I have been fascinated by the meteoric changes the world of insurance has experienced in a few short years. Legacy insurers have had to look deep and hard into the potential effects of nimble new comers who continue to introduce fresh concepts in insurance and service. Finding myself reading endless news feeds of fresh InsurTech startups and the billions of dollars of venture capital powering this phenomena, I decided to analyze this concept from the perspective of an insurer to see what is really powering the transformation.
InsurTech = Insurance + Technology
InsurTech is a term applied to the myriad of technologies used in disrupting the insurance industry by deploying smartphone apps, electronic personal wearables, telematics, pay-per-use insurance models, chat bots, artificial intelligence, blockchain, Internet-of-things and other innovations steering towards automating online policy handling and claims processing and changing the consumer expectations and demands delivering a fundamentally better experience.
Much of these new technological propositions are executed by startup companies aiming to squeeze out savings and efficiency from the current yet antiquated insurance industry model. These InsurTech companies are driven by the belief that the insurance industry is ripe for innovation and disruption.
The traditional insurance players lacked the incentive to exploit new technologies and as such the user experience is perceived as unsatisfactory. Nowadays, consumers expect insurers to provide broader coverage with personalized services that adapt to their behaviors and preferences.
Many of the startups though, have chosen to partner with global insurance companies. According to a PwC report*, about 90 percent of the insurers surveyed fear the loss of business to startups, with about 70 percent of insurance companies saying they have already taken action to face any new opportunity or challenge presented by InsurTech disruptors.
Recent innovative offerings can be categorized into the following:
1- Just-in-Time insurance
Or on-demand insurance, gives customers the possibility and flexibility of buying insurance only when it is needed, reducing expenses and saving time. For example, a customer may be able to buy one hour’s worth of auto insurance cover via a smart phone or tablet in few minutes for the exact period of time needed.
Examples:
Allstate, has secured a patent on what they called “Risk unit based policies”. In practice, this allows the policyholder to buy a certain number of “risk units” that would be consumed while driving. If vehicle sensors detected someone was speeding, they’d use up more units than someone who wasn’t. When the balance of units drops, the policyholder might get an alert through a mobile app, tablet or on a vehicle display. Policyholders would also receive tips on how they could reduce the rate of units that they consume, such as reducing speed, keeping a safer distance between vehicles and taking a less-busy route. https://www.allstate.com/
Trov, has developed an entirely mobile experience through a smart phone app making it possible to “protect just the things you want, exactly when you want, entirely from your phone,” with no need for an insurance agent or a long-term contract. Users create an online inventory of what they consider valuable and then swipe on the items that they’d like to protect and choose a price and deductible that’s right for them. Coverage is against accidental damage, loss and theft. https://www.trov.com/
2- Wearable Devices
Wearable devices include miniature electronic devices that are worn or are somehow attached to the body to collect and transmit real-time data about the activity of the people wearing them. They include Bluetooth fitness trackers, smartwatches, wrist bands and even smart clothing and jewelry. The data collected helps insurers to continuously monitor customers’ behavior and identify their needs and risks.
Some InsurTech companies provide their devices to policyholders free of charge or at a discount and apply financial incentives for continued use of their devices.
Examples:
LifeSymb, uses artificially intelligent health robot, 3D depth cameras and accelerometers to collect movement data about a person in order to provide automatic health and fitness recommendations, without relying on a human expert. The recommendations are accessible on a smartphone or tablet allowing the users to connect with trainers and physiotherapists. https://aimo-health.com/
Vitality, a health and life insurer, helps its policyholders get active and earn rewards for doing so. Uses sensors in a smart watch to track wearer’s sports activities. They have also partnered with 6,000 gyms and track policyholders actual attendance from a swipe of their membership card. https://www.vitality.co.uk/
3- Peer-to-Peer insurance
This is when small groups of policyholders pay premiums into a claims pool. If there’s any money left in the pool at the end of the policy period, policyholders get a refund. Schemes are designed to increase transparency combined with incentives for policyholders to minimize claims thus helping to save customers time and money.
Examples:
Friendsurance, this independent German insurance broker developed a concept to reward policyholders with cash-back bonus at the end of each year they remain claim free. Based on a shared economy approach, policyholders with the same insurance type form small groups. Part of their premiums is paid into a cashback pool. When claims arise, the cashback decreases for everyone. Small claims are settled with the money in the pool. Larger claims are settled by the standard insurance company covering any amount that exceeds the coverage through the group. They offer home contents, private liability and legal expenses insurance. Visit https://www.friendsurance.de/
Teambrella, Users of Teambrella provide coverage to each other by joining a team. Existing teammates decide how risky the new teammate is. If they deem the new teammate less risky, the payment will be than the average. Each teammate deposits funds into a special personal Bitcoin wallet. The funds in the wallet are co-controlled by the teammates. If the team votes to reimburse a teammate, all teammates pay their share from those wallets. https://teambrella.com/
4- Blockchain
Blockchain technology is a decentralized distributed ledger of all transactions across a peer-to-peer network considered a secure storage and distribution solution. It provides financial services with transparency on records with a permanent time and date stamp, including titles, document histories, and notary services.
Smart contracts powered by blockchain allows insurers to manage claims in a transparent and responsive manner. All contracts and claims recorded onto a blockchain are validated by the network.
Examples:
Dynamis, specializes in the area of smart contracts for insurance products relying on Ethereum, a decentralized platform that runs smart contracts. Dynamis sells supplementary unemployment insurance by using the LinkedIn social network as a reputation system. Applicants for a new policy can use LinkedIn to verify their identity and employment status. Likewise, claimants can use their LinkedIn connections to validate that they are looking for work. http://www.dynamisapp.com/
Blockverify, works in the fraud detection area for goods such as diamonds, electronics, pharmaceuticals, and luxury items. Its solution allows users to check for counterfeit products, diverted or stolen goods, and fraudulent transactions. It works by labeling products creating their own register of products and then storing the history and supply chain in the blockchain. . Each product has a recorded history permanently recorded in the blockchain. http://www.blockverify.io/
Final thoughts
The digital transformation of the insurance industry has started and it seems we’re only looking at the beginning of the talent and money that will be invested into this major commercial sector. While InsurTech is playing catch up to the FinTech, there is no doubt in my mind that InsurTech could end up being as big if not bigger than Fintech and probably more disruptive.
What innovations from the InsurTech sector would you like to see implemented?
*Opportunities await: How InsurTech is reshaping insurance
Global Fintech survey, June 2016. PwC.