Fifteen years ago, if you wanted to watch a movie at home, you went to Blockbuster. At the company’s peak, 70% of the U.S. population lived within a 10-minute drive of one of Blockbuster’s 9,000 stores, according to Outside the Beltway.
Today, Blockbuster is long gone, unseated by powerhouse Netflix—and “what happened was classic digital transformation,” said Reid French, CEO of Applied Systems, during his keynote address at the Applied Net conference in Las Vegas this week.
When Netflix launched in 2002, it was “basically the same service as Blockbuster—just in a different format,” French pointed out. “It provided an online experience for ordering DVDs, more customer-friendly pricing with a subscription model and no late fees, and later, new technology: streaming for delivery of content.”
Blockbuster could have easily maintained the upper hand—as the industry incumbent, the company had all the relationships with Hollywood studios and access to a rich customer database, not to mention incredible brand awareness. But even though Blockbuster responded to Netflix’s streaming threat with a new service called Blockbuster Online, it was originally “a loss-making operation,” French said. The company’s new CEO shut it down prematurely, choosing “short-term profitability over long-term survival.”
The rest is history: “Because they refused to change, to serve the customer the way they wanted to be served, Blockbuster didn’t deserve to survive,” French told IA in an interview before the conference.
Harsh? Sure. But as the incumbent in the insurance industry, it’s up to you to learn from Blockbuster’s mistakes. “Existing industries have either ignored digital transformation—most often to their peril—or they’ve embraced it to great success, despite fear of change,” French said.
It’s easy to ignore the importance of digital at a time when the insurance industry is thriving. During his keynote, French cited stats from Reagan Consulting that median organic growth rates for independent agencies remain steadily in the 4-5% range, compared to 2-3% for the overall economy. Meanwhile, all three major categories of business are growing—benefits at 4.9%, commercial lines at 3.9% and personal lines at 2.3%—and merger & acquisition activity continues to generate higher values than ever for agents and their families.
“With revenue growth and employment both up and market share stable, the independent agent market is healthy and strong. Why not just freeze this moment in time and allow this party to go on forever?” French asked. “The problem with that picture is pure and simple economics. Success breeds new interests. New firms will be created to get a piece of that party.”
According to FT Partners, total InsurTech funding increased from $128 million across 18 transactions in 2010 to $1.7 billion across 174 transactions in 2016, French said—and not just from venture capitalists, but from insurers themselves. Consider that 2012 saw only one InsurTech investment from an insurance company; last year marked a whopping 100.
What are the odds of InsurTech startups killing your agency the way Netflix killed Blockbuster? “If agencies don’t respond and it becomes a story of, ‘If you want technology, go to an InsurTech; if you want old-school servicing and relationships, go to an agent’—I worry for agents, I really do,” French told IA. “If, on the flip side, agents embrace technology, the InsurTechs are in trouble, because why would you ever leave?”
Think about it: If you, as an already trusted adviser and insurance expert, can replicate the convenience and ease of access an InsurTech startup brags about, you give your customers the best of both worlds. “But it’s up to the industry to respond,” French cautioned. “All forms of competition help sharpen the game of the incumbent if they keep their eyes open and if they react. The risk is closing your eyes and not reacting.”
If you’re like many agents, you may be cringing at the idea of replacing a phone call or visit with an online portal, mobile app or outsourced customer service options. You want to talk to your customer personally for every interaction. You want to make sure they get sound, intelligent advice about the things in their lives that matter the most—their homes, their families, their livelihoods.
“I hear you all day long on that,” French said. “But when someone needs an updated auto ID card because they lost theirs, I just don’t think they see a lot of value in trying to get somebody on the phone—particularly if it takes more than one phone call to get the answer they want. They should be able to say, ‘I’m going to log into my insurance portal and print it out or download it to my phone.’”
If you’re a 50- or 60-year old principal and much of your customer base is in your own demographic, “it’s easy to convince yourself you know your customer,” said Kris Hackney, executive vice president, customer experience, Applied Systems, in a conversation with IA yesterday. “And there are times when I need that in-person trusted adviser. When I get home from vacation and a pipe has burst and I have catastrophic damage, I want to hear your voice. I want you to come see me. But there are also times when it’s 11 o’clock at night and I just want to look something up really quickly.”
Note: “That doesn’t mean your relationship goes away,” pointed out Michael Howe, senior vice president of product management, Applied Systems, when he spoke with IA on Wednesday. “You hear some version of, ‘I’m reluctant because I’m friends with my client, and the minute I add technology of whatever sort, I have now lost that personal connection.’ But as an independent agent, my value proposition is not that we live in the same town. My value proposition is that I can help you.”
“Agents need to take advantage of technology while continuing to leverage their secret sauce, and that’s their expertise,” Hackney explained. “What really makes you special? What makes you different from the guy across town? Figure that out, and then blend it with technology.”
The way to effectively compete with an InsurTech startup, then, is to “maintain your domain expertise around being a good adviser, but up your game on customer experience,” Howe said. “You don’t even have to beat their customer experience—you just have to match it. There are a whole lot of smart techies who can build front ends. There are not a whole lot of smart techies who can replicate the domain expertise around being a good adviser.”
“The mindset should be, 'You want to deal with me through a portal? I got it. You want an app? I got it. You want to call and talk to Bob? I’ve got that, too,'” French said. “The either/or is a false promise. The reality is you must do all, and you must do all equally well.”
Jacquelyn Connelly is IA senior editor.