The Problem:
The distribution model for commercial insurance is increasingly outdated. As more and more consumers shop online, insurance agents are being replaced by online sales sites.
Consumers are increasingly accustomed to shopping for most products online, and insurance has proven to be no exception.
However, as more of the industry moves online, traditional mainline insurers start to look a lot more like commodity providers that consumers can easily swap between.
On the other side of the industry, traditional brokerages are faced with competition from a growing number of online aggregators and direct-to-consumer distribution firms.
The number of agents and brokers will gradually decline as direct sales grow and as automated insurance startups like Lemonade (which recently raised $60 million) gain market share. Additionally, margins for traditional insurers will decline as insurance aggregators and comparison shopping makes price the predominant competitive differentiator. In order to survive, these companies will be forced to focus only on the smaller pool of customers with more complex risk portfolios. That is, until the competition inevitably attacks there, too.
The Opportunity:
Rather than simple aggregator websites, there’s an opening for a true platform business – the brokerage of the 21st century – to grow by controlling the whole transaction while leaving the inventory to third-party providers. This networked approach will allow consumers to make better informed buying decisions all in one place, while also offering nuanced value analysis of the underlying coverage rather than simple price quotes and digital shopping carts.
While tech startups are already attacking this opportunity, an existing insurance company or broker is better positioned to be a first mover in building out a true platform for insurance. It already has the expertise and huge customer base, but the customers won’t last forever if there’s no competitive advantage.
The Endpoint:
One or two platforms in commercial insurance will control the lion’s share of the industry. While niche winners may emerge in specific verticals, these leading platforms will have the most market power and profits, as they would own the customer relationship while traditional insurers become more like commodity providers with thin margins in a broader marketplace.
It will only take a few years before this tidal shift in insurance becomes an unavoidable threat to existing players. They can either be the agent of that change and own the future of insurance, or they can lose market power, margins, and, ultimately, their independence.