I hope that headline got your attention. The fact that the industry has been able to perpetuate itself for so long throughout the world, considering the sheer amount of obstacles thrown at it, is impressive.
Some believe the first written insurance policy dates back to ancient Babylonia and is contained within the Code of Hammurabi, which specified that a debtor did not have to pay back loans in the event of a personal catastrophe like death, disability or flooding. This concept was perpetuated over time, with guilds collecting dues from masters and apprentices to cover robbery or damage. It evolved with our more familiar understanding of the famous coffeehouse in London owned by Edward Lloyd. These events led to the continued evolution of insurance and its eventual growth into the mainstream with products we are familiar with today like auto, home and business.
While this system has laid the groundwork for our modern insurance ecosystem, there are some exciting opportunities in our near future that will modernize, democratize and grow the industry even more over the next 100 years. I will dive into three I believe will help this evolution. Think about which you believe will be the most earth-shattering.
Embedded Insurance Solutions
This concept is growing.
Why is this important? Embedded insurance solutions simplify the purchasing process and integrate it into one fluid motion for the customer rather than disintermediated experiences.
There are a few main reasons embedded insurance makes sense:
- Information — Typically, the purchase of major items like automobiles, homes or businesses requires a significant exchange of information, enough to quantify and price the risk at the same time and streamline insurance buying for the customer.
- Integration — I have yet to find an individual on Earth who was genuinely excited to purchase an insurance policy. As much as we admire the work we do in the industry, we have to admit it’s just not as fun as buying a new home or car. Integrate the coverage so the purchase experience is end-to-end, meaning you are excited to get this new car, and, guess what, it is protected in one out-the-door price.
Cutting-edge companies are building this experience now--e.g., Tesla and Rivian integrating insurance into the car itself or CoverGenius developing a simple plug-in for any non-insurance company.
Smart Contracts Powered by Blockchain
This concept is on its way.
Why is this important? Smart contracts have the ability to unlock the burden of standardized contracts and democratize the power of the customer in ways never seen before.
There are a few main reasons smart contracts make sense:
- Blockchain — Allowing the secure hosting of contracts/data/evaluators in a digitally trusted format opens up a new level of creativity.
- Flexibility — The customer has never experienced any level of flexibility with insurance, as contracts are formulated as a time-bound basket of coverages. The policies are built for everyone, therefore no one.
- Inhibition — Insurance has evolved as a series of packaged products. They are stuffed with a multitude of coverages and pages of contractual language. Because customers rarely have a real connection and understanding of what they purchase, they do not open up about what really worries them. In turn, companies barrage them with messages about why they need more insurance or cheaper alternatives. This is a turn-off and makes insurance look like a nagging mom rather than a creative way of transferring the risk of life.
Smart contracts can combine blockchain technology with the ability to customize protection that excites customers to readily assess their risk and look for solutions. This could be one of the largest shifts in the industry, ever. We talk about putting the customer first; this technology has the ability to actually do it.
Imagine a day when a forward-thinking platform with the power of Google-like simplicity can capture customers' coverage needs into data nodes. These feeds allow for the quick assessment of these coverage needs and allow companies to bid on these electronically, using smart contracts (quote/bind) all in one. Companies can then perpetuate these relationships by using data to feed real-time recommendations such as “October to December has a higher-than-average risk of wildfires in your area; you can buy up coverage for ALE.” The contract can be adjusted with the type of flexibility that creates high trust among your customers for understanding their unique needs.
Think this is too far out there? Check out what Chainlink Labs is doing in the insurance space for parametric coverages. If you don’t have someone working on how blockchain and smart contracts will help you reshape your business, you may find yourself behind someday.
See also: Reinsurers Face New Challenges
This concept is here now.
Why is it important? There are many situations that happen on a daily basis where risk is more of an inconvenience than a life-alternating ordeal, like your home being wiped out by a tornado.
There are a few main reasons parametric solutions make sense:
- Unique risk — These solutions have the ability to dig deeper and provide solutions to life’s daily challenges where we know there is an appetite for customers to accept a risk transfer for peace of mind. Possibly, booking a flight for five family members for vacation is stressful, knowing there is a chance the whole thing could be ruined with a quick auto-generated email. Sorry to inform you…..
- Quick payouts — The main concepts behind these solutions are (1) simple underwriting (2) data-powered (3) and triggered claims payouts. For example, we know that when a frost hits orange crops there will be some issues. The temperature data is easily gathered, and a shortened claims process payout allows the farmer to make a quick pivot using these funds to recover what is possible during that growing season.
- Creativity — Major lines of insurance are burdened by slow progress. Parametric solutions can be creative and quick to market and complement existing insurance coverages.
This is a great opportunity for companies to partner and help foster emerging insurtech companies. Not as competition but rather as a choice for the customer to fill gaps and provide simple solutions. Check a few examples out there now: Jumpstart for earthquakes, Blink for travel or African Risk Capacity for climate change.
There is still space for newcomers.
Now, you must guess which of the three is the earth-shattering one....
The answer is: Smart contracts powered by blockchain. They will permanently disrupt the market. Mark my word. The other two will merely have a huge impact.
The question is…will your business invest the people and resources necessary to build and grow for your future, or will you miss out on a trillion-dollar opportunity to not only grow the business but provide your customers with products and services that wow them?
It is not too late to become a partner in discussing and uncovering your true potential.