the tsunami hits. Do you care? Should you care?
Cynics (or perhaps politicians) might say no, but altruistic leaders who care about the legacy of their decision-making will undoubtedly say yes. You must care about the long-term view; you cannot afford to “wait and see.” Wait-and-see companies (like Polaroid) that fail to transform their business will eventually cease to exist.
A tsunami is approaching the life and property & casualty insurance market. It’s not a tsunami of water, but of self-driving cars. It’s predicted that self-driving vehicles will be mainstream within 30-50 years. For some insurance companies, like American Family Insurance, this will mean a 50% loss of current business.
Realizing that they can’t afford to do nothing, American Family Insurance (AmFam) has embarked on an innovation journey. I recently heard about this journey from Ryan Rist, director of innovation, who spoke at the ManTech meeting on World-Class Digital Transformation.
American Family Insurance (AmFam) is a privately held life, property, and casualty insurance company that believes that “the American dream is alive.” To hear Ryan speak is a message of hope; he is optimistic about the company as a whole. Insurance, he points out, has a large impact on the macro-economy. By having insurance, the buying and use of major assets like houses, cars, and other property is de-risked.
When AmFam started hearing about disruption in their industry, it knew it had to act. Publication after publication spoke of impending change.
So American Family Insurance started hiring different types of employee: entrepreneurs, meteorologists, architects, and data scientists. The company knew that in nearly every survey, the insurance industry ranked terribly in terms of customer trust. Part of the problem, they hypothesized, was that most people pay premiums but few file claims. The perceived value of protection toward something that may someday go awry was less than the money realized from a claim (even though nobody wants bad things to happen to them). So AmFam set out to solve this problem of perception.
To combat this perception challenge, American Family Insurance worked with IDEO and used design thinking. The company realized that homes have many potential problems, but that most customers don’t really understand these risks: dryer vents can start fires, water heaters can leak, smoke detectors’ batteries can drain and become useless, and much more.
They could solve perception problems by proactively helping their customers make their homes safer. This would seed new revenue streams that could eventually replace diminishing auto insurance premiums.
But where to start? American Family Insurance believed that the Internet of Things could be a focus, but company leaders didn’t know much about technology. So they started to invest in startups. Sitting on a startup board allowed AmFam execs to deeply learn about the challenges these companies were working to address.
They also co-created the first insurance technology accelerator. Through the accelerator they met vendors in the technology space, like Foxconn, that they hadn’t worked with before.
Then American Family Insurance started to make strategic investments. It invested in Ring, a “connected doorbell” that connects to your mobile phone. It envisioned future applications in the sharing economy, such as applications where insurance rates could change depending on whether or not an AirBnB guest is at your home. AmFam also partnered with Nest, and learned that their customers had no real understanding of a connected home—for example, their customers would buy a Nest Protect smoke detector but did not understand that a mobile phone was needed to activate it.
American Family Insurance learned that their customers were willing to provide some usage data, as long as the intended usage was transparent. Now, the company ships customer’s new batteries when a Nest Protect sends a signal that the batteries are low. This is one example of how the company is changing customer perceptions.
New technologies that blur industry lines are emerging all the time. Insurance companies like American Family Insurance are keeping tabs on devices like “Wally,” which sends an alert when there is a water leak in your home. There are many other examples as the insurance industry continues with its digital transformation.
To keep informed about these ongoing changes and the solutions that are being developed to support them, check the SAP for Insurance site, where you’ll find thought leadership articles about new technologies and trends, customer testimonials, solution videos, and more. Let me know what you think.