The shifting sands of insurance: disruption strikes and innovation takes over
The $5 trillion global Insurance industry represents the greatest long-term opportunity for disruption in financial services. Seventy three percent of insurance CEOs see big changes ahead for their industry, higher than the average for other companies at 60 percent.
Aviva CEO Mark Wilson has described insurance as “in the Stone Age, while other people are circling Mars”. The reality is the industry hasn’t changed much in the past century. This makes it ripe for transformation.
Insurtech companies are springing up, offering everything from new underwriting models and claims processes to new brokerage models and personalised products. This revolution is being driven by three key trends.
- Transformative technology
Digital experience in adjacent industries is heavily influencing expectations. Different technologies such as wearables for health, sensors on the Internet of Things (IoT) and artificial intelligence are all playing a role. Kinetic is a company which offers wearable IoT devices that analyse biomechanics, and aim to reduce the risk of injuries for workers. Daqri has created augmented reality tools for construction and mining workers. These improve communication, information and reduce risk.
Having made disruptive waves in wealth management, robo-insurance brokers will further disintermediate the insurance agent relationship. Peer-to-peer networks aim to make insurance cheaper by pooling a certain number of policyholders together, benefiting groups with similar risk profiles. Proactively making use of big data and smart devices will allow insurers to adopt new business models, such as prevention and usage-based insurance.
- Changing customer expectations
Changing customers’ expectations is driving much of the change. Boomers, Gen Y and Gen X are entering new life stages, fuelling a different set of future needs. Many millennials have a large student debt, home ownership seems out of reach, and compared to older generations they prefer to spend on experiences rather than things.
These millennials are digital natives, and the smart phone creates huge opportunity for companies to engage and connect with them. Sixty percent of Google searches for “insurance” come from mobile. Mobiles offer a digital path to purchase and interaction, enhanced customer experience as well as customisation and mass personalisation.
Younger generations prioritise access over ownership, resulting in the rise of the sharing economy. The trend for new, app-based businesses is based on getting access to a service rather than owning it. Pay for what you need rather than what you don’t. Metromile is a startup that offers pay-per-mile insurance aimed at city dwellers, as well as automated mobile claims. Cuvva allows people to get insurance to drive their friend’s car for as little as an hour at a time.
- New payments platform
Australia’s new payments platform offers insurers several opportunities when it becomes operational in 2017. The NPP is a major industry initiative to develop national infrastructure for fast, flexible, data rich payments in Australia.
It will enable households, businesses and government agencies to make simply addressed payments, with near real-time funds availability to the recipient, on a 24/7 basis. Rich data and documents can also be attached to payments and request to pay notifications can be sent.
This means that different players could individually or in collaboration create a service to make it easier to buy a car. A car dealer, insurer, bank and government roads authority might enable vehicle finance, insurance and registration in a single swoop.
So far, Australia has been slow on the uptake when it comes to innovative insurance startups.
A combination of factors are hindering Australia’s insurtech adoption. Regulation is one of these. Then there’s a lack of skills and capability: 74 percent of organisations report a lack of internal core skills needed to drive innovation. Finally, cost pressures and a lack of investment hinder innovation. Currently, health and travel insurance startups are attracting the most venture capital.
But disruption is coming. There’s huge opportunity for incumbents and new insurtechs to transform the way insurance is assessed, bought and claimed. The more that companies get to grips with all the possibilities, the more that further commercialisation opportunities will be explored.