10 Insurtech Trends at the Crossroads

The emergence of insurtech has reshaped the strategic insurance agenda. Here are the top 10 insurtech trends as we enter 2018. Insurtech Trend #1 – Automation will replace human effort across the entire insurance value chain This is a trend that is not unique to insurance. But it is a trend that will significantly affect the insurance sector. This is because much of the insurance industry still operates in pre-internet ways. It is also because many personal lines are being atomized. Small parcels of insurance protection cannot be packaged and sold with human input and remain cost-effective. It is also because customers demand it. They want a purely digital experience that does not require human contact when a machine will do nicely, thank you. One to watch: ZhongAn Insurtech trends article: Is the Rise of the Digital Advisor the new InsurTech Game Changer? Insurtech Trend #2 – Insurance premiums will become highly personalized based on greater tech-enabled insight on customers and their individual risk When you add together the massive growth in new sources of data together with tech-enabled data science, it is inevitable that premiums will become highly personalized. This will be enabled by tech such as wearables, telematics, IoT and smartphone apps. Not to mention the ability to build insights through relationships that exists across data sets. Gone will be the days when people of the same age and gender, with identical cars or homes living on the same street, will pay the same premium. In the future, other factors will apply to reflect greater granularity in their individual risk profiles. Data science will become a key set for underwriters and actuaries. One to watch: Sherpa Insurtech trends article: Insurance distribution is about to get personal Insurtech Trend #3 – The blockchain era has begun, and there will be a rapid shift from pilot to production of distributed ledger technology It is hard to find a major insurer that is not involved one way or another with a blockchain initiative. This will only continue as this disruptive tech continues to prove its ability to provide a viable solution. Of course, there are still some big questions to answer in terms of scale, performance and security, but those answers will come. The big breakthrough in insurance for blockchain will be in the back office for the complex and global world of wholesale, commercial and reinsurance (which is desperately in need of moving into the internet age). One to watch: ChainThat Insurtech trends article: R3’s partnership with ChainThat is one giant leap for insurance See also: Insurtech: The Year in Review   Insurtech Trend #4 – The lines between the old and new will blur as insurtech becomes mainstream by 2020 The defining characteristic of the Fourth Industrial Revolution is speed of change. This certainly applies to insurtech and its impact on the world of insurance. The rate at which insurtech startups are popping up all over the world is not surprising. Everyone wants a piece of this $7 trillion cake. The incumbents have responded, too. By investing in, partnering with and acquiring insurtechs, the incumbent insurers have wholly embraced the movement. This will lead to the creation of whole new digital brands, designed to cannibalize traditional business. And because it is simply too expensive and takes too long to transform legacy operations, the incumbents will ring fence and run them down. One to watch: Munich Re Insurtech trends article: Digital transformation is the strategic imperative no insurer can ignore Insurtech Trend #5 – Digital engagement through lifestyle apps will change the relationship dynamic between insurer and insured Lifestyle apps are the norm. It is hard to find anywhere in the world where this is not the case, so lifestyle apps are the perfect vehicle to provide the peace of mind that customers want when they buy insurance. Instead of the annual chore of hunting for the lowest-priced insurance then having nothing more to do with it unless you suffer a loss, lifestyle apps offer value on a daily basis. This makes them sticky, which, for insurers, means less churn. They also give insurers greater insight into their customers’ behavior, which means better-informed risk assessments and personalized premiums. And they build brand loyalty, which, if you believe in behavioral economics, will result in lower levels of claim embellishment and fraud. One to watch: Metromile Insurtech trends article: Metromile, the pioneers of digital engagement Insurtech Trend #6 – The all-in-one insurance policy is here to stay It has taken longer than I predicted back in 2015, but the all-in-one insurance policy is here. From a customer’s perspective, the all-in-one policy makes perfect sense. Especially for the millennials and Gen Y's. Why can’t they simply have one relationship with one insurer and have everything covered in one go? And it’s not just for younger generations. Imagine giving the insurer the details about your car, home, health, travel, pets and possessions. The insurer gives you one overarching policy, a fair price and the ability to flexibly adjust the cover as needed. Operating on a membership model, the platform can provide safeguards and advise the customer on good and bad decisions. This is AI territory and relatively straightforward to automate. IMHO, this is a winner; watch this space! One to watch: Getsafe Insurtech trends article: Getsafe take the Lemonade model one step further Insurtech Trend #7 - New models will challenge the traditional insurance value chain  In the digital economy, where insurance is embedded into lifestyle products or distributed through ecosystems, the traditional insurance model doesn’t work. The inherent inefficiency in a highly intermediated value chain, too dependent on human effort, makes insurance products expensive. When as much as 80% of premium is lost on distribution, leaving barely a fifth for the risk pool, you know something has to change. In the words of Jeff Bezos, “your fat margin is my opportunity.” These new models will see the carriers squeezed as the reinsurers provide risk capital directly to digital brands. Regulatory frameworks will be reworked to reflect these shorter value chains that don’t require the many layers they have today. One to watch: Amazon Insurtech trends article: Redefining the insurance value chain Insurtech Trend #8 – Lemonade has set the pace in Insurtech 2.0; copycats will follow The first phase of insurtech was all about distribution and data. Then came Lemonade. In September 2016, they launched in New York, and a year later they cover around 50% of the U.S. population with their renters and home insurance products. For me, Lemonade have defined Insurtech 2.0. Many insurtech startups claim to redefine or reinvent insurance, but they simply don’t, whereas Lemonade has. It is inevitable that the copycats will appear. Some will be insurtech startups, although they will need to be as well-marshaled, experienced and funded as the Lemonade team to have any chance of success. And some will be the incumbents, which will have a go at creating a Lemonade model from within. These will almost certainly fail! One to watch: Lemonade Insurtech trends article: Lemonade really do have a big heart, killer prices and instant everything See also: Top 10 Insurtech Trends for 2018   Insurtech Trend #9 – Claims settlement will become an automated, self-service and quick-to-pay experience for customers Insurers spend too much of a customer’s premium on handling the claims process. This is because the process is manual. And because the carrier wants to double-check the claim. And because customers don’t always tell the truth. And because there is too much time in the whole process. And and and and and. The insurtech solution is to put the claims process in the hands of the customer. This sounds counter-intuitive, but it isn’t. Taking a self-service approach, the customer provides video and images at FNOL and is in control of the claims process. Automated reviews of claims handle the vast majority of cases and award instant payouts. The money can be with the customer in a matter of hours. No long processing cycles, no time to embellish the claim and high levels of customer satisfaction. Those that fail the automated review are the exceptions handled by the carrier, which is what they’re looking for anyway! This will become the norm for claims management, once the fears and resistance of the lifelong claims directors can be overcome. One to watch: Rightindem Insurtech trends article: Democratizing insurance claims restores trust for customers Insurtech Trend #10 – Tech-enabled loss prevention will become a key feature in the insurance product Advances in everyday technology are increasing the ability to predict the likelihood of an event or outcome occurring. In home and motor, tech is being used to model behavior and identify exceptions. Sensors and phones and devices are all collecting data that define our individual norm (as opposed to a collective norm). As a result, any deviation can be instantly assessed, and action can be taken. To handle scale, this is 100%-automated, driven by AI and machine learning. Which means the opportunity for insurance is immense, because, instead of being a passive risk taker (which carriers are today), insurers will become active risk managers. One to watch: Surely Insurtech trends article: Digital implementation is the strategy insurers have been looking for Insurtech prediction lists from previous years  Looking forward with insurtech Insights – 10 predictions for 2017 Daily Fintech’s 2016 predictions for InsurTech Sign up for more insurtech Insights here