HBR On Strategy: Episode Summary – "Using New Tech to Compete in an Old Industry"

Podcast Information:

• Title: HBR On Strategy
• Host/Author: Harvard Business Review
• Episode: Using New Tech to Compete in an Old Industry
• Release Date: February 12, 2025

1. Introduction to the Insurance Industry's Evolution

The episode delves into the transformation of the longstanding insurance industry, historically dominated by large incumbents and traditional brokerage models. Host Brian Kenny sets the stage by recounting the pivotal moment in insurance history—the Great Fire of London in 1666—and the subsequent emergence of the first homeowners' insurance company. This historical backdrop underscores the industry's foundational role in providing peace of mind and protection against unforeseen events.

Notable Quote:

"Most of us see insurance as peace of mind, protection against a possible eventuality."
— Brian Kenny [01:46]

2. The Rise of Insurtechs and Market Disruption

Harvard Business School Professor Lauren Cohen introduces the concept of insurtechs—tech-driven startups challenging the traditional insurance models. These companies leverage digital platforms and innovative technologies to streamline the insurance purchasing process, eliminating the need for brokers or agents. Hippo, an insurtech firm, serves as the focal point of this discussion, exemplifying how new entrants are reshaping the industry.

Notable Quote:

"Hippo is challenging traditional insurance models by eliminating the need for insurance agents and using AI to lower customers' prices."
— Lauren Cohen [03:26]

3. Hippo’s Unique Business Model and Strategic Approach

Hippo distinguishes itself by targeting digitally savvy customers residing in riskier markets. Unlike traditional insurers that rely heavily on personal relationships and local agents, Hippo offers a "silent partnership," providing quick quotes and ongoing advisory services through AI-driven insights. This approach not only simplifies the insurance process but also actively helps customers reduce risks and save money.

Notable Quote:

"We're going to let you have very quick quotes and not only are we going to have very quick quotes, but we are going to be your partner, but silent partner moving forward."
— Lauren Cohen [05:08]

4. Challenges Faced by Insurtechs in a Traditional Market

Despite their innovative models, insurtechs like Hippo encounter significant hurdles. The insurance industry’s deep-rooted trust in established companies, high capital requirements, and the complexity of risk assessment pose barriers to new entrants. Additionally, Hippo faces operational challenges, such as handling increased costs during natural disasters and pandemics, which strain their financial stability.

Notable Quote:

"No, no, no. They want to sit across from Susan and say, Susan, you've known us 30 years... what should we do?"
— Lauren Cohen [08:25]

5. The Role of AI and Machine Learning in Insurance

AI and machine learning play a crucial role in Hippo's strategy by enhancing risk assessment and pricing models. However, Professor Cohen points out the limitations of current AI technologies in predicting natural disasters, which remain inherently unpredictable. Despite these challenges, Hippo continues to refine its algorithms to improve accuracy and operational efficiency.

Notable Quote:

"AI can be helpful in machine learning in trying to predict things like what's the probability that a family... will have a negative realization."
— Lauren Cohen [22:29]

6. Regulatory Environment and Market Entry Strategies

Insurance is regulated at the state level in the U.S., allowing insurtechs like Hippo to enter markets selectively, particularly those with higher risks where incumbents may withdraw. This strategic market entry enables Hippo to establish a presence in states like Florida and Louisiana, which experience frequent natural disasters. However, state-by-state regulation also means that costs can be inadvertently spread across states, affecting pricing structures elsewhere.

Notable Quote:

"Insurers are pulling out of the high-cost markets... which puts a larger cost on the insurers that stay."
— Lauren Cohen [13:07]

7. Future Outlook and Sustainability of Insurtechs

Looking ahead, Professor Cohen remains cautiously optimistic about the sustainability of insurtechs. While currently many are unprofitable, their ability to cultivate consumer trust and gather extensive data positions them well for future profitability. As they accumulate more data and refine their models, insurtechs like Hippo are expected to become more competitive, potentially overtaking traditional insurers in the long run.

Notable Quote:

"These companies, they truly do have incredibly good data scientists. And those data scientists are getting more data... they're soaring toward break even."
— Lauren Cohen [17:32]

8. Key Takeaways and Lessons Learned

• Innovation Takes Time: Technological revolutions in insurance, much like historical disruptions, unfold gradually rather than instantaneously.

  Notable Quote:

  "New technology... even if it's revolutionary, revolutions don't happen overnight."
  — Lauren Cohen [25:33]

• Consumer Behavior is Crucial: The success of insurtechs hinges on changing consumer behaviors and fostering active partnerships with customers.

  Notable Quote:

  "They want people who are actually going to pay attention... their ideal partner is someone who is a digital native."
  — Lauren Cohen [22:17]

• Regulatory Flexibility: State-level regulation can both facilitate entry for new players and create challenges in pricing and market stability.

• AI’s Potential and Limitations: While AI enhances operational capabilities, its effectiveness in unpredictable domains like natural disasters remains limited.

Conclusion

The episode "Using New Tech to Compete in an Old Industry" provides a comprehensive analysis of how insurtech firms like Hippo are navigating and disrupting the traditional insurance landscape. Through insightful discussions between Brian Kenny and Professor Lauren Cohen, listeners gain a deeper understanding of the strategic innovations, challenges, and future potential of technology-driven insurance models.

Final Notable Quote:

"Disruption... really doesn't [happen] quickly. If you look back... it really takes a long time to unfold, but in hindsight, it feels like they happen quickly."
— Lauren Cohen [25:58]

Produced by: Hannah Bates
Edited by: Ian Fox
Special Thanks: Maureen Hoch, Erica Truxler, Ramsey Kabaz, Nicole Smith, Ann Bartholomew

For more insights and discussions on business strategy from Harvard Business Review, subscribe to HBR On Strategy on Apple Podcasts, Spotify, or your preferred podcast platform.