Millennials to Lead the Third-Wave of Industry Evolution - InsurTech

Why does insurance matter? The world has experienced a total economic loss valued over $1.8 trillion due to natural disasters alone over the past decade. That’s not only a number that is difficult to mitigate against, but one that’s also increasing annually. In fact, it’s expected to at least double based on forward-looking models.

Here’s the kicker: around 70% of these losses continue to be uninsured.

And natural disasters aren’t the only type of loss we’re underinsured for. You might be surprised to hear that 66% of homeowners and 75% of businesses are substantially underinsured - but these are true facts.

And yet, year after year for decades we have done almost nothing about it. Insureds aren’t demanding the coverage, and according to industry statistics, agents don’t seem to be advising to protect against these perils. The most alarming rates of underinsurance are 55% for windstorms, 86% for floods, and 90% for earthquakes.

For me, this raises a lot of serious questions. Why is this a trend? Why do people systemically and naturally underestimate their risk and exposure? Is the problem consumer education? What can we do to reverse this trend?

Millennials, only with the power of insurance and technology together, are tasked with bucking this trend.

How Insurance is Changing

There have been two recent waves of standardization to create the insurance industry as we know it today. In the mid-to-late 1800s, Dr. Henry C. Martin, the visionary founder of Rough Notes Inc., saw the need for standardization, regulation, and reform. The company was a catalyst for change by creating time-saving file kits, templated forms, and agent editorials. These agent-friendly tools propelled the company into the national spotlight and is still in business today.

One of my favorite technological innovations that Rough Notes began producing in the 1930s and continues to this day were slide tables and wheel calculators aimed at simplifying multiple strings of mathematical equations for the insurance agent distribution channel. This was a pivotal time when the transfer of risk finally had a stable foundation for mass adoption through a sophisticated distribution channel: the independent agent.

Things remained relatively the same until the 1960s and 70s when ISO and ACORD got their start through cooperative standardization from players at all parts of the insurance supply chain. Prior to this time, when courts needed to hear a case based on an insurance claim, the policy contract language had to be interpreted in each case due to a lack of standardized contracts. Up until then, a homeowner might have a handful of different policies to cover their home for the same things a single policy covers it for today. Standardizing contracts and forms led to more consumer protection, faster claim and lawsuit settlements, and distribution efficiencies for companies and intermediaries alike.

Don’t Be Foolish About InsurTech

You’d be foolish to undermine InsurTech. Other industry incumbents have missed this in the past.

Remember Blockbuster? Toys R Us? Think about how taxi companies have been upended by ride-sharing companies like Uber and Lyft. Did you forget about travel agents before and after Priceline? Even now, hoteliers are adjusting to Airbnb's new competition through their massive market share uptake.

Think about it this way: if new a new agency enters the market that can double or triple the book capacity per agent, what will you do? What if that new player can also manage their agency’s book of business with half of the operational expenses like support staff? How will it affect you and your business?

I’d wager that this is what the future agent will look like. And more will change. Brokers and clusters of agents are going to need to begin offering more distinguishing value propositions in order to stay relevant and compete for agents and clients alike.

Independent agents today are continually responsible for increased workloads passed on from the carriers they represent, a lack of adopting or implementing new technology, and a passive approach to their business model as an overwhelming majority of principals and producers close in on retirement. Agents and owners know this best. They’re being asked to do more work from both their carrier partners and their clients while also dealing with reduction in commissions. Agents lack the innovation capabilities and are limited to traditional growth strategies in a digital world.

Millennials will drastically change this.

InsurTech brings with it a capacity for technological evolution in our industry that will automate mundane task-related functions, increase the intelligence that agents are equipped with to solicit and advise their clients, and substantially upgrade the customer experience. The independent insurance experience of the future, enabled by technology, is being created by bringing agents and clients closer together than ever before.

Why now? Consumer demands are rapidly changing similar to the past technology revolutions of travel, banking, ride-sharing, and personal finance. Intermediary consolidation and the changing landscape of independent insurance agencies indicate that this distribution channel is ripe for both technological and business process innovation. As half of the industry looks towards retirement, millennials will have to innovate with speed, agility, and quality to stay ahead of the competition.

Technology Evolution Will Attract Millennial Workforce

The most imminent advances in technology applied to insurance will produce efficiencies to reduce task-oriented work that is unappealing work to our generation. Millennials will rethink and recreate new types of industry positions to create new differentiating value for clients.

For example, the most valuable time for agents is spent on building relationships, advising, and selling insurance. Most everything in the middle is a waste of time and will quickly be replaced. Think about that and let it sink in for a minute. Any task or function the intermediary performs that does not directly provide value or revenue can be automated. And it will. Those equipped with technology that enables their productivity to provide a faster, better experience will win.

As a millennial, I doubt the experiences I've had in this industry would have happened in any other industry. I have had the honor of serving as President of the Connecticut Young Insurance Professionals which has some of the brightest young industry leaders in the country.

I've also been able to meet and discuss insurance legislation and issues in Hartford, CT and Washington, D.C. with state and federal politicians and legislators. What's more, I'm surrounded by brilliant individuals committed to the improvement of insurance in various ways - many of whom have made their own significant contributions. I consider them mentors, glean from their achievements, and admire their successes.

This is insurance today. At its foundation, insurance will always be focused on protecting and providing for the greater good. This is why insurance exists. But for a financial mechanism that reaches back over 5,000 years, a major wave of innovation and improvement will rapidly reshape our industry as it's poised with significant opportunities for impact and mailable growth.

Sure, there are inefficiencies all around...but that's what makes it so exciting for talented, problem-solving millennials.

Nick Khamarji is CEO of ronoco inc., an InsurTech company focused on creating holistic risk perspective that brings agents and clients closer together. He can be reached at [email protected].