September 14, 2016
Can Insurance Become Utility, Like Electricity?
What if I told you that the story of insurance resembles that of oil lamps -- while electricity is being invented in our backyards?
Imagine a time when oil lamps dimly lit streets. They were difficult to service — someone had to light them and put them out every day, and they required regular maintenance. Moreover, oil had a nasty tendency to catch fire during transport.
As it became possible to improve the lamps, it was difficult for oil lamp manufacturers to comprehend that what society needed was light, not a better lamp. Light with all the fundamentally wonderful things that it enabled: joy, safety and productivity.
It wasn’t lamp manufactures that brought about the revolution in electricity and electrical lighting that most of us take for granted now.
Insurech as a Catalyst for Change
What if I told you that the story of insurance resembles that of oil lamps? We are now in the age of oil lamps of insurance while electricity is being invented in our backyards. Investment into insurtech has grown exponentially since 2012, and 2016 is the year it entered the mainstream. Entrepreneurial talent powered by investment is rapidly experimenting across the whole insurance value stack and is starting to chip away at the first set of key insurance industry problems.
Power of a Utility
Over the years, insurance has evolved into the equivalent of a super complex oil lamp contraption that resorts to all kinds of complexities and tricks to address inherent structural limitations of the current insurance model. The more time I spend with insurtech startups, customers and insurers across Asia, the more I become convinced that the only way forward for insurance is for it to become a utility, akin to electricity. In fact, as a consumer you want insurance for precisely the same reasons you want electricity, as an enabler for joy, safety and productivity.
See also: InsurTech Need Not Be a Zero-Sum Game
Furthermore, just as electricity expanded from the original purpose of lighting to power everything from our homes to internet and transportation, once basic insurance becomes a utility there’s a world of opportunities for it to improve society on a much broader scale. Think of these opportunities as apps that plug into the insurance platform, just as fridges, air-conditioning, computers, Teslas, etc. are all ultimately powered by electricity. Electricity is a super enabler, and insurance should be, too!
Insurance Journey Toward Becoming a Utility
If we take an analogy of insurance = oil lamps, we can extrapolate it to help us start imagining what the world of insurance would be if it became the equivalent of electrical lighting. It’s a journey that will take us less time than you might imagine because of the non-linear nature of progress.
Furthermore, I’ll venture to say that we’ll experience a tremendous consolidation across the insurance industry and will end up with three major utility providers per market instead of the current, fragmented landscape.
First Wave of Insurtech
The first wave of insurtech startups is already out there in the market experimenting with new tech/propositions and testing insurers’ appetite for collaboration. Broadly, there are three camps of startups:
- Partner with insurers to accelerate their journey toward becoming a utility (eliminating frictions and building insurance grid infrastructure);
- Develop applications that plug into the insurance utility grid to provide custom products both in insurance and risk prevention;
- Aim to outrace insurers and become utilities themselves.
I’m a big believer in the power of collaboration between startups and incumbents. Hence, I feel that the first two insurtech camps have a better shot at creating a broader impact.
At this point, most of the startups are focused on one particular technology or proposition. For insurance to become a utility and a true enabler of joy, safety and productivity it will take a few of these enablers to join up in clusters and connect to the right insurers. The heat map from Munich Re is a useful reference.
“Insurance as a utility” is the mental model that nicely summarizes all the various things happening in the nsurtech ecosystem and at a same time can act as a beacon for ecosystem players.