managing your practice Dealing with Disruption

LIGHTSPRING/SHUTTERSTOCK.COM

By Scott Kallenbach

Disruption is one of today’s buzzwords. It is used so often that it has almost lost its meaning. In short, disruption frequently describes innovations regardless of their impact, as well as anything that presents even a mild challenge to an organization.

LIMRA defines disruption as something that has a more significant impact and can describe things that can severely crimp revenue or have a crippling effect on a business or an entire industry.

In a recent white paper, LIMRA explored the areas it believes the greatest disruption will emanate from. Many cite new regulation, advances in technology, or changing consumer behaviors and expectations. However, LIMRA believes that new market entrants, like Ladder Life or Lemonade, are arguably the greatest potential disruptive threat to the financial-services industry.

Specifically, there are three types of new market entrants that have the potential of disrupting incumbents. They can be classified by how they may enter:

• Under the Radar —comparatively smaller and more agile than incumbents. They target underserved markets with products that are initially inferior to those of incumbents. For example, discount retailers disrupted full-service department stores.

• Head On —direct competitors who take aim squarely at established players as Uber did with the taxi industry.

• Here I Come —These are firms that make their intentions known far in advance of entering the market. Many startup FinTech firms describe themselves as disruptive technologies, essentially announcing their strategy to would-be competitors, such as a strategy that P&C insurer Lemonade deployed.

The most successful companies embrace the change and often lead the disruption.

New market entrants do not usually start out with the intention to disrupt. Rather, they see an opportunity or something that is lacking in the marketplace and take advantage of it. Our analysis has shown that this type of disruption typically comes from outside the industry. These disruptors often benefit because they are not constrained by current or past practices.

Mitigating disruption

What can insurers do to mitigate disruption? Doing nothing is not an option and they should realize that not every company can be a disruptor. The answer is somewhere in the middle, and actions must be taken.

To mitigate disruption, reflect on why you are in business, keep your radar up and remember that the need for the disruption will not go away.

But what actions should be taken? Incumbent organizations can employ a number of tactics to fend off disruption. They include:

• Be vigilant and keep your radar up. Make environmental awareness part of your organization’s DNA. It is conceivable that organizations can protect themselves from disruption if they are aware of new market entrants perfecting an offering for the mainstream. Listen for the faint signals.

• Remember that the need won’t go away. Products may change, and the ways that consumers wish to engage with companies may evolve, but there will still be a need for life insurance, annuities and other risk products.

• Reflect on why you’re in business. Ask yourself why you’re in business. Is your company’s mission to generate revenues, help people protect their families and futures, or something else? Are your measures of success tied to this mission?

In today’s world, companies are likely to face some form of disruption. Technological, regulatory and demographic changes spur disruption of the status quo. LIMRA has been studying the financial-services industry for more than 100 years and history has shown that the most successful companies embrace the change and often lead the disruption.