Matthew Grant, Partner at Instech London and Executive Director at Abernite
It’s been more than four years since the term insurtech was coined. Back then, a surge in interest in deploying new technology, data and analytics to improve all parts of the insurance buying process held the potential for radical change. Disruption in financial services saw the emergence of challenger banks. Today, costs have been reduced and customer experience has improved. If even banking could be fun, surely insurance would be next?
The message has got through – few in the insurance industry would claim that better data, analytics and technology are not a critical part of their future success. The recently published Blueprint One by Lloyd’s of London identifies how it will deliver on the Future of Lloyd’s manifesto. It provides an excellent vision for any insurance organisation of how the world should look a few years hence.
But don’t mistake a clear view for a short distance. Just because we know what the future looks like doesn’t mean it’s going to be easy to get there, nor does it mean it will happen fast.
Insurance is a grudge purchase. Other than the risk-obsessed or the highly analytical, few people, or companies, want to spend money on it. The future of insurance is not going to be about making buying insurance fun, it will be about making it disappear.
Most of us are terrible at assessing the true risks around us. We overestimate the true risk of what has happened most recently, the things that have impacted us personally and what we can’t control. We underestimate the impact of events that happen infrequently, that have happened to other people and those we think we control. People are often more scared of flying than driving to the airport, yet there is a far greater likelihood of having a fatal accident in a car journey than in a flight of the same duration. Some of the innovations in insurance in recent years have failed because they assumed people wanted more options about how to insure their possessions or insure against bad things happening. The reality is that we don’t want to have to make more decisions about insurance. It’s painful thinking about potential losses, and we see no immediate benefit from spending money on insurance. We tend to ignore it if we can.
Most of us buy insurance because it’s a required condition of something else, such as car insurance in order to drive, household insurance to get a mortgage or liability insurance to run a business. We’ll accept it if we get it for little or no cost (health insurance as an employment benefit, for example).
It’s often painful to buy insurance – and even more so to make a claim. We can spend hours providing information online or by phone to get cover that reflects our needs. Or we can buy on an app on our phone and risk something that doesn’t match our needs. Either way we rarely properly understand what we are actually covered for and suspect (often correctly) that we are duplicating our cover between different insurance policies in some areas, and have glaring holes in others. Traditionally, it was the role of the broker to ensure that we had adequate cover across all areas of our lives and businesses.
That worked fine when most of our risk came from physical assets (houses), or lives, where a loss was generally beyond doubt (your house burns down or you die) and the risk could be assessed by actuaries and understood by the policy holder. Today, much of our value lies in the intangibles of our digital lives. It’s much harder to know what our exposure to cyber-risk is, or reputation, or liability is. At the same time, the old broking advisory business model is proving expensive and unable to deliver the depth of advice to keep up. Individuals and small businesses are being encouraged to go directly to the insurer and corporations are looking beyond their brokers for advice. Unless we have to buy the insurance, people (and companies) often ignore it or defer the decision.
So where does that leave the future of insurance? As consumers and companies we want to avoid the pain of a loss, but we are rarely prepared to pay the “fair” price to offset that pain. We are also not great at risk management. It’s hard emotionally, and accurately, to assess the cost benefit of paying for risk mitigation measures in our lives to prevent future losses.
Human nature isn’t going to change anytime soon, so insurance needs to. The core fundamentals of insurance aren’t going away, but they will look very different. At some point the concept of buying insurance as a separate protection will vanish. Insurance will become embedded into our purchases and corporate spend. Regulation will ensure the protection for loss still it exists, but the onus will be on the provider of the services not the buyer. The easiest way to do something is not to do it all. We will not have to grapple with understanding our various insurance policies, because they won’t exist. If we lose, burn, break, flood, crash or hurt things, they will be put right, sometimes before we even realised we had a problem.
It’s not going to happen soon, but in the meantime, look out for the insurers, innovators and technologists that are making insurance easier and clearer. A few might succeed in making it fun, but the best will be making it invisible. They are the future of insurance.