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Key Trends in Innovation (Part 3)

This article is the third in a series on key forces shaping the insurance industry. Parts One and Two can be found here and here.

Trend #3: Just in time: The majority of the simple covers will be bought in standard units through a marketplace/exchange, permitting just-in-time, need and exposure-based protection through mobile access.

Why can’t insurance work in the same way as Amazon, easy, seamless, one-click, no hassle, managed through your mobile and regular updates?

Actually, this is starting to become a reality. Insurers and start-ups have already taken up this challenge and significant progress is being made.

Aviva, for example, are piloting a home insurance product where customers won’t need to answer any questions and Digital Fineprint will autofill your insurance policy application form for you by using your social media information.

See also: 10 Trends at Heart of Insurtech Revolution  

Data availability and technology are enabling ‘blind rating’ of risks by insurance companies, providing guaranteed acceptance and prices to customer through direct or broker-assisted channels.

Insurance still has many consumer challenges to overcome, from a lack of understanding, lack of trust and lack of perceived benefits. If it’s considered at all, it’s often as a grudge purchase. The comment that insurance is sold not bought remains true in many instances.

As the digital economy evolves, the opportunity to change this dynamic will multiply.

The key drivers of this change are:

  • Ability to interact with the customer through their mobile in real time
  • Ability to offer insurance at the point of sale or time of need
  • Ability to tailor the offering to the individual’s specific circumstances (location, time, activity, risk)
  • Ability to leverage available information to simplify the process

Innovative start-ups like Insure-A-Thing (IAT)are reinventing the insurance ecosystem by improving customer trust & transparency, and encouraging improved behavior through retrospective premium payments, based on actual claims.

Democrance is revolutionizing the distribution and servicing of micro-insurance products at POS through telcos and Uber-like shared economy technologies.

Other examples of where this is already happening include, Kasko which enables consumers to purchase insurance at the point of sale/demand – it’s relevant, it’s easy and it’s digital. Similarly, Spixii, an insurance focused chatbot knows if you’re in a ski resort and willout and let you know that your travel insurance doesn’t cover extreme sports and then allow you to purchase the additional protection – again it’s relevant, it’s easy and it’s digital.

Our view is that many relatively simple personal lines products will evolve over time to these types of interactive model. Rather than standard policies covering fixed periods of time, these new products will switch on and off for the period they are needed and will cover the specific circumstances/risk. This will encourage adoption at more affordable prices and importantly demonstrate that insurance is providing real value when it’s most needed.

The sharing economy is a further example of how innovative insurance solutions are being developed to meet new and emerging consumer needs. Start-ups like Slice and Oula.la are looking to provide tailored insurance protection for Airbnb property owners that switch on and off to cover the period when the property is rented.

See also: Insurance Coverage Porn  

We also expect to see market place or exchange platforms being developed to help facilitate the process. Again, this is already happening. As an example, Asset Vault allows customers to log their physical and financial assets in a secure online repository and can then help customers find and tailor optimal insurance coverage based on their specific circumstances.

We hope you enjoy these insights, and look forward to collaborating with you as we create a new insurance future.

Next article in the series: Trend #4: Solutions will continue to evolve from protection to behavioral change then to prevention – even across complex commercial insurance

10 Trends at Heart of Insurtech Revolution

As the insurance industry enters a period of profound change, we at Eos use a concept called the 20/20 dynamic to illustrate the point:

On a conservative basis, we believe most insurers risk losing at least 20% of their business to disruption. On the flip side, for those that embrace innovation there is an opportunity to grow their business by 20%.

Our goal is to ensure our strategic investors are on the right side of this equation.

Insurtech represents a unique opportunity for insurers to evolve their business model. Insurtech is not necessarily about disruption, but more an opportunity to take advantage of technology and data to create innovative solutions, reduce costs and capture greater value for customers, brokers and intermediaries, underwriters and service providers.

At one level, active participation is required just to meet the basic requirements of playing in the new market. For those committed to a strategic approach, insurtech can help drive true competitive differentiation, while enabling measured bets for the future.

See also: Insurtech: Unstoppable Momentum  

Underpinning this transformation are 10 key trends that we have identified and believe will be at the heart of the insurtech evolution:

  1. Insurance, as we have it known it historically, will be bought, sold, underwritten and serviced in a fundamentally different way within the next three years
  2. External data and contextual information will become increasingly more important than historical internal data for predicting risk and pricing
  3. A majority of the simple covers will be bought in standard units through a marketplace/ exchange, permitting just-in-time, need and exposure based protection through mobile access
  4. Solutions will continue to evolve from protection to behavioral change then to prevention — even across complex commercial insurance
  5. Although proliferation of data and increasing transparency on the buyer and seller will cause disintermediation for simple covers, it will also create opportunities for brokers and intermediaries to innovate solutions and channels for their B2C (non-standard risk pools, retirees/older generation, healthcare gaps) and B2B (emerging and unknown risks, cyber, global supply chains, cross-border liability, terrorism) customers
  6. The ability to dynamically innovate (new risk pools, new segments, new channels) and deliver on the customer promise will become the most important competitive advantage (as known risks continue to get commoditized and move to the direct channels)
  7. Internal innovation, incubation and maturing of capabilities will no longer be the optimal option; dynamic innovation will require aggressive external partnerships and acquisitions
  8. Simple “Grow or Go” decisions of the last decade will be sub-optimal, as the dust settles in insurtech; building in future optionality and degrees of freedom will be the key
  9. Consolidation just for economies of scale will provide increasingly less marginal value in non-life as well as life insurance; real value creation will come from “economies of skill” and digital capabilities
  10. Deep learning (next generation of AI), blockchain and genomics technologies will improve financial inclusion and better meet the needs of the under-insured and uninsured

We have linked the above trends to analysis of how profit pools will change over time to build an investment strategy that also focuses on platforms or clusters that allow us to build more compelling propositions by connecting related players in adjacent parts of the value chain.

Three areas of initial focus are:

1. A digital front office solution that leverages an open architecture platform developed by Convista (OneDigitalOffice), augmented by relevant startups including, for example, on-demand insurance by Oula.la and social media adoption by Digital Fineprint.

The ability to drive dynamic innovation is driven by technology stack/system flexibility to respond quickly to customer needs. New risk pools, new products and new ways to reach customers will place massive pressure on traditional systems, making a dynamic digital front office key to execution.

  • 360-degree multi-channel (direct, field sales force, internal sales force, independent agents/brokers) connectivity
  • Augmented functionality across the value chain from sales/distribution through underwriting, binding and servicing
  • Sales funnel optimizer (sales force effectiveness) — inquiry/quote, quote-to-submission, submission-to-bind ratio
  • Sales force/intermediary (broker/agent) segmentation and performance management

As an example, the impact of the sharing economy and need for on-demand insurance will require instant pricing and cover that switches on and off at point of sale to meet the needs of the customer.

2. An end-to-end claims solution developed by RightIndem and supported by additional capability from other technology providers

The claims space is an interesting one; it represents the largest individual expense on any P&C insurer’s P&L but conversely has seen very little innovation. This is now starting to change. RightIndem has developed a platform that achieves significant improvements in customer satisfaction while significantly reducing the cost of managing the claim. This is a win/win for the customer and the insurer and in our view a classic enabler technology that takes an existing function within the insurance value chain but does it much more effectively and with the interests of the customer at its core.

See also: Insurtech Checklist: 10 Differentiators  

3. Artificial intelligence (AI) with an initial focus on life and health insurance developed by Gen.Life

We are particularly excited about the combination of AI and the latest health technology to transform insurance. Examples include Livingo Health, which combines a blood glucose monitor support and intervention to help coach people through diabetes, and Cycardia Health, which employs machine learning predictive analytics software to categorize abnormal circadian patterns in otherwise healthy breast tissue to provide early detection of breast cancer. These types of technology will allow the early detection of potential diseases so that preventative treatment can be started much earlier, dramatically improving chances of success. Rather than life and health insurance being about prospective payments after an event, they can become the key mechanism for deploying technology to allow people to enjoy healthy lives.

The insurance industry will look very different in five years, but more importantly there is an opportunity to drive huge benefits to society through reducing under-insurance and supporting the transition from protection to prevention.