What Does the Success of Lemonade and Other Insurtech Companies Mean For the Future of Insurance?

By Rashik Adhikari In a world where COVID-19 cases are rising by the day, having the right and adequate personal insurance is more critical than ever. Because of COVID-19, the risks around us are heightened but our risk tolerance is low. We all are thinking about ways to better protect […]

By Rashik Adhikari

In a world where COVID-19 cases are rising by the day, having the right and adequate personal insurance is more critical than ever. Because of COVID-19, the risks around us are heightened but our risk tolerance is low. We all are thinking about ways to better protect what we love, including what insurance to buy. As the world around us changes with social distancing in effect, so does the way we buy and manage personal insurance.

The process of buying insurance is transforming and insurance brokerages need to evolve to meet today’s consumers where they are: at the intersection of ease and transparency. Companies like Lemonade have figured out how to harness the power of tech to reshape the way consumers experience and purchase insurance so that the process is simple, intuitive and empowering.

One of the most salient representations of such transformation of the insurance industry was the public market debut of Lemonade. On the day of its IPO a few weeks ago, Lemonade shares soared more than 138%, reaching a $3 billion market cap. It is perhaps the first time an insurance company has sparked the same level of excitement across investors and consumers alike. 

More importantly though, this wide-spread adoption of insurtech on a national scale is going to mean the days of old school insurance are over and the way we interact with our insurance is going to shift entirely. It’s time to take it a step further by empowering agents with access to the same technology to provide customers with maximum protection and minimal costs. With the rise of Lemonade, here are three key considerations for reshaping the future of insurance:

Redefining the Customer Journey

It is no secret that customers generally dislike dealing with insurance agents. To solve this issue, Lemonade substituted the middleman (the agent) for technology. Now, customers are empowered with simplicity, transparency and unparalleled ease-of-use to match their individual needs, a stark contrast to the traditional agent-driven processes, typically abundant in inefficiencies and lacking in clarity. While the insurance products that Lemonade sells (renters, condo and pet) are simpler, this shift towards the use of technology over human-interaction is here to stay.

Empowering Agents with a High-Tech, High-Touch Approach

Technology-based insurance companies represent a shift in the changing insurance landscape; however, this tech-only business model may not be the most sustainable. In order to grow, insurance companies will need agents to meet customers’ needs by providing what Lemonade doesn’t – a human touch. Lemonade’s success, particularly at a time of great economic uncertainty, serves as a wake-up call for the industry – specifically those in insurance distribution to move up the technology curve or face the risk of being disintermediated. In order for agents and brokers to retain business, they will need to focus on providing customers with the same level of simplicity, transparency and ease-of-use as Lemonade but further augmented by human expertise and empathy. The intermediaries will also need to move up the complexity curve by focusing on property and casualty risks that require a higher level of advisory coupled with the best of technology.

Taking an Omnichannel Approach to Insurance Distribution

While Lemonade represents a shift to pure-play, direct-to-customer distribution, the future of insurance distribution is more likely omnichannel. Generally, insurance products are of varying degrees of complexity. Simpler products such as renters, monoline auto, term-life, solopreneur general liability, etc. can be delivered directly to consumers with the ease of technology whereas complex products requiring sophisticated understanding need an expert advisor. In today’s marketplace, customers have different preferences in how they want to purchase and manage insurance. Even for simpler products, agents and brokers can enable insurance companies to reach those customers who prefer to work with agents. While this trend has already started with the insurance companies that distributed primarily through captive agents, more technology-based insurance companies like Lemonade could reach a bigger customer base by going fully omni-channel distributing through independent agents.

As trusted agents, the goal of insurance is to support people in times of crisis. While today’s customers expect the sophistication and efficiency of digital technology tools, they rely on human interaction for empathy, support assistance and a keen understanding of their true needs and to meet them where they are. Looking to the future, for insurance firms and agents to succeed with continued growth, a shift towards digital transformation combined with agent expertise and an omnichannel distribution approach will be key for shaping a pathway for tomorrow’s digital agent to meet the needs of the evolving customer. 

About the Author

Rashik Adhikari is founder and CEO of Covered by Sage, a technology-driven insurance brokerage that combines cutting-edge tech and modern consumerism with old-fashioned human-touch. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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