More than insurance - Transformation dilemmas

Young people have a different understanding of the present and the future, compared to us. Successful companies don’t seem to do anything else, but getting back to their roots: they concentrate exclusively on fulfilling needs. The companies determining the development of the world nowadays are ones that did not even exist 20 years ago and that doesn’t necessarily want to possess. Uber is controlling the world’s taxi market without possessing a single taxi; Airbnb doesn’t have an apartment either; Facebook, the biggest media empire doesn’t produce any content and the biggest retailer of the world, Alibaba doesn’t have either warehouses or inventories.

These companies always focus on basic consumer needs: so that everybody could get from one point to another, find cheap accommodation, have quick access to information and be able to select the items best suiting him from a wide product offer. And all these quickly, conveniently and at a reasonable price. The examples listed above also highlight another criterion of success. However, they were not companies operating based on a traditional model and later modernizing their services that resulted in this success. It was not libraries that started to modernize their services and give their members access to books via the internet, but the Amazon when it started to produce e-books readable on tablets.

As the consumer need is not the book itself, but the act of reading, which can be served much better in a totally different model. Insurtech solutions might make insurance companies realize exactly the same. When the first Hungarian insurance association was established back in 1807, the goal was to motivate shipmen so that they dared to navigate on the - then dangerous - Danube. The very goal of insurances hasn’t changed since then: let us provide a secure background for people so that they have the courage to do certain things. For all these there is no need for complicated or overwrapped product, rather lasting, transparent regulatory environment and the elimination of overregulation. For this reason the so-called legal “sandbox” is a very positive and forward looking initiative of the regulator. Here the new business models can be tried in a new legal environment. Most classic enterprises go astray by trying to improve their current business models (making them electronic). However, the previously listed examples show that nowadays not this is the key for success. 

Why were traditional business models successful until now and why won’t they work in the future if there hasn’t been any basic change in people’s needs? 

For example until now the financial market could disregard real needs, as transfer services were only available at banks, insurance policies at insurance companies. Then five guys came on stage saying that there’s no need to build an expensive glass tower to execute wire transfer, as it can be solved by them for a lot cheaper price on the internet without a fancy office. Transferwise has revolutionized international wire transfer and now the company counts hundreds of employees. The demand of clients was no different in the past either; they simply wanted to send money from one account to another. The question is whether market actors are willing to – forced to – satisfy this demand in a way that it would also represent real customer experience. Technological development has shown that nowadays the same products and services can be acquired in a simpler, faster and cheaper manner than in the past. Technologies have been developing exponentially; it remains unnoticed how innovation is gaining ground.

Is it true for everybody or to the young generation only?

Nowadays even the elderly use smart phones. Had I said 15 years ago that one would be able to make a phone call with his mobile without a pushbutton, everybody would have been astonished at that. As it would have sound impossible to keep on pulling my greasy finger on a glassy surface. Development also existed in the past, it was simply not as rapid as nowadays. There were some 300 years having passed between the appearance of the printing press and the steam engine, but for Facebook eight years were enough to reach 1 billion people. And back in the past for a significant technological leap five to six generations had to pass; it is expected, however, that we can experience six-seven revolutionary technological changes in the next 20 years. But we are not ready for all these. We simply cannot imagine how exponentiality works. We are astonished because of the so-called exponential factor of surprise: who has ever imagined that in eight years only so many people can be reached if telephone needed 120 years for the same? However, the demand was not connected to the telephone itself, but to communication. This is what Zuckerberg realized and established Facebook out of nothing. He didn’t go for digitizing phone services; instead of that he conquered the world with a brand new business model. This transformation takes place in every industry: just think about fintech in the financial sector, or insurtech enterprises that will most probably redesign the entire retail insurance sector. For the latter the starting point is that people – and not only the younger generation – want to share risk with each other instead of paying an insurance fee. Thus the fees are not paid for the insurance companies, but used for covering each other’s damages. Nowadays there are more than thousand fintech companies trying to sell this product – which not long ago was simply non-existent together with the related business model. 

And do they push out traditional players from the market? 

They awake the traditional players of the industry and enforce transparency. If there are only 30-40 youngsters working in these companies, than it means that some 30-40 thousand are busy in reforming insurance industry. The bad news is that 99% of them don’t do so at traditional insurance companies. I think – if we accept that exponential development is true –in ten years 20-30% of the current retail clients will insure their properties by using a currently non-existent scheme. The gaining ground of this new business model is unstoppable.

For whom is it easier to adopt this new style? For the smaller and more flexible enterprises, or that bigger ones that have enough capital for innovation?

The abundance of money if often a delimitation; it doesn’t necessarily facilitate development; whereas a stricter budget awakens creativity: it enforces you to find a way how demands can be served in a cheaper and more efficient manner. And people are open to this: start-ups working with a couple of employees reform entire sectors and attract the clients of several old players. For example insurance industry is capital intensive, but it doesn’t mean that the current cost structure couldn’t be improved, that services couldn’t be provided in a more efficient and rational way. There are solutions alongside with which the operation of the sector could be reconsidered. Currently the key word in the world is transparency: customers want to see the cost and income structure of a company, as well as its profit profile. And nothing remains hidden. At the beginning of the 2000s the income of printed press was USD 67bn, now it is only at USD 16.4bn – at the same time the income of Facebook has surpassed that of printed press without producing contents. We are living in a world of comments; we practically comment on everything. And if some statement is liked by many, one tends to believe that it’s right without checking the background. If something is shared by many it is assumed that it shares some ancient truth. 

Isn’t there a rick that we start to believe in fake things?

It might happen temporarily, but in reality truth is now uncovered much sooner than in the past. Because everybody has the opportunity to make a comment. In reality nothing like ancient truth has ever existed, I mean purely true or false statements. However, it’s clear – and I think it also represents an important task for us – that while some 20-30 years ago the ideal of the younger generation was the character of Gordon Gekko from Wall Street and later Steve Jobs, now the example is Mark Zuckerberg. In the Gekko era people making money by balancing between the legal and the illegal were popular, and later Steve Jobs practically killed himself by striving after perfection. For today’s youth, however, none of these is an example to follow. For them the Zuckerberg-style is attractive: nobody has a say in the life of Facebook’s founder; he can accomplish himself, he has money and makes progress alongside an ideology. What one can see practically is that a huge company can become much more successful if it is surrounded by this type of youth. They are willing to transform and reform things that were previously considered to be engraved in stone. 

How can they be found or approached in the narrowing labour market? 

By using the appropriate message. There are high quality people out there in the market. If somebody wants to achieve something new the talented ones will happily join him. However, it is difficult to find people simply for doing things in a little bit different manner. I think what we are facing with is not the shortage of labour, but the shortage of messages. Seven out of the ten recently hired employees of Uniqa hadn’t worked in the insurance industry before. They are the ones who are ready to go back to the basics of insurance without any wrong habit or preconception, recognize the original demand and establish a new model for retail customers with a more rational cost structure. One can acquire competitive advantage by creating a simpler product range and clean sales structure. For the younger generation the biggest customer experience can be achieved if their needs are served without too many players participating in the process. The claim settlement tasks arising in connection with the recent storm damages justify the validity of our strategy. We successfully managed 30% of 1500 damages in three days by introducing over-the-phone and video-supported claim settlement. The expert doesn’t need to be on site, but, instead, he is connected to the client with the help of a mobile app. In such a situation it might also be a solution to post a polite statement to the website explaining that we are sorry for the long claim settlement due to the high number of claims or for the long waiting time in the call centre. Instead of this we simplified the service and returned to satisfying our clients’ basic needs. For example we have almost completely removed the IVR software from our call centre. The reason for this is simple: the caller wants to speak to the administrator anyway and doesn’t want to push button four, then listen to the machine-born information message and push another button. And there’s no need to wait for the claim settlement officer either: by using an app we create live connection between him and the client. We used the same mindset when transforming our website: by using a self-study algorithm we managed to achieve that there is a 70% probability for the client to find what he’s searching for in two clicks only. Thus in only two minutes anyone can manage his affairs. 

Aren’t people distrustful about technological developments?

It’s only 20% of those purchasing a new mobile who don’t buy a smart one. Those who have try to make best use of the opportunities provided by the appliance and technology if this way they can satisfy their needs in a cheaper, faster and simpler way. This is the exponential factor of surprise: we think that they are distrustful, but in reality they are not. 

What is the risk if a company fails to take this step now?

Changes – however fast they are – do not happen from one day to another. Time is needed for them and a generation change also. However, if we stall for time they gap will continuously increase: if a company fails to develop, the gap between the demands of the clients and the services offered will deepen. And in the meantime others will serve and satisfy these needs. Of course development can be facilitated or hindered by for example regulators, but it cannot be stopped; companies reacting on the needs and demands well and in an appropriate way will achieve a critical mass. There are millions now using Airbnb to find accommodation and they love this service. There’s no purpose in protecting our old strongholds with laws; life – and demand – will overwrite them. There will be industries where this transformation will happen in a few years, whereas in others it might last for 20 years; but it can be taken for granted that the service model will transform in every sector even in our lives.

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