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The real threat to auto insurers (Hint, it isn’t companies like Lemonade)

It must be tough to be an auto insurer these days. People frequently say that customers want more from you and that the product you’ve painstakingly developed over the years – optimized for efficiency – is core to the problem. It’s created a low-touch model in an already adversarial relationship that’s preventing you from giving the customer what they really want – a great experience full of value. You hear about new companies that deliver this great customer experience and that they’re destined to take over the industry. Add to the list of threats companies like Amazon who shake up stocks simply by thinking about entering new industries. And did we mention the existential threat of autonomous cars?

The sky is falling. Enemies are at the gate. The future is bleak. Or is it? Let’s take a look at the threats for an auto insurer one by one.

Lemonade, Root, & Metromile

Let’s look at the new sparkly products of the industry first. New entrants have grabbed the industry’s attention because they’ve nailed something everyone loves – user experience. Lemonade steals the show when it comes to user experience. Their onboarding, rate quoting, and claims experiences are what all companies should be striving for. They’re currently focused on renter’s insurance in a handful of states (and growing) and their customers love them.

Root and Metromile are more direct competitors to auto insurers. Root focuses on a pure form of usage-based insurance in that they only offer UBI. Get a good enough score and then, and only then, can you get insurance from them. They’re taking the idea of adverse selection to the extreme.

With Metromile, you only pay for the miles you actually drive. Here’s an example – only drive 25 miles on the weekend? Only pay for insurance for those 25 miles on the weekend. Metromile goes beyond the pricing play and helps customers with everything from maintenance to regular servicing, to parking and speeding tickets.

Each of these companies offer interesting products combined with delightful experiences delivered on a smartphone. They’re doing a lot right, grabbing media attention, making insurers ask tough questions, and, most importantly, making customers happy. Metromile has raised $205 million to date, Lemonade has posted impressive results, and Root hopes to be in nearly 50 states by the end of 2018. But do they have the financial and operational muscle to seriously threaten power players like Geico and Progressive? Not yet.

Amazon

Amazon is known for disrupting new industries and major players keep a close watch on the online seller for good reason. Just last December, CVS bought Aetna Health in what was widely seen as a defensive move against Amazon. And last week, Amazon announced that it was joining forces with Berkshire Hathaway and JPMorgan Chase to form a new health insurance company.

What makes Amazon scary for the auto insurance industry is its extensive experience using transformative technology in its own business. It shines in creating data-driven experiences that make people’s lives easier. It has at least 30 million monthly active users on its mobile app, which would make it easy to start collecting driving data quickly. It’s also the ninth most valuable company in the world, so if it decides to make a move into auto insurance it could bring substantial resources to the table. And if it could successfully “Amazon” the experience, incumbents could be in trouble.

But there are a lot of “ifs” and “coulds” in these statements. Amazon hasn’t made the move yet and while they’ve been recruiting insurance professionals in London, there are few signs that it will. So, let’s chalk the Amazon threat up to – sure, if they decide they want to do auto insurance. But until then, let’s move on.

Autonomous cars

We all know autonomous cars are coming. The big question is: When will we have full autonomy disruptive enough to take down the auto insurance industry? PWC’s latest estimate says that the mainstream ramp up of Level 5 autonomous cars won’t arrive in less than a decade. The report also says that L5 autonomy won’t be possible with today’s tech or infrastructure, which could push widespread adoption of autonomous cars even further into the future. The bottom line is that insurers need to make plans to adjust and to be part of the autonomous future, but autonomy won’t wipe them out any time soon.

The real threat comes from within

The biggest threat today to an auto insurer isn’t the autonomous future, a distant tech behemoth, or sexy new entrants with cool new ideas. It comes from within the industry. Imagine a top ten insurer figures out how to create a user experience like Lemonade, combined with personalized pricing programs like Root and Metromile, as well as the data-driven experiences and customer-centric approach of Amazon. Imagine they create a claims experience that’s as easy and as delightful to use as Amazon’s 1-Click, or that they can match Lemonade’s 3-second claim. Imagine they crack the code on customer engagement – their customers actively check in to their app a few times a month and develop a relationship with them. Imagine these relationships deepen over time and that one day, customers actually kind of like, maybe even *love* their insurance company – like they do with Lemonade today.

Top 10 insurers have all the industry knowledge, resources, and networks to make the logistics move efficiently and smoothly. What they lack is true driver data – the combination of distracted driving with traditional driving behaviors like speeding, acceleration, braking, location, and more. The first mover advantage will be difficult to compete with in the industry. The sooner you start collecting driver data, the sooner you’ll be able to adjust pricing and develop personalization programs, the sooner you’ll be able to bring them to market and get them into the hands of customers. The insurers who do it right and get to market first will be able to create better and more loyal customers, leaving the rest of the pack scrambling for the leftovers.

Now the question is: who’s going to get there first?

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