Shifting competition: Insurance brands confront the innovator’s dilemma

Does your insurance brand tend to ignore low-end prospects? Do you find that you’re losing business to a competitor with a lesser offering but better online experience? Let’s talk about ways to fight back.

How are competitors with lower service levels winning business away from established insurance brands?

As regulatory changes and technological advances march forward, some barriers to entry that protected established insurance companies are giving way. As a result, insurance industry leaders face something unfamiliar — a shifting competitive field.

Full-service insurance companies have made large investments in bringing their services online — but they’re losing business to born-digital insurance brands that have the luxury of building targeted digital products with the latest technology and best user experience practices.

Definition: Coined by Clayton Christensen, the innovator’s dilemma describes how outstanding companies can do everything “right” and still lose market leadership — or even fail — as unexpected competitors rise. Read more in his iconic book.

“We hear time and again from our clients across the financial services industry who are frustrated by competitors who offer lesser products or less comprehensive services and are still winning,” says Deanna Dial, former VP of Client Services at Praxent.

The innovator’s dilemma is real. Today, your prospects have more choices than ever — even if these choices aren’t necessarily better.

How can this be?

How can insurance companies that offer less coverage at worse rates grab business away from traditional brands? More targeted, simpler digital experiences are winning with consumers.

It’s like there used to be one kind of toothpaste. Now, you can choose one attuned to your specific needs of the moment — from whitening to fresh breath to the latest trend in tooth care. The same goes for insurance.

• People like options. When it’s as easy as tapping your phone while waiting in line at the grocery store, your prospects will investigate your competitors. First impressions make a big difference — and the better their experience is on-the-go, the bigger impression a competitor makes.
• People get overwhelmed. Yes we love choices, but too many quickly leads to overwhelm. Comparing insurance companies online can feel like trying to compare apples and elephants. It’s no wonder more and more prospects are almost irresistibly drawn to the easiest option.
• People want easy. Consumers, especially younger or less experienced ones, appreciate effortless solutions — especially around complex services they may feel hopeless to understand. They want to be taken care of. The care your brand offers will be judged by the ease of your online experiences.

What can established insurance brands do?

Established insurance brands can be proud of their full service offerings, comprehensive coverage, great rates, and more. But keep in mind that every detail of your offering isn’t what’s driving a prospect to check you out — and forcing them to cogitate every detail is a losing proposition.

Insurance brands used to stand on proven track record, number of years in the industry, and the pride of local relationships. These things are still valued.

But to continue the tooth care metaphor, a digital experience even 10 years out of date will feel like using a toothbrush from the bronze age to your customers.

While it’s true that trust is easily broken online, some established insurance stakeholders falsely equate updated digital experience with untrustworthiness.

“In talking with our financial services clients, there’s sometimes a sense that a modern user experience will give off a fly-by-night, newcomer vibe that will drive valuable customers away,” explains Mark Power-Freeman, user researcher at Praxent.

But an updated UX doesn’t need to be off-brand. “We work with established brands to create modern digital experiences that signal real brand values and strengths, including longevity,” continues Power-Freeman.

The modern-looking competitor you may be losing down-market business to may be offering a better digital experience right now — but established insurance brands can play the same game and win.

Solving the innovator’s dilemma

Established insurance brands have worked hard to develop trust with policyholders. Existing policyholders are your most profitable customers, today. What’s more, they like you just the way you are.

But what about the low end of the market?

Low-end customers are harder to serve. Whether it’s younger people or smaller businesses, they tend to drive less revenue and need more help. But growing lesser policyholders into high-end customers is the bridge to the future.

When you’re a billion dollar insurance company, you focus on higher-end customers who trust you to handle their dealings at scale. But when you’re a 10 million dollar startup, the low-end offers opportunity. That’s where born-digital competitors may try to disrupt the market — but you can do the same:

Segment, segment, segment. When it comes to digital customer experience, one formulation does not fit all. Read data signals from user behaviors, conduct user research, and craft a digital strategy that delivers the right experience to the right segment on the right devices at the right times.

Launch for the low end. If you are losing low-end consumers to an unworthy competitor, create a down-market experience to put your brand into the fight. One best practice is to launch a new brand. For established insurance companies, this may be a “child brand” with the trusted parent brand for backing. Under your child brand, teams can prioritize the younger segment, building just what they need and no more.

Expand and upsell. As your user experience investments win low-end customers, you can incorporate upsell strategies that bring them further into your full-service offering. And as users have excellent experience with your insurance company, younger policyholders begin to influence the entire market.

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“Established incumbents ignore up and coming, low-margin customers to their peril,” says Kevin Hurwitz, Praxent Managing Partner. “Financial services companies that DO serve them get stronger and grow trust. Suddenly, the core customers of an established insurance brand look at the newcomer and see something they like.”

Proof of concept

As just one example of the way disruption is moving through the insurance industry, consider the case of Pinnacol Assurance. Established as Colorado’s largest source of workers’ compensation insurance carrier more than 100 years ago, Pinnacol recently spun off new brand Cake Insure. Why?

As stated in a recent profile in which Cake Insure was named a 2020 Colorado startup to watch, “No one really enjoys shopping around for insurance policies — largely because the process can take up to a day, if not longer, due to filing and processing.”

Pause to be sure you read that correctly: Cake Insure exists because even one day is too long for today’s potential policyholders to wait. 

Pinnacol’s investment in Cake seeks to automate the workers’ comp process, and offer an easy mobile platform that helps small businesses get workers’ comp “in the amount of time it takes to get a cup of coffee.”

Make innovation your own

As we move forward with digital innovation across all industries and experiences, people want BOTH the trust of established insurance brands and the ease of born-digital insurance brands.

More choice isn’t always a great thing. Today, you can stand for 20 minutes in the tooth care aisle and not see ALL the options. Plus, what if you want whiter teeth, fresh breath, AND the latest trends in tooth care all in one?

Whatever you do, be sure your insurance brand offers digital experiences that put your offering in the best light for each kind of prospect. Show users that your decades-long experience, proven track record, and comprehensive service offering adds up to one simple thing:

The most effortless insurance experience, ever.

Want to learn more? Explore Praxent’s experience with improving digital customer experiences for insurance brands.