Advances in technology are driving major changes in insurance, but ultimately what consumers want is to pay a fair price to having their losses dealt with quickly and easily.
Thirty five years ago Direct Line was launched as the first ever telephone insurance company, selling directly to consumers. Eighteen years later, in 2002, the first insurance comparison website, Confused.com, enabled us to rapidly find the best price.
But not much happened in insurance for the next 10 years. Innovation had paused. Then suddenly, in 2013, the insurance world discovered its first unicorn, the billion-dollar start-up Zhong An, China’s first fully digital property insurance company. It underwrote over 630 million insurance policies in its first year. Two years later it was valued at $10billion. Insurtech had arrived.
After decades in the shadows, insurance now seemed ripe for disruption. Around the world entrepreneurs young and old, often spurred on by their own poor customer experience buying or claiming on insurance, identified opportunities to take on the incumbent insurers. In the last few years investors have committed more than $5billion to insurtech, creating new insurance companies, or funding the start-ups building the technology, data and analytics to power them.
The need may be there, but it’s proving hard for outsiders to break in, particularly to the established, highly regulated mainstream insurance businesses such as property or motor insurance. Despite the challenges, the shape of insurance is starting to change.
Forty years ago 80 per cent of the value of the largest global companies was defined by their physical assets: property, plant, inventory. Today every major company has massive exposure to technology – both their own and through increasingly widespread connectivity to trading partners. Combine this with the power of social and mainstream media, the value of intellectual property and the escalation and vulnerability of brand value, and the result is that today 80 per cent of these companies’ value is represented by intangible assets. Cyber is the best-known risk, and the fastest growing area of new insurance products. Intangible assets are much harder to insure. New ways to measure risk mean a need for new tools and an opportunity to find new approaches for offering insurance.
What does this mean for the future of insurance? Insurance traditionally has been split across multiple types of risk, broadly categorised by the industry as property, casualty, life and health. For centuries insurers have promised to pay for an infrequent loss in return for smaller regular payments. Each type of cover has been assessed independently, with a broker controlling the relationship between the policy holder and the insurer.
Much may be changing but two characteristics of insurance are likely to stay the same for a long time: we still want to be compensated for our losses and no one enjoys buying insurance. Many of the best-known technology companies have been successful because they have developed products that make our lives easier. The success of companies such as Direct Line, Confused.com and Zhong An suggest that insurance is no different. Expect to see one or more of the following shifts in how we buy and use insurance in the next decade:
As companies grow in size they are increasingly able to use their capital base to absorb all but the largest catastrophic losses themselves. With exponentially more data becoming available each year from cheap, widely deployed sensors, companies will be able to perform sophisticated analytics on their own risks. With greater knowledge, and more capital than their insurers, it will make more sense for large organisations to self-insure rather than give away premiums to third parties.
Insurance shrinks then vanishes for most of us
If we are confident we will get compensated for a loss, we don’t care too much who pays us. Already today we can buy a car with insurance built in (Volvo), a train ticket that includes cancellation cover (The Trainline) and a laptop with damage protection (John Lewis). At some point, probably led by Amazon, insurance protection will be bundled in with everything we buy and disappear altogether. What purpose will individual insurers play then?
Or will it be “one insurer, everything covered”?
One of the biggest challenges for many people when buying insurance is understanding what is, and what is not covered. Too often people receive no, or only a partial, payment because their cover was not as comprehensive as they expected. Look out for the first insurer that can offer a “one-stop” solution with no exclusions, giving us the certainty that we are covered for any loss irrespective of whether we damage our car, lose a camera, need healthcare or flood our house.
Insurance will benefit from better data, analytics and technology. But consumers don’t care too much about blockchain, artificial intelligence or machine learning. What we want is to get on with our lives in the confidence that when bad stuff happens, we’ll be taken care of – quickly, fairly and easily. That will be the future of insurance.
Matthew is an advisor to some of the fastest-growing data and analytics companies servicing the global insurance market. InsTech London is the largest and most engaged community of people driving innovation in both existing insurers and technology companies.