PWC partner and leader of PwC Digital Services Experience Centre Nick Spooner explains the impacts of technology on the insurance industry and whether it not it will last.
For hundreds of years, the insurance industry has been inert. Its processes and products worked; it simply didn’t need to change.
Insurtech is changing that.
It’s the latest buzzword with US$1.7 billion of insurtech deals in 2016 alone, the industry is starting to pay attention.
Referring to both the technology being applied by insurers and to the startups changing the game, the sheer breadth of technological change insurtech covers is dazzling. What we think of insurance today will soon be unrecognisable – here are just some of the reasons why:
Personalised cover: usage-based and on-demand insurance
Traditionally, insurance has been based on risk profiles. Averages that apply to a population – age, gender, occupation, etc – determine the amount you pay. Increasingly, people want the kind of customisation and choice that they’ve grown used to elsewhere. That’s the promise of usage-based and on-demand insurance.
In usage-based insurance, we’re starting to see companies that allow for people outside of societal norms. Auto insurance company Metromile, for example, bases the cost of car insurance not on the average miles clocked up by your demographic, but on the actual distance driven. For those that only drive down to the shops, or do the school run, this can drastically cut costs.
The UK’s Cuvva forgoes the concept of yearly car insurance entirely, in favour of shorter-term policies. Using an app, customers can purchase anything from an hour to 28 days’ worth of protection, or even get insured on a friend’s car simply by typing in their license plate.
When-you-need-it or on-demand insurance is the focus of Trov, which allows customers to ‘swipe on’ their cover using their smartphone. Customers select the items they want to protect, such as a camera or tablet. Not taking an item out into the world for a while? Swipe right to turn its cover off.
Insurtech is promising even more granular cover, such as with insurtech startup TikkR, which aims to insure moments with ‘shields’ of protection. For instance, someone who frequents public transport might choose to protect themselves between work and home, with a mix of life, accident and theft insurance, which kicks in during travel hours.
Automated insurance: artificial intelligence and digital brokers
In a general sense, artificial intelligence (AI) promises to speed up claims processes with the ability to automatically appraise images of a claim in seconds, such as photos of a rear-ended bumper. But it’s also producing a slew of new innovations.
Some digital brokers allow users to upload or import policies from different insurers and manage them on their phone. That alone is pretty nifty, but artificial intelligence can also generate advice on their entire insurance portfolio. This analysis could identify double-ups in cover, gaps to be filled or suggest other products (or insurers) that might be more suitable.
Digital broking platforms are also popping up for small businesses. Using web-based platforms, businesses can manage and renew their policies, claim online, check their excesses and premiums, or compare cover with similar businesses in their area. Some even allow companies to check that their suppliers have adequate and up-to-date cover.
Power to the people: peer-to-peer cover
When most of us think of peer-to-peer we think of connecting to people to share files, torrenting music or movies. With insurance, the concept is similar. A number of people pool their money to cover claims made by individuals in the group.
Friendsurance, uses Facebook as a mechanism for people to pool money for small claims. The logic goes, if you chose the people in your pool, you like them and are therefore less likely to make fraudulent claims that would disadvantage them. This allows premiums (which traditionally account for fraud) to be reduced. If at the end of the year the group hasn’t made any claims, each person gets a portion of their premium back.
Lemonade has a similar concept with homeowners and renters insurance. Users pool their money, minus a running fee, and any leftover profit in the pool goes to customer-nominated charities at the end of the year. The desire to help causes should, in theory, prevent fraud.
Cutting out the middleman: blockchain
Blockchain – a decentralised and public ledger – is being touted as the next big thing in insurtech. Information stored on the blockchain, which can be thought of as an online database that’s replicated across a network, is tamper-proof and transparent, and as such is trustable by design.
Teambrella is a peer-to-peer insurance company that allows users to pool their money to cover claims. Using Bitcoin, which exists on a blockchain, users can self-manage payments without the need for an insurer, broker, or even a bank.
Calling on LinkedIn as a source of truth, Dynamis leverages blockchain to issue unemployment cover. The social network is used to validate an applicant’s identity and employment status, and allows them to buy or claim on the policy.
While both these examples are disruptive to insurers, in that they remove them entirely, blockchain also offers transformational possibilities to incumbents. The use of AI-based smart contracts – agreements, such as an insurance policy, that self-execute when certain conditions are met – combined with blockchain, could lead to a reduction in operating costs and accelerated processing time.
ChainThat, for instance, has created a platform where risks can be insured without the need for physical documentation. That doesn’t sound like a particularly complex task for those of us used to doing our banking online but for insurers, this is somewhat revolutionary, allowing them to forgo a typically paper-heavy, time-consuming communication and verification process between parties.
Making insurance obsolete: the internet of things
Phones, PCs and tablets are the obvious ‘things’ connected online, but as everyday objects become smarter using connectivity and sensors, the internet of things (IoT) will increasingly include toasters, refrigerators, cars and, well, everything. Estimates suggest that by 2020 there will be over 20 billion devices connected.
Connected smart devices will lead to less risk and smaller losses. For example, smart water heaters and pipes will alert manufacturers to a potential rupture before becoming critical. Result? Fixed pipes, hot water, dry carpets and no need to claim.
Smart doorbells, such as the video-enabled bells provided by Ring, have already proven that they deter would-be burglars in entire neighbourhoods, leading to reduced insurance premiums with insurers. Neos provides a smart solution for the entire home, with pipes, doors, windows and smoke alarms all monitored via a 24/7 team and video to your smartphone. It comes with home insurance because of the reduced risk the system presents.
As these technologies work to make our lives and belongings safer, the need for insurance diminishes. With less risk, the nature of insurance will need to change as traditional risk models cease to apply. Will insurers move from compensating for loss to preventing it in the first place? It won’t happen overnight, but watch this space.
The tip of the insurtech iceberg
The world of insurtech is far larger than the examples mentioned here. Cloud, drones, chatbots and a host of other technologies are allowing startups to think outside the box and driving incumbent insurers to reassess their business models. How insurers will fair in this new world is a whole other question. Stay tuned for my thoughts on this in an upcoming Digital Pulse article.
Whether disruptive or transformative, insurtech is only just beginning. In the end, it is the customer who will win out.