It was a little under three years ago when I wrote a blog entitled “where’s the insurance tech in Fintech?” It was my first article on the subject and the #InsurTech social media label wasn’t in the vernacular back then.
This was early in 2015 and Fintech was essentially all about banking. Of course, there were some early movers in the insurance space, but it was nothing like it is now. Fast-forward to today and it’s a different story. Remarkably, in just a couple of years, the sleeping giant of insurance has been woken roughly from its slumber.
Deciding which route to take at the Insurance Crossroads
Since I wrote that first article, I have published over 100 articles on the subject of InsurTech. I’m not a journalist but I like to tell a story. Which is why my approach has always been to speak directly to the founders and CEOs of InsurTech start-ups. And I’ve never deviated from this approach.
I’ve also mentored, advised and invested in many of them too. Which means that my perspective reflects theirs. I’ve published end of year prediction lists before too. This one is my third on the subject of InsurTech.
Looking at my previous prediction lists, it occurred to me that they are not really lists of predictions at all. Instead, they are more of a list of trends and direction. Of signposts that signal the many directions of travel that InsurTech has presented to the insurance industry.
Which is why this year, I’m not calling it a predicition list, but my Top 10 InsurTech trends for insurance.
(in no particular order)
InsurTech Trend #1 – Automation will replace human effort across the entire insurance value chain
This is a trend that is not unique to insurance. But it is a trend that will significantly impact the insurance sector. This is because much of the insurance industry still operates pre-Internet ways of working. It is also because many personal lines are being atomised. Small parcels of insurance protection cannot be packaged and sold with human input and also remain cost-effective. It is also because customers demand it. They want a purely digital experience that does not require human contact when a machine will do nicely, thank you.
One to watch: ZhongAn
InsurTech trends article: Is the Rise of the Digital Advisor the new InsurTech Game Changer?
InsurTech Trend #2 – Insurance premiums will become highly personalised based on greater tech enabled insight on customers and their individual risk
When you add together the massive growth in new sources of data together with tech enabled data science, it is inevitable that premiums will become highly personalised. This will be enabled by tech such as wearables, telematics, IoT, smartphone apps. Not to mention the ability to build insights through relationships that exists across data sets. Gone will be the days when people of the same age and gender, with identical cars or homes living on the same street will pay the same premium. In the future, other factors will apply to reflect greater granularity in their individual risk profiles. Data science will become a key set for underwriters and actuaries.
One to watch: Sherpa
InsurTech trends article: Insurance distribution is about to get personal
InsurTech Trend #3 – The Blockchain era has begun and there will be a rapid shift from pilot to production of distributed ledger technology
It is hard to find a major insurer who is not involved one way or another with a blockchain initiative. This will only continue as this disruptive tech continues to prove its ability to provide a viable solution. Of course, there are still some big questions to answer in terms of scale, performance and security, but those answers will come. The big breakthrough in insurance for blockchain will be in the back office for the complex and global world of wholesale, commercial and reinsurance (which is desperately in need of bringing into the Internet age).
One to watch: ChainThat
InsurTech trends article: R3’s partnership with ChainThat is one giant leap for insurance
InsurTech Trend #4 – The lines between the old and new will blur into one as InsurTech becomes mainstream by 2020
The defining characteristic of The Fourth Industrial Revolution is speed of change. This certainly applies to InsurTech and its impact on the world of insurance. The rate at which InsurTech start-ups are popping up all over the world is not surprising. Everyone wants a piece of this $7trillion cake. The incumbents have responded too. By investing in, partnering with, and acquiring them, the incumbent insurers have wholly embraced InsurTech. This will lead to the creation of whole new digital brands, designed to cannibalise traditional business. And because it is simply too expensive and takes too long to transform legacy operations, the incumbents will ring fence and run them down.
One to watch: Munich Re
InsurTech trends article: Digital transformation is the strategic imperative no insurer can ignore
InsurTech Trend #5 – Digital engagement through lifestyle apps will change the relationship dynamic between insurer and insured
Lifestyle apps are the norm. It is hard to find anywhere in the world where this is not the case. Which makes it the perfect vehicle to provide the peace of mind that customers want when they buy insurance. Instead of the annual chore of hunting for the lowest priced insurance then having nothing more to do with it unless you suffer a loss, lifestyle apps offer value on a daily basis. This makes them sticky which, for insurers, means less churn. It also gives insurers greater insight into their customers’ behaviour. Which means better informed risk assessments and personalised premiums (see #2 above). And it builds brand loyalty, which, if you believe in behavioural economics, will result in lower levels of claim embellishment and fraud.
One to watch: Metromile
InsurTech trends article: Metromile, the pioneers of digital engagement
InsurTech Trend #6 – The All-in-One insurance policy is here to stay
It has taken longer than I predicted back in 2015, but the All-in-One insurance policy is here. From a customer’s perspective, the All-in-One policy makes perfect sense. Especially for the millennials and GenYs. Why can’t they simply have one relationship with one insurer and have “everything” covered in one go? And it’s not just for younger generations. Imagine giving the insurer the details about your car, home, health, travel, pets, and possessions. They give you one overarching policy, a fair price and the ability to flexibly adjust the cover as needed. Operating on a membership model, the platform can provide safeguards and advise the customer on good and bad decisions. This is AI territory and relatively straightforward to automate. IMHO, this is a winner, watch this space!
One to watch: Getsafe
InsurTech trends article: Getsafe take the Lemonade model one step further
InsurTech Trend #7 New models will challenge the traditional insurance value chain
In the digital economy, where insurance is embedded into lifestyle products or distributed through ecosystems (see #5 above), the traditional insurance model doesn’t work. The inherent inefficiency in a highly intermediated value chain, too dependent on human effort, makes insurance products expensive. When as much as 80% of premium is lost on distribution, leaving barely a fifth for the risk pool, you know something has to change. In the words of Bezos, “your fat margin is my opportunity”. These new models will see the carriers squeezed as the reinsurers provide risk capital direct to digital brands. Regulatory frameworks will be reworked to reflect these shorter value chains that don’t require the many layers they have today.
One to watch: Amazon
InsurTech trends article: Redefining the insurance value chain
InsurTech Trend #8 – Lemonade have set the pace in InsurTech 2.0; copycats will follow
The first phase of InsurTech was all about distribution and data. Then came Lemonade. In September 2016, they launched in New York and a year later they cover around 50% of the US population with their renters and home insurance products. For me, Lemonade have defined InsurTech 2.0. Many InsurTech start-ups claim to redefine or reinvent insurance, but they simply don’t. Whereas Lemonade have done. It is inevitable that the copycats will appear. Some will be InsurTech start-ups, although they will need to be as a well marshalled, experienced and funded as the Lemonade team to have any chance of success. And some will be the incumbents, who will have a go at creating a Lemonade model from within. These will almost certainly fail!
One to watch: Lemonade
InsurTech trends article: Lemonade really do have a big heart, killer prices and instant everything
InsurTech Trend #9 – Claims settlement will become an automated, self-service and quick to pay experience for customers
Insurers spend too much of a customer’s premium on handling the claims process. This is because the process is manual. And because the carrier wants to double-check the claim. And because customers don’t always tell the truth. And because there is too much time in the whole process. And and and. The InsurTech solution is to put the claims process in the hands of the customer. This sounds counter-intuitive, but it isn’t. Taking a self-service approach, the customer provides video and images at FNOL and is in control of the claims process. Automated reviews of claims handle the vast majority of cases and award instant payouts. The money can be with the customer in a matter of hours. No long processing cycles, no time to embellish the claim, high levels of customer satisfaction. Those that fail the automated review are the exceptions handled by the carrier, which is what they’re looking for anyway! This will become the norm for claims management, once the fears and resistance of the life long claims directors can be overcome.
One to watch: Rightindem
InsurTech trends article: Democratising insurance claims restores trust for customers
InsurTech Trend #10 – Tech enabled loss prevention will become a key feature in the insurance product
Advances in every day technology are increasing the ability to predict the likelihood of an event or outcome occurring. In home and motor, tech is being used to model behaviour and identify exceptions. Sensors and phones and devices are all collecting data that define our individual norm (as opposed to a collective norm). As a result, any deviation can be instantly assessed and action taken. To handle scale, this is 100% automated, driven by AI and machine learning. Which means the opportunity for insurance is immense. Because instead of being a passive risk taker (which carriers are today), insurers will become active risk managers.
One to watch: Surely
InsurTech trends article: Digital implementation is the strategy insurers have been looking for
Lists of InsurTech Trends from previous years
Rick Huckstep is Chairman of The Digital Insurer and InsurTech thought leader, keynote speaker, advisor and investor to tech start-ups.