Rapid consolidation in the 1990s led to airline tickets, hotel stays, car rentals, cruises and vacation packages becoming bundled into a single shopping experience. (Photo: Shutterstock)

Technology has brought fundamental shifts to virtually every industry. Some, such as property and casualty, have been fast to build technology and adapt how they do business to avoid losing a direct connection with the consumer. Others, like brick-and-mortar retail, have not, and have essentially lost the consumer altogether.

The insurance industry is at a crossroads: The combined effect of regulatory uncertainty, changes in consumer expectations, and the rapid pace of innovation has resulted in a “perfect storm” where it can become too late for companies to adapt before losing out.

Related: Insurers slow to adopt insurtech could be courting risk

To understand this industry-wide transformation, we can look at the waves of disruption that technology has brought to travel and entertainment, and what is currently underway in transportation.

Emergence of marketplaces

In the 1990s, the travel industry was on the cusp of a major shift in how they conducted business. Airline ticket transactions were facilitated by travel agents using Sabre terminals. Within a few years, that fundamentally changed: companies like Travelocity, Expedia and Priceline emerged with their self-service, instantaneous shopping experience.

Rapid consolidation ensued, where airline tickets, hotel stays, car rentals, cruises and vacation packages started to become bundled into a single shopping experience. As a result, these marketplaces began to capture a greater share of the consumer's wallet. They used technology and data to own all aspects of the travel experience.

Fast forward to today: The consumer's choice dynamics around travel have fundamentally changed as a result of marketplaces taking over the consumer experience. Consumers are much more price-sensitive; they regularly shop around and care more about bundled discounts than brand loyalty.

Use of data and platforms

Before the internet, the traditional business model for media companies was to produce or license content, package it in an attractive form, and sell it to distributors who would, in turn, offer it to consumers. Over time, distributors began to gain more control over what the consumer would experience, and innovative models to maximize their profits, such as bundling content or using advertising as a revenue source on top of the content, or both.

This privileged position of the distribution industry being the last mile to the consumer became even more advantageous with the advent of the internet. Today, internet-based distributors like Netflix and Spotify have become more powerful than the actual content producers themselves, because they use data to understand the consumer's desires. They not only control how consumers access content, they also control what consumers watch/listen to and how they pay for it.

This change in business model was an innovation of the content distributors, not the producers. As a result, they have captured a more meaningful share of wallet through a monthly “entertainment” revenue stream from consumers. Most importantly, Netflix uses advanced algorithms to understand exactly what the consumer could be watching to match their specific tastes, thereby maximizing time spent on its platforms.

This power dynamic is further amplified by the fact that the content distributors have now gotten into the content production business. They realize that their data and reach into consumers' lives gives them a unique advantage to manufacture better and more-targeted content than the traditional players. This has allowed them to attract an even greater audience, because they produce exclusive content for their platform that draws more people in to pay a monthly subscription.

Health-as-a-service

This idea of considering technology as a service is invading the consumer sector in a dramatic way—and it's not just about technology. There is a growing trend of millennials who don't want to own anything—they would rather rent everything. The prioritization of optionality, flexibility and getting the “latest, greatest version” outweighs the desire to own things. This has already forever changed entertainment ,as discussed previously, but it is also affecting a bedrock component of the American dream: owning a car.

Car ownership is declining across the country. The cost of a lease, gas and maintenance, and the desire to live close to one's work is making many millennials forgo owning a car. At a deeper level, the ego identity and brand affinity that car manufacturers enjoyed through much of the last few decades is quickly disappearing. Brand loyalty is moving away from the car company itself to the service that brings the consumer what they ultimately want: transportation.

This trend has fueled the rocket-ship growth of companies like Uber. They realize that “transportation-as-a-service” isn't just about being personally transported in a car; it can take many forms, including transporting your dinner or your packages. When the consumer thinks about getting from point A to B, they will think Uber—not driving themselves in their Ford. Companies like Uber are spending billions of dollars to serve a basic human need. In many of these situations, the companies that bring these services to the consumer are more valuable than the companies that build the products that actually fulfill these services. As early as 2015, Uber was more valuable than GM and Ford, demonstrating, again, that distribution and the last mile to the consumer reigns supreme.

There are three basic trends that companies in the insurance industry need to pay attention to:

1. The power of marketplaces to control how the consumer perceives value and interacts with vendors
2. The use of data to drive better consumer engagement and increase share of wallet
3. The elevation of value towards the outcomes that consumers really want

In my session at the Broker Expo, I'll connect these trends to the insurance industry and explain how benefits advisors and insurance carriers can learn from what some legacy players have done in these other industries to fight back, and not only maintain, but grow their relationship with the consumer.

Be sure to attend Vinay Gidwaney's Innovation Track session, “What Brokers and Carriers Can Lear from Disruptors in Travel & Banking,” April 19 at 9:30 a.m. at the 2018 BenefitsPRO Broker Expo.