It seems there are more insurtech predictions than ever for P&C insurance in the new year. Some of my favorites include; rise of the ecosystems, embedded insurance (in just about every product and service) and big strides for AI and telematics.
Ever since the insurtech wave began, massive disruption has been anticipated. Several startups have done just that. Some have enabled efficiency gains through automation. Others have made the customer experience easier and faster, from shop to quote to bind and everything in-between. Usage-based insurance solutions are changing how insurance is consumed through pricing based on usage amounts or personalized degree of risk. All sorts of new companies are simplifying insurance policy language or organizing information in one place. Many intend to create insurance-as-a-service, or proactive insurance.
Despite all of these advances, the insurance model itself still remains reactive. The claims model is probably the most reactive part of insurance; services generally do not begin until after a claim is made. And there is a five-day average lag from time of loss until a customer initiates first notice of loss (FNOL). The promise of telematics crash detection is beginning to change this dynamic, allowing for immediate claim services. GM’s recent OnStar automatic crash response is one of numerous telematics concepts that detect and engage proactively. However, adoption rates and insurer activation are currently very low.
Should insurance prevent, detect and mitigate losses proactively?
Smart home sensor technology offers a similar promise by detecting and preventing losses. Water shut-off and leak detection systems can both identify and prevent damages. Distracted driver prevention and driver coaching technologies can avoid accidents altogether.
So, should insurance go beyond traditional reactionary services and serve to prevent, detect and mitigate losses proactively? The short answer is usually a resounding, yes. After all, fewer losses are of mutual benefit to both customers and insurers alike, not to mention for society at large. There are some pockets where insurers are already helping mitigate losses, but there are several barriers to broader prevention and detection remaining.
Barriers to proactive insurance models
Loss control is a well-leveraged capability by insurers mainly in commercial lines. Safe work places for workers compensation claim avoidance, fire safety prevention and fleet driver programs are a few examples. In contrast, personal lines have been underserved because safety programs are costly to administer. Loss prevention for personal lines has been centered on risk selection and pricing, thus underwriting. Home and auto lines loss prevention efforts have paled in comparison, focused on issues such as FAQs or free replacement of washing machine supply hoses. Such efforts have not demonstrated meaningful benefit.
Insurance company discounts have not kept pace with customer expectations for smart home sensors. Costs to install are another barrier. Although usage-based insurance can generate significant savings, much of the marketing attention is devoted to switch-and-save or attracting new customers. This may be just one reason for low adoption rates, often around 5% of an insurer's portfolio. Tackling the issues of discounting, promoting or explaining technologies and addressing privacy concerns could go a long way to achieving higher adoption. And advancing technologies like telematics to coach and guide drivers to prevent accidents calls for much more customer engagement.
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The road to claims-as-a-service has some deeper issues to resolve. Crash alerts can only bring value once false positive alerts are screened and customers are thoughtfully and carefully engaged following a detected incident to ensure that making a claim is warranted. Meanwhile, FNOL contact centers are designed and staffed for inbound phone calls, dispensing only generalized information while gathering information until a licensed adjuster is ultimately assigned – which can be a day after FNOL or longer. Even though loss intake can happen around the clock, getting access to decision makers is often sequenced to the dissatisfaction of customers.
Insurance claims processes actually limit the degree of guidance and advice due to risk concerns. Yet, a proactive model calls for addressing urgent and emergency needs regardless of reporting an FNOL. So, there are a host of risk tolerance, structural, skill and mindset barriers for incumbent insurers to resolve.
What’s next?
The future of insurance as-a-service, especially for claims, requires an action-based model that leverages on-demand support vs. generalists, guidance vs. unbridled options, rapid response vs. assignment hand-offs and on-demand experts vs. sequenced specialists – all of which are inherent in today’s claim process. Discounts, technical support and expert care will go a long way to increase adoption, and some are beginning to materialize, which is good news.
Perhaps 2021 will be the year for insurance-as-a-service to take another step forward.
