Book Now Button Rapidconsolidation in the 1990s led to airline tickets, hotel stays, carrentals, cruises and vacation packages becoming bundled into asingle shopping experience. (Photo: Shutterstock)

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

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

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Related: Insurers slow to adopt insurtech could be courtingrisk

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To understand this industry-wide transformation, we can look atthe waves of disruption that technology has brought to travel andentertainment, and what is currently underway intransportation.

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Emergence of marketplaces

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

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Rapid consolidation ensued, where airline tickets, hotel stays,car rentals, cruises and vacation packages started to becomebundled into a single shopping experience. As a result, thesemarketplaces began to capture a greater share of the consumer'swallet. They used technology and data to own all aspects of thetravel experience.

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Fast forward to today: The consumer's choice dynamics aroundtravel have fundamentally changed as a result of marketplacestaking over the consumer experience. Consumers are much moreprice-sensitive; they regularly shop around and care more aboutbundled discounts than brand loyalty.

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Use of data and platforms

Before the internet, the traditional business model for mediacompanies was to produce or license content, package it in anattractive form, and sell it to distributors who would, in turn,offer it to consumers. Over time, distributors began to gain morecontrol over what the consumer would experience, and innovativemodels to maximize their profits, such as bundling content or usingadvertising as a revenue source on top of the content, or both.

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This privileged position of the distribution industry being thelast mile to the consumer became even more advantageous with theadvent of the internet. Today, internet-based distributors likeNetflix and Spotify have become more powerful than the actualcontent producers themselves, because they use data to understandthe consumer's desires. They not only control how consumers accesscontent, they also control what consumers watch/listen to and howthey pay for it.

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This change in business model was an innovation of the contentdistributors, not the producers. As a result, they have captured amore meaningful share of wallet through a monthly “entertainment”revenue stream from consumers. Most importantly, Netflix usesadvanced algorithms to understand exactly what the consumer couldbe watching to match their specific tastes, thereby maximizing timespent on its platforms.

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This power dynamic is further amplified by the fact that thecontent distributors have now gotten into the content productionbusiness. They realize that their data and reach into consumers'lives gives them a unique advantage to manufacture better andmore-targeted content than the traditional players. This hasallowed them to attract an even greater audience, because theyproduce exclusive content for their platform that draws more peoplein to pay a monthly subscription.

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Health-as-a-service

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

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Car ownership is declining across the country. The cost of alease, gas and maintenance, and the desire to live close to one'swork is making many millennials forgo owning a car. At a deeperlevel, the ego identity and brand affinity that car manufacturersenjoyed through much of the last few decades is quicklydisappearing. Brand loyalty is moving away from the car companyitself to the service that brings the consumer what they ultimatelywant: transportation.

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

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

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

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


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

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