The long (and short) tail of insurance demand

Today, many businesses are modeling themselves on the premise that people gravitate toward niche solutions and products because they satisfy their unique interests more than generalized offerings.

Can this “long tail of demand” model succeed in insurance as well? Can insurance companies profit by offering many types of niche coverages and offerings rather than focusing on their mainstream home, auto and commercial products?

Is your “tail” long enough?

In the consumer world, the first “long tail” company that comes to mind is Amazon, which successfully adopted the model for books and music. Leveraging its infinite “store space” and the near-negligible cost of adding incremental items to its online catalogue, Amazon offers millions of books to its customers, much more than any brick-and-mortar store ever could. Those books are the “long tail” that most businesses would neglect.

By nature, this type of business model works best in two scenarios:

  1. The price of carrying additional inventory or the cost of distribution is minimal
  2. Consumers have strong and heterogeneous preferences

Do these scenarios exist for insurance? Yes, they do. Specialty insurance is as old as insurance itself. Historically, however, it has been available only to businesses, and access has been constrained and costly.

Insurance customer groupsThis is starting to change with two companies, Insureon in the United States and Bought by Many in the United Kingdom. Both companies are using technology and low distribution costs as a key lever to drive new growth. Bought by Many, an insurance broker, uses a predominantly online model to analyze internet searches and social updates to identify consumers with unique needs. Based on the data, it  forms customer groups and works with insurance companies to service these consumers. Some of their examples include: pet insurance (specifically theft coverage) or travel insurance for people with specific types of illness.

On the commercial side, Insureon is a new-age online broker that works with small businesses to address their unique needs. Differentiating itself on vertical expertise, Insureon creates coverages that are unique to the specific sub-industry e.g. a coverage that provides specific liability and worker’s compensation coverage for companies providing janitorial and cleaning services.

Another interesting application is Bingle, a division of an Australian financial services company, that provides low-cost insurance for drivers with good safety records. Usually,  carriers enter these areas through subsidiaries and partners, allowing them to operate in this market without significantly impacting their operating model.

The Changing Opportunities to Drive Demand

There are a number of good opportunities to focus on with both “mainstream” products and the “long tail” model. For example, carriers can provide end-to-end niche offerings (combining services with the product) to create a truly sticky and unique offering to consumers. These services could be offered as add-ons, such as:

  1. An end-to-end offering for the dog lover. In partnership with niche providers, a customer can add-on insurance services for a specific breed such as, pet sitting and pet grooming.
  2. Unique coverage for bloggers and online sellers (think ‘Etsy’ sellers) who may face risks ranging from identity theft to liability damages. These services can be coupled with risk avoidance and marketing consulting.

One issue that an insurance company may want to consider as they move in this direction is that what is unique will change over time, and the “tail” changes constantly. For instance, cyber insurance coverage was at the end of the tail 10 years ago, and is now somewhere in the middle. Also, the data you can collect can be leveraged in other ways – for example, it can be used in other parts of the insurance lifecycle to tailor claims and the customer service experience.

What do you think of the “long tail” model? Do you have a good experience to share? Let’s us know.

Chandan Gokhale

Chandan Gokhale

Graduate of Wichita State University, Chandan is a senior director of Digital Transformation services and InsuranceNEXT Labs at Cognizant Technology Solutions.