Tag Archives: insurance as a service

Insurance-as-a-Service 2021

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.

See also: How to Accelerate Innovation: Pairing

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.

Insurance’s Flawed Business Model

At its core, the industry is plagued by an inherent conflict of interest. Our customers don’t have an industry expert advocating solely on their behalf; the experts have financial incentives coming from the insurance industry.

As I say kiddingly, the first page of your insurance policy tells you, “We cover you for everything.” It’s the next 40 pages that take all that coverage away.

I firmly believe that there is strong opportunity to shift the traditional brokerage model away from one that is purely transactional and toward the strategic advisory role that companies around the world need, one that is built on trust.

But before we talk about the future, let’s explore the existing environment.

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Insurance brokers’ incentive is purely about the sale of a policy. They receive a commission when the policy is bound, not for providing strategic advice before, during or after the sale.

Brokers wear three hats representing themselves, the insurance company and then the client.

How can the client obtain the most comprehensive coverage at the market’s most competitive pricing when the broker wears three hats?

How can someone negotiate solely on my behalf if he has financial incentives and contractual relationships that potentially conflict with my best interests?

  1. If you are making 10% commission on a policy, are you going to be more inclined to sell a policy with a premium of $80,000 or $100,000 (assuming no differences in coverage)?
  2. Consider a smaller, regional brokerage, which may have three or four carriers that it primarily writes business with on a direct basis. If Travelers is the primary carrier, I hate to say it, but that relationship means just as much, if not more, to the brokerage than many of the clients do. If the brokerage upsets Travelers, perhaps by moving risk to another carrier or pushing too hard against the company in a claims negotiation, the brokerage is in a bad way. Travelers needs to be kept happy if a brokerage wants to maintain leverage to effectively price and win new business and of course retain existing business… not to mention the contingency commissions received for writing a certain amount of business with a carrier.
  3. Many brokers/agents, particularly the smaller, regional practices, are generalists, yet, in this era of emerging technology and data proliferation, insurance products are continuously refined and are often difficult to interpret without a deep understanding of both the particular client industry and new, relevant insurance contract language. Consider cyber insurance. There is no standardization in the industry, and almost every carrier has its own underwriting application and insurance policy language and structure. This leads many retail brokers to use a wholesale broker (specialist) to place the risk, as they do not understand how to properly explain the risk or terms of coverage (I can’t say that I blame them).

The insurance broker needs to move toward being a true client adviser, going beyond just the placement of insurance and including continuous engagement throughout the year on items such as the insurance and indemnity language in your lease/supplier/vendor/etc. contracts, letters of credit and collateral agreements/negotiations, claims analysis and negotiations and so on.

See also: How Tech Created a New Industrial Model  

True risk management is an in-depth analysis of both risk mitigation and risk transfer. To transfer risk most effectively, an extensive understanding of your client’s entire operations and, at the minimum, its contractual obligations, is a must. Simply reviewing a contract to see if your client meets the insurance requirements that the landlord stipulates in a contract is not strategic advice. Reviewing the contract and advising your client that she should not be responsible for “any and all liability” but rather “damages, expenses, etc. resulting from or in connection with the execution of the work provided for in the contract” is what I would call strategic advice. That’s just the tip of the iceberg.

As we consider new models of distribution and leveraging the rise of technology as we shift toward the “Insurance-as-a-Service” model with a focus on the customer experience, I firmly believe we must create solutions that provide insurance brokers (i.e. the industry distribution force) with the tools that they need to shift toward the strategic advisory role. We can diminish the current industry inefficiencies and yield more effective results on a consistent basis and with absolute clarity.

The question now is, how do we effectively integrate “technology of tomorrow” with “business models of today” and interpret the “culture of yesterday”?