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January 24, 2019

‘Organic Insurance’: Back to Basics

Summary:

In Istanbul 150 years ago, the only way to protect a home against fire was to buy insurance--insurers had the only fire departments.

Photo Courtesy of Pixabay

Organic products are quite popular in recent years. They are everywhere, in food, clothing, cosmetics and many other areas. It’s not hard to understand, because most inorganic things are harmful to human life. But what about organic insurance?

The dictionary meaning of organic is “made in a natural way.” So, organic insurance can be defined as “insurance service that developed and is provided naturally.” Is today’s insurance service organic? Unfortunately, no.

Basics of Insurance

When we look back in the history of insurance, it becomes clearer.  Insurance was founded to guard against significant risks that affect society. Marine insurance was designed by sea traders. Fire insurance companies were founded by people who were exposed to the Great London Fire. The common point is the proximity of service and risk. And the service is offered by people who know the risk best, who can measure it in the most accurate way and take precaution when needed.

Throughout history, insurance companies used to know the insured value from A to Z and managed the risk. For example, fire insurance companies had their own fire department and prepared detailed maps of the city where they operated. In this way, insurance companies made significant contributions to social development.

Today, there is no organic connection between insurance companies and insured value. Insurance companies just have general statistics about the insured value. Statistics can be enough to manage the risk when the pool is large. But it doesn’t change the fact that insurance companies are far away from the society and the flow of life.

Value of Insurance

If you were living in Istanbul 150 years ago, the only way to protect your house from the fire was having a home insurance policy. Not for the compensation of your loss, because there was no central fire department; only insurance companies could protect your home from the fire (with their fire department). Today, home insurance policies don’t have such importance. In case of a fire, call the fire department; or home security companies meet your prevention needs. Insurance companies? They pay claims.

Have you noticed how insurance service has become so uninspired over the years? It’s like hormone-growth tomato, bright red but tasteless.

See also: Insurance and Fourth Industrial Revolution  

Today’s insurance system is based on Henry Ford’s famous mass production system. The method we are familiar with, the factories, enables a product to be made in a short time and in large number. Workers do the same job continuously. They specialized in that line, but they have no ideas about the rest of the production.

Similarly, insurance companies have kept a corner in the flow of life; they pay claims if bad things happen. It can be discussed how expert they actually are in this job, but It’s clear they have no idea about the other parts of the life.

You can’t provide insurance services like you produce cars. As a service provider you must be a part of people’s lives. You must understand your customers and provide solutions to their various expectations. Henry Ford’s famous quote summarizes the current situation of the insurance industry: “Any customer can have a car painted any color that he wants so long as it is black.”

Development of Insurance

Lots of things about family life have changed in the last 30 years, but home insurance coverages are almost the same. Cars are equipped with new driver assistance every year, but insurance companies still underwrite depending on car prices, license, driver’s age, etc. Brand new features of a car can be subjected to the insurance underwriting when they become an industry standard, but insurance companies follow all these developments a few steps behind. However, insurance companies had been pioneers of the social development throughout the history, such as fire departments, pension systems etc.

The sales process of insurance is also inorganic. Most people buy extended warranty services with more peace of the mind when compared with car insurance. Why? Because people buy a warranty from car manufacturers, but they buy a policy from insurance companies. Paying hundreds of dollars to a third-party company can be annoying. Also, it raises lots of questions. Is insurance coverage enough? Is claim service high-quality? Whom to ask my question? You must trust a new brand for all these questions. But you buy extended warranty from the brand you already trust.

Organic Insurance

So, is organic insurance possible today? One way to make it possible could be to make insurance part of the insured product. Car insurance can be included in a car’s safety package. Or home insurance may be a part of the home rental service. Although these kinds of partnerships are available, this business model promises much greater potential.

  • The affinity partnership model is advantageous in several ways;
  • The partner company knows the features of the product much more than the insurer. Insurance coverage may be defined much more clearly and accurately.
  • To bundle insurance with the main product is the easiest way to sell insurance.
  • Customers feel much safer about the insurance product. As customers have trusted a business partner, there is no need to build trust for an insurance company.
  • Insured risk can be underwritten much better with the data provided from business partner. Likewise, insurers may share data with the business partner to upgrade the product. For example, car manufacturers and insurers may work together to develop accident-prevention systems.
  • As sales and after-sale services will be provided from one channel, customer experience and satisfaction will be better.
  • Insurance companies may be transformed to real service providers. Insurance companies may offer smart home services with their policy, or health insurance companies may provide regular health check-up and monitoring service.

See also: Connected Insurance Comes of Age in 2019  

In fact, all these titles are new play areas for the insurers. Maybe insurers can stop being boring types who live in skyscrapers and deal with numbers all day.

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About the Author

Hasan Meral is the head of product and process management at Unico Insurance. He has a BA in actuarial science, an MA in insurance and a PhD in banking.

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