How Insurance Companies Can Transform Value Creation

Insurtech company Lemonade has had a remarkable ascendancy of growth. It became the best IPO debut of the year in 2020 after gaining 140% on its first day of trading in July. Investors gave a huge thumbs up for its model of contents and personal liability insurance powered by tech and a giving-back plan for unused user fees to promote social good. It marked a significant milestone for the insurtech industry, which received an astonishing $15.4 billion in investment in 2021, according to EY.

Rather than adopt a defensive mindset, insurance companies should study the approach of innovators like Lemonade and embrace new thinking. Through focusing on creating “shared value” and building new interactions, they can remain relevant and insure themselves against an unpredictable future.

From a Pipeline to an Interaction Field  

In the traditional model, insurance companies focused on competitive advantage, differentiation, and growth. Companies existed very much in their category lanes, a “world of walls.” This was usually evaluated in terms of tangible assets, revenue, and profit. Within this “pipeline model,” insurers would gain advantage by lowering costs and increasing efficiency. The focus was on minimizing claims. However this would often create a groundswell of negative feelings from consumers, as the industry failed to respond to their actual needs. Today we’re in a digital age — an era of continuous disruption, characterized not only by networks but by data-driven technologies, including artificial intelligence (AI), machine learning, and quantum computing. We need to think differently about how businesses create value.   

Companies that succeed have to focus on building new interactions and touchpoints, outside of their narrow categories. At Vivaldi we call this an “interaction field.” Key to becoming an interaction field company is the value creation participation by a host of different players. This includes customers, stakeholders and even competitors.  

There are several key areas insurers should focus on to build their “interaction field”: 

1. Embrace Purpose

The fact that Lemonade has “big heart” as part of its strapline indicates how much they have shaken up the traditional perspective of insurance companies. Rather than bolting on a purpose, it is very much integral to the raison dʼetre of the company. The company reverses the traditional insurance model as a public benefit corporation and certified B-Corp with social impact embedded in its legal mission and business model. The company takes a flat fee and gives back what is left to causes its customers care about. In doing so, customers are invested in not falsifying claims and also becoming part of the value creation of the company. They are invested in its success and their values are intimately tied up with the company’s value. By creating this synergistic shared value, the company has built itself a strong and sustainable future. As their IPO highlighted, it has also created enormous benefit for the traditional measure of value: the monetary one. 

2. Think Outside of Your Narrow Category

As mentioned, the traditional approach to insurance is very much focused on a pipeline: boosting users, competing on margins and perhaps bundling on some other product as part of the mix. This may have been viewed as “innovation” some years ago, but to truly embrace innovation a new mindset is needed. Rather than viewing themselves solely as “an insurance company,” insurers should reframe their thinking to see themselves as companies focusing on the health or security of their customers. One company that has done this brilliantly is Vitality Health. Vitality Health is now one of the top five providers of Private Medical Insurance (PMI) in the UK. Its parent company Discovery was founded in South Africa in 1992 as a startup insurance provider but transitioned to an interaction field company by addressing the industry’s overarching challenge: How do we make people healthier?  

Vitality was built on the idea that people could be incentivized to lead healthier lifestyles, which would create a more sustainable insurance market, and, in doing so benefit society as a whole. To achieve this, Vitality offers gym memberships, health reviews and an activity tracker. It then rewards people who boost their health. In doing so, the company has thought outside its narrow category and is also building new interactions and touchpoints with customers. This is bringing in more data to help Vitality Health understand its customers better and create even more momentum.

3. Look at Collaborative, Not Competitive Advantage  

It is incredibly difficult for businesses to move away from the established norm of “competitive advantage,” but a new narrative is needed in a world of increasing interdependence. The pandemic brought home the need for collaboration and companies need to embrace “collaborative advantage.” Participants in an interaction field feel as if they are part of a supportive community, rather than consumers transacting with a pipeline company. One example of a growing community whose needs have been thrust into the spotlight is the freelance workforce. This is a community traditionally underserved by the insurance industry. To address this Allianz Insurance partnered with on-demand insurtech startup Dinghy to provide business insurance to freelancers. Allianz perceived the shifting sands of the employment market and collaborated with Dinghy to allow freelancers to have access to fair-priced insurance for the periods of cover they want. Rather than viewing each other as a threat, they shared their mutual expertise in providing flexible business insurance solutions for this fast-growing sector of the economy. 

4. Develop Cultural Clairvoyance  

The pandemic shone a light on what the industry should have been grappling with all along, namely its capacity to sense and adapt to cultural and technological changes, what I call “cultural clairvoyance.”  What it has revealed is that the “organizational capacity to execute innovation is slower than the rate of change dictates.” Too often companies have relied on market research that merely tells you what consumers think today, when they themselves don’t know what they will think/do in the future. Of course you can rely on stated consumer preferences and needs. You can quantify these. You can observe consumers. But, it is not the consumers’ job to understand how they will feel in five years’ time.  

To give yourself the best protection against the unpredictable future, the two questions you need to ask are: how are your consumers’ expectations changing? Secondly, how will the consumer relate to our business, brand, product in five years’ time if we don’t adapt to a specific trend or series of trends?  

The right approach is to develop a series of robust trends and hypothesize what their consequences could be across a business portfolio. This creates a series of scenarios, and by consequence, a series of opportunity spaces that inform every innovation. We call them “cultural planning platforms.”  

So how do you do it?  You need to understand:  

a. Strength: Shortlisted important and substantiated trends, that will shape consumer expectations. 

b. Confluence: What the interrelationship of several trends means in terms of the customer/consumer. 

c. Consequence: What the consequence of these changes in expectations and behavior will be for how consumers relate to your business, brand, and products. 

Insurance is at the coalface of the disruptive change impacting business and society. Rather than reacting belatedly to events and new challengers, insurance companies should instead focus on building their interaction fields. This is the best way they can survive and thrive.