By Koen Vingerhoets (KBC)
This blog is a reaction on “Is insurance ready for Millennials”, which you can read over here. Summarized: insurance is old-fashioned, lives in the past and tries to pummel you silly with paperwork… especially when filing a claim. Luckily InsurTech is here to save the day.
The coverage is in the eye of the beholder
It’s futile to debate about the modernization in the insurance sector. On that account, I tend to agree with the author of the aforementioned blog. Way too often, a traditional insurer looks like a modern house on the outside, with a fresh painting on the wall, new windows and a tidy garden. Alas, as soon as you open the front door, you’ll notice a hallway stuffed with paper. Innovation and modernization do happen, but at a slow pace and not always that visible for the customer.
As the author notices, the decline of the insurance broker in exchange for a quickly googled comparison based on easily understandable data, doesn’t yield a better coverage. Take for example a house or car insurance. What people understand: the price. What people eventually need: a new house or car. A higher price doesn’t necessarily provide a higher coverage… so the cheapest option often seems the most reasonable.
Risks are not tangible, it’s hard to grasp what you’re paying for. I’ve read about research where people were offered, on the airport, two insurances. One to cover death, another one, more expensive, to cover death by an airplane crash.
Most people picked the second option. They were willing to pay more for a limited coverage. Why? Because on an airport, the risk of dying in a plane crash sounds like the only real risk.
InsurTech for sure scores better with more tangible offers. A special coverage for your smartphone, just sounds more useful than a policy covering damage to electronic devices.
Innovation for invisibility
Crying out that “Insurers are innovating too”, is a moot point for most people, Millennials included. With their innovation, most insurers nowadays strive for one thing… and odd as it seems, that’s “invisibility”.
No one wakes up in the morning with the dire need to buy an insurance. It usually takes the third spot, after the real need and an eventual credit to cover the price. Most insurers aim to disappear in the background. Your issue gets solved. The claim is handled, as fast as possible. The more “unseen” the insurance provider is, the smoother the processes run behind the scenes.
Using ecosystems, artificial intelligence to judge claims or to handle questions, blockchain to confirm data on a shared ledger,… the insurance sector is vastly improving. Don’t forget, insurers employ Millennials as well. They do have an impact, importing their attitude and knowledge in the sector.
InsurTech has the possibility to start from scratch, to just venture into new markets. Traditional insurers have to take into account established and well known processes, to change deeply engrained habits about “how things are done over here”. It simply takes more time. Furthermore, and contrary to new startups, Insurers seek advantage in becoming invisible by relieving their customers.
Insurance ground rules
Just like “unbundling the bank”, soon “there will be an app” for everything you want to insure. A traditional insurance model however relies on a broad offering, solidarity across participants and a calculation of risk over time. As discussed in my first point, this broad offering is often better but harder to understand.
Solidarity is quite important: good and bad risks are mixed to create an even (I didn’t say fair nor low) price for all. Risks are about how the cookie crumbles, if played fair and square. Some people win, some people loose. It’s the common ground of insurances: pooling risks amongst the participants.
Furthermore, risks exist at a certain point in time, but they evolve. In its blog, the author mentions the same: people should be able to change their insurance if their needs/business changes. It’s a difficult question as anti-selection lures around the corner. When the sun is shining, no one needs a crop insurance. When thunderclouds gather, some people might consider getting one. Announce a hailstorm and everyone concludes a contract. The premium however will be close to the estimated damage… there is no financial buffer from older unused premiums.
Using state of the art technology, it might be feasible to predict the hailstorm and protect the crops against it. Great. Over time, premiums could get lower. But someone has to insure all that technology too, to cover the risks in case of failure of the devices.
I’m first of all happy for the author: he clearly sees a bright future for his niche in the market. That’s nothing short of awesome. In the long run however, insurance is not about selecting “the winners” of the capitalist game (check out the prices for wearables/IoT) for a specific coverage.
It’s about providing a sound service to a society to ensure people that calamities won’t put them back on square zero. InsurTech provides valuable insight in technology, customer needs, changing patterns. One can only hope insurers have a keen interest in what these start and scale ups are doing.
One thing I’m following close however, is peer to peer insurance. Using brand new technology whilst relying on the internet to scale, peer to peer insurance brings us back to the core of insurance: groups of people helping each other. Insurers were created to scale and administer such systems. Blockchain, artificial intelligence and Internet of Everything could provide, in the future, enough punch to change the insurance landscape profoundly. But that will be for another time 😉
About the author
|Koen Vingerhoets combines a Master in Law with a sound passion for IT. He caught an interest in bitcoin early 2013 and currently works in the core blockchain team of KBC. He is often praised for making difficult items understandable through vivid keynotes and clear texts.|