An Insurance Primer for Disruptors

  • Lisa Smith , Senior Consultant at Pathway Partners

  • 16.08.2017 09:30 am
  • undisclosed


The industry is ripe for transformation and disruption, of this you can be sure. Matteo Carbonne, InsurTech thought leader, notes room for improvement in the 4 P’s:

  •  Sales Productivity
  • Underwriting Profitability
  • Proximity (to the customers)
  • Persistency (renewal and retention)

Often, gaps in the 4P areas were because the technology or data was not available or too expensive. Changing consumer preferences and expectations also need to be addressed. However, with the rapid development of technology and our improving adoption rates, we aren’t in the same place.

Disrupters are finding new ways to close these gaps and traditional insurance carriers find themselves scrambling to protect their foundations. Traditional insurance carriers are investing and buying into #Insurtech solutions although it often remains to be seen how they will either integrate or leverage the technology into their existing operations.

As we look at advances in the #Insurtech space and attempt identify those that have longevity versus trends, it’s important to align new opportunities with core values and define our expectations. #Insurtech solutions that offer value without undermining the core concepts may have improved chances at integration and adoption.  

Insurance isn’t about insuring the actual losses

Its about the premiums of the many covering the losses of the few. It’s about the health of the herd. Someone will have a fire, a car accident or a flooded basement. The premiums of the many cover the losses of the few and the expenses of obtaining, maintaining and servicing that group. 

When these disrupters target rating solutions that charge for the actual risk, they aren’t pooling their resources to offset the losses. They are gambling that you will beat the odds and not have a claim.

When the cost to transfer the risk is equal to the risk (i.e. charging for the actual risk), there will no longer be a benefit to transferring and the consumer will explore the options to remove or reduce their exposure. 

#Insurtech solutions offering unique tool sets to manage member acquisition costs and/or administration to attract group participants will have longevity by lowering costs of participation. 

On Demand Insurance vs. Anti-selection

Anti-selection is when only those who need the coverage buy it. If everyone contributes, there is time to accumulate the funds in the group to cover the losses of the few. When people defer buying until a perceived need, the time to generate the funds to replace the contributions of that member is shortened and the cost to participate increases.  

OnDemand insurances that offer “pay for only what you need” solutions encourage anti-selection and may not have enough members long-term to adequately share the costs of a loss.  

However, technology such as block-chain, peer-to-peer, social media and digital interfaces offer new opportunities to connect and establish risk-sharing groups. Doing this more effectively will allow participants and risks to be rapidly identified, marketed to and managed such that shorter participation periods can be accommodated. Improving the claim experience and costs will offer value to members.

#Insurtech solutions creating cost-effective ways to identify and service new member participants and/or new exposures will allow rapid product development and improve member mobility.

IoT: It’s risk identification and management

The Internet-of-Things (IoT) creates new data point opportunities. As processing power and databases grow, insurers can quickly adapt the premium contributions to changes in the risk exposure. 

For Example: Thermostat data can adjust insurance premiums to increase (or decrease) whenever the temperature fluctuations are outside (or inside) a preferred range that means that the house pipes won’t freeze. However, real-time pricing will cause premium fluctuations that consumers won’t find palpable with their budgets.

Instead, IoT will allow insurers to create new definitions of groups of like-minded individuals. 

  • Members using alarm monitoring, flood sensors and thermal controls will be less likely to have losses and can be identified into less expensive risk groups 
  •  Groups without these controls are less likely to receive early warning and will suffer potentially larger losses may need to contribute differently
  •  Fraud detection amongst participant behaviour and group misalignments will be quickly identified to protect premium groupings

As Matteo Carbone discussed, Use-based insurance (UBI) did not generate great successes (see anti-selection). However, it created ways of sharing information and experiences across a group that allowed it to reduce exposures by encouraging (or discouraging) particular behaviours, offering value add services in claims and risk management and ensuring that costs were effectively managed.

#IoT in #Insurtech will improve effectiveness at identifying exposure, risk tolerance and risk mitigation behaviours while preventing fraudulent participation. 

#IoT and #Insurtch can improve member experiences during claims and provide value-add benefits to members.

As disruptors move into the insurance industry, solutions paying attention to the fundamentals, while challenging the implementation and approach will have the best immediate opportunities. Disruption can, and should, challenge us to think about the value and experience we offer our clients in return for their premiums while still respecting the core foundations that out industry was built on.

This article originally appeared at: Pathway Partners

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