❤️ I Love My Insurance ❤️
No. Just kidding. For most of us, they’re just as boring as corporate stock photos.
I got excited about insurance a few years ago. My first focus was on Health Insurance, but I was young and stupid to think you can tackle such a big sector right away. Time passed by, I got a 9-to-5 job at Withings, and forgot about the insurance industry. Then I got interested again when I started to self-insure my iPhone, when I realized how big the Blockchain opportunity were, and when I truly realized how crappy insurance companies were compared to great customer-oriented service like Zappos, Airnbn or Amazon.
So here I am again.
I’ll share with you some thoughts about this industry in the upcoming weeks. Starting today with some basic questions. Let’s see where I’ll end up.
On why we hate insurances
Insurance is one of these industries that seems to be despised by virtually everyone around the world. Slow, technology lagging behind, poor customer service, even poorer overall customer experience, and no business model innovation. This industry looks like its collecting all the flaws that would make a new business fail.
But they’re doing great! How come?
- High barriers to entry (capital, regulatory, etc.)
- Strong regulatory capture by the biggest players. They made everything possible to make it harder and harder for small entrants to compete with them by pushing authorities to elevate regulatory walls
- Because a lot of insurances are mandatory (we come back to regulatory capture), we all have to subscribe to their plan to remain within the legal world → steady flow of revenues for insurance companies
No wonder that we all hate Insurance companies, we are forced to use services we don’t like, we are forced to deal with companies which don’t care about their customers. They know their available market is almost infinite since there aren’t many players competing. Why should they innovate? Why should they do their best to have the best user experience?
On why insurances are locked in the past
Because most of these companies are old ones, they have accumulated a huge inertia impeding their innovations. Their technological stack is old, very inneficient, and not centered at all around their customers. Just like their culture. Plus insurance companies are Financial institutions trying to sell services. No wonder they are light years away from a Zappos or an Airbnb when it comes to customer care.
We are seing a lot of innovation in the Fintech world with the emergence of new banks like N26 in Germany, which recently became an official licensed bank instead of just a layer on top of another financial institution (wirecard). These innovations are way slower in the Insurance world as the incumbents do not have this customer-centric gene in their DNA (or they just do not see the need to innovate in a low-competition world). Why would you innovate when you have a steady stream of money coming in, no new competitors, and a huge technology debt.
Insurance have implemented imperfect technical solutions decade after decade. The time will come when they’ll think they’ll be ready to move on from that imperfect solution — but to achieve this, they’ll have to pay off all that gigantic technology debt accumulated. Because of the nature of their business, they won’t be able to pay it at once, they’ll build innovation labs, try to acquihire startups, set up internal incubators, etc. But they will fail. Just like with a big balloon payment on your mortgage, paying off all that interest and principal all at once is going to be impossible.
On what we can hope for the future
Successful innovations will come through the first-principles method. People with a blank page thinking about the most fundamental truths and then reasoning up from there will be the one who will succeed. Elon Musk made it clear that such a method can be successful to tackle hard problems with huge barriers to entry (Transportation, Space, Solar energy).
I do not see huge companies like Axa, Allianz, or Geico being successful at using this first-principles method. N26 is proving us that you need to start from a blank page to build a loveable user experience and an innovative business model. You can’t reason by analogy. An insurance with a mobile app where you can chat with someone will not likely change the way we perceive our insurances. The banks initiatives to become mobile taught us that it’s mainly a slightly better experience. Nothing to fall in love with. Nothing that will make you talk about it to your friends! Why do you think these banks are spending millions in advertising while N26 is just relying on word of mouth? Because the relationship with your bank is poor and the experience is horrific. Plus, where are the wow and aha moments? They simply do not exist.
I believe we won’t see a lot of new entrants because of four things:
- high barriers to entry (mainly linked to capital requirements and regulations)
- probably the second unsexiest industry after the funeral homes
- insurance has become more like a commodity where all the insurance products look alike
- really hard to build a positive relationship with a service you interact only when there’s a problem
In order to be successful you have to think big 🚀 but start small 🐣.