The fact that many general insurers are still operating in the traditional way is a clear indication that their business is threatened by digital technologies across the entire value chain of insurance. Many customers face frustrations when having to enter large amounts of data while transacting general insurance online. Many insurers don’t see how they can innovate in a low touch product like general insurance that is often intermediated. However, new entrants are emerging and eager to innovate the traditional general insurance model using digital technologies.
Here are some of the digital technologies that are most likely to disrupt the incumbents in the general insurance segment over the next 10 years
1. Telematics based services
Telematics based insurance services utilise connected devices to provide insurers a flow of data captured. The insurers then analyse and use this data to assess risk and price policies. Customers, who opt for a telematics based insurance cover, can benefit from lower insurance premiums based on the analysis of the data from the connected device. For example, drivers who display safe driving habits will benefit by being charged lower premiums than usual for their insurance covers. More and more customers, especially those in the 25 to 34 age bracket are amenable to being tracked via a connected device in return for a more accurate premium.
2. Self-driving car insurance
With a projected CAGR of 25.7%, the global self driving car market is set to witness a steady year on year growth. This will result in a prolonged transition period during which along with the smart cars, traditional people driven cars will still be found in plenty on the roads. The next ten years will see the motor pool becoming more diverse and varied.
While self driven cars have been proven to be safer than human drivers, they will not entirely eliminate risks. There will still be accidents that are the result of environmental and human factors. In testing, it was seen that accidents involving self driving cars were caused by human error – with human driven cars crashing into self driven cars. New risks such as failures of self-driving mechanisms will add to the need for new insurance covers. While self driving technology might see a reduction in auto premiums in the long run, the increasing complexity of insurance covers for this technology will give some insurers clear business opportunities in the short run.
3. Mobile internet transactions
Smartphones give customers the flexibility of convenience with online transactions. Insurers are leveraging on the ease of use that smartphones provide to augment their customer service offerings. Claims data submission once enabled by downloading the insurers app, will allow for customers to photograph damages in an auto insurance claim and even submit photographs to the insurer to begin the claims process. Forms to be filled out, information to be submitted and clarifications sought can all be done through the ease afforded by well designed apps. Insurers who are able to get customers to move their interactions to smartphones and then provide them with a good multichannel experience are most likely to develop a very satisfied and loyal customer base.
4. Price comparison websites
Price comparison websites (PCVs) are websites where customers can get access to the prices of policy covers from many insurers and have them listed according to the premiums that are charged. The ease of comparing prices and the growing prevalence of PCWs could result in the commoditisation of motor markets by making customers price sensitive. In a market that is largely commoditised, insurers who charge lower premiums will in all probability gain a larger share of the market. With this the economies of scale would begin to apply and drive premiums down further. New entrants can gain significantly as they can achieve lower expense ratios due to modern systems, processes and technologies as compared to the incumbents in the sector.
5. Peer-to-peer insurance
Peer to peer insurance (P2PI) is facilitated in large part through social media networks. The members of the online network share risks along with the insurer. The six stage process of a P2PI is as follows:
- Customers join or start a social network to share insurance risk
- Members of the social network contribute a portion of their premium into a common pool
- Members pay the balance portion of their premiums to the insurer
- Claims are funded from the common pool
- If the funds from the common pool get exhausted, the insurer funds the rest of the claims like a reinsurer
- Any funds left unutilised in the common pool at the end of the insurance period are either refunded to members or carried over into the next year
P2PI can benefit many customers due to factors like reduced claims fraud, better risk selection, lower costs of claims and lower acquisition costs. However, this could lead to adverse selection in the sector for traditional insurance as P2PI will exclude members with poor risks over a period of time or as per the rules framed by the social network.
6. Social brokers
Social brokers are an emerging online intermediary. This works in a basic three stage process:
- Identification of customer groups whose needs are not adequately met by insurers (e.g. people with heart conditions who need travel insurance)
- Grouping of customers with similar needs
- Negotiation with insurers on behalf of the group
Social brokers have the potential to attract large volumes of business for two main reasons. The first is that they can offer this segment of customers substantial savings as compared to insurance that the customer can buy as an individual. One of the European insurers – Bought By Many says that it is able to save its customers an average of 19% on average by leveraging on the collective buying power of the group. The second reason is that some segments of customers are poorly served by insurance. For example, first time drivers normally pay higher insurance premiums than they should – because they have no driving history to support them as yet. Social brokers present insurers with valuable business opportunities as the social brokers can identify good risks and insurers can underwrite them profitably.
7. Cyber risk insurance
With many insurers already on the path to digitisation and others entering a phase of digital transformation, all of them are collecting copious amounts of customer data and storing it in digital formats. Both customers and regulators are concerned about the safety and security of such data with the insurers. The patchwork and layering of new systems on to legacy systems mean that insurers are vulnerable and exposed to cyber attacks. Cyber risk insurance is a large and under developed market for insurers. Research indicates that in the US, apart from smaller firms, ninety three percent of large organisations were also targeted with some attacks causing more than GPB 1 million in damages. However, a recent study done by Marsh and Zurich indicates that only 10 percent of firms have cyber cover either as a stand alone policy or as implicit in other policies.
8. Sharing economy insurance
A sharing economy is one that has buyers and sellers transacting in online marketplaces just like Uber and Airbnb. This type of economy results in the need for new types of insurance. The companies selling services online could need cover for those who buy their services. Similarly, service users might also want to cover themselves for negligence. Insuring these segments will address the concerns of protracted and expensive legal action that would otherwise take place. Insurance covers like these will see a shift from insuring people as owners of assets to insuring them as users of assets – as is the current practice.
9. Value comparison websites
Value comparison websites (VCWs) are new online insurance intermediaries. These websites help prospective customers to finalise on a policy that will suit them based on value and not on price. Policies displayed on these websites are based on aspects of how well they could meet the needs of customers such as the kinds of risks and perils that are covered. PCWs or price comparison websites list policies based only on their pricing. Many customers – especially in the health, home and motor segments, find it difficult to determine if a general insurance cover is good value for money and websites like these will provide them with an important value proposition.
Take a look at the work that Neutrinos has done for its insurance clients who are now benefitting on the bespoke solutions built to suit their digital needs.