The rise of the digital insurance marketplace
Last May marked the 229th anniversary of the Buttonwood Agreement, which organized securities trading in New York, laying the groundwork for what would become the New York Stock Exchange. Its beginnings were modest; the 24 Buttonwood signatories traded mainly government bonds and commodities, and they competed fiercely with regional exchanges to bring the benefits of a structured marketplace—liquidity, price transparency and innovation—to businesses and individuals. The introduction of the telegraph, the breakthrough technology of the era, made these new marketplaces more efficient, drawing in more participants and helping to support the nation’s economic growth.
A similar process is underway in insurance. Today, a digital insurance marketplace is emerging, fueled by technological advances and rising interest among insurance customers and intermediaries for faster, cheaper and more adaptable ways to meet their risk-management needs.
Simply put, an insurance marketplace is a digital ecosystem that enables carriers, customers, agents, brokers and even non-insurance participants to seamlessly connect with each other, thereby transforming the way insurance products are distributed and purchased. The marketplace can create economic benefits for participants, spark innovation and improve price transparency, just as the formation of securities markets did more than two centuries ago.
For insurance carriers, a marketplace allows them to gain access to a larger customer base through a digital distribution channel. They can also collaborate easily with other partners, such as mortgage providers or travel companies, to offer a bundled product more efficiently than they can today. In addition, the data carriers gather by interacting in the marketplace can provide insights into potential new product offerings and help them improve the customer experience.
A digital marketplace envisions a new role for insurance carriers, one that can exist alongside their traditional functions. Carriers have long played a central role in the insurance ecosystem by developing distribution channels, managing captive agents and brokers and coordinating complementary service providers – a process that can be complex and costly to operate. But in a marketplace, the carrier is a participant, working alongside other organizations to provide a seamless, one-stop experience for customers.
Many carriers are building the foundation for this new role through their digital investments. The pandemic showed insurance carriers how important technology was in enabling the shift to remote work environments while staying connected with distributors and clients. Deloitte’s 2021 survey of insurance executives found that 95% were already accelerating or looking to speed up their digital transformation. Among the priorities for investment they cited were ‘data analytics’ and ‘digital channels,’ two areas that are important for developing an insurance marketplace.
With advanced analytics, for example, insurers can reconcile, combine and analyze data from multiple sources to generate real-time insights. The goal is to speed up underwriting and improve customer experience. For example, Policygenius, an independent insurance broker, uses analytics on past medical and prescription data to offer accelerated term life products without a medical exam for eligible applicants.
Consumers can also benefit from a digital insurance marketplace. It can create greater awareness about their need for insurance protection and give them access to a wider range of products, including risk mitigation and asset-protection services that can be difficult to acquire today. Most of all, it can provide a vastly improved buying experience, with quote comparisons across carriers and a fast and simple purchase process. In this way, insurance starts to look a lot like the other services consumers have become accustomed to buying online.
Consumers seem open to new types of insurance products and alternative ways to purchase them. Another recent Deloitte survey found that while U.S. auto insurance consumers were very comfortable with traditional coverage options, they also wanted greater control and flexibility. For example, ‘invisible coverage,’ in which insurance is included as part of a car purchase or lease agreement, generated interest, mainly among younger consumers in the survey. Online insurance purchases have become popular, too. Twenty percent of all respondents to Deloitte’s survey expressed interest in buying auto insurance from an online retailer such as Amazon, allowing them to “buy insurance quickly from a full range of insurers.”
Brokers and independent agents, key players in the insurance industry, have much to gain from insurance marketplaces, too. They can access carrier appointments that previously were out of reach because of premium or volume requirements, opening a more robust pipeline of sales leads. Agents can use the marketplace to get access to a greater number of carriers. And they can combine products from different carriers to create a solution for their clients – a capability that is very difficult to find today. They can also access a range of digital tools that can improve customer relationship management and help their business flourish by streamlining processes, reducing quote-to-bind times and speeding renewals.
Perhaps the most exciting aspect of an insurance marketplace is its ability to bring non-insurance participants into the value equation. These are companies that provide ancillary services to insurance buyers, such as DocuSign to manage electronic agreements, or ADT to provide home security. But they can also be companies that want to access the marketplace to package an insurance policy with their product, such as an equipment manufacturer offering a service warranty or a travel company providing trip insurance.
The marketplace can also support a wide variety of standalone companies offering data analytic services on insurance, just as Morningstar, Bloomberg and FactSet do with financial data.
In fact, this aspect of the marketplace is much like a smartphone app store. Over time, there could be hundreds of insurance apps to address various services, all available to participants who find them useful. And like an app store, rapid customer feedback will produce updates with new features.
These compelling benefits for participants suggest the digital insurance marketplace is likely to grow in the years ahead. Indeed, investors have begun to commit capital to the sector, and several insurtechs are working hard to develop their offerings. Bolt, an insurtech that has developed a cloud-based digital insurance marketplace, recently announced completion of a new funding round that valued the company at more than $1 billion. Bolt operates in 14 countries, and its insurance marketplace is the largest in the world, transacting $5 billion in premiums and providing access to 150 insurance providers.
Bolt is far from alone, however. Insureon, an independent marketplace for online delivery of insurance for small- and medium-sized businesses, has served more than 350,000 customers. Bold Penguin, a digital commercial marketplace that connects businesses, agents and carriers, has handled more than 2 million quotes since its launch in 2016.
An insurance marketplace puts the customer at the center, with personalized products and services based on data-driven insights. Consumers today expect continuous innovation in many of the products and services they buy, and insurance is no exception.
Insurance carriers, brokers and agents should consider how they can get involved with insurance marketplaces as part of their distribution and product development strategy. Those organizations that move quickly to participate in this new arena can capture the opportunity for growth in market share, revenue and profitability. The future is happening fast.
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