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Next for Insurtech: Product Diversity

As the sharing economy continues to evolve and the autonomous revolution emerges, consumers’ insurance needs are changing, requiring new types of coverage to ensure adequate protection against new risks.

Insurers have begun partnering with insurtech players to build the digital basics, streamlining the quote-to-issue lifecycle and positioning insurers to engage with the 73% of the market who are looking to purchase coverage online. Now, insurers are pushing partnerships to the next level, focusing on product diversity to meet the growing array of customer coverage needs.

Product Diversity Is the Way of the future

Technology has made astronomical leaps in the last two decades, taking society from a pre-internet world of engagement to an environment of connected devices and services. Service providers such as Zipcar and AirBnB have opened a new sharing economy, where individuals using web and mobile apps can share their personal services or amenities, such as a car or a home, on an as-needed basis.

The sharing economy, however, creates risks not typically covered under traditional policies.

See also: How Diversity Can Stoke Innovation  

According to New York Times article, AirBnB offers $1 million in liability coverage to hosts using its platform, but the coverage is secondary to the homeowner’s personal policy, where commercial operations are not usually covered.

“There are also other issues with Airbnb insurance,” said Robin Smith, CEO of WeGoLook, “including the fact that it does not provide coverage if a guest shows up early or stays late. This can potentially be disastrous.”

Risks like these are behind the growing demand for innovative product types. Accenture predicts a decline in the demand for personal auto, starting in 2026, but says that autonomous vehicles will net the insurance industry $81 billion in new premiums over the next eight years.

“Three new business lines — cybersecurity, product liability for sensors and software algorithms and public infrastructure — are going to drive billions in new insurance premiums for the U.S. auto insurance industry in the coming years,” said Larry Karp, global insurance telematics lead in Accenture Mobility, part of Accenture Digital. “Forward-thinking insurers are already putting these new products at the top of their agenda as they look to capitalize on the first-mover advantage.”

While future-thinking carriers may benefit from the autonomous trend, insurers that have not yet built the digital, D2C base will witness declining profitability as demand for key products falters.

“Right now, 70% of the market is asking to buy insurance online,” said Eric Gewirtzman, CEO, BOLT. “When you consider the impact of the sharing economy and the autonomous revolution on encouraging consumers to become technology-savvy, that number is going to grow.”

That puts direct-to-consumer distribution in a new light, making digital capabilities critical to gaining wallet share as well as share of market by supporting greater product diversity.

Why Digital Is So Important to Product Diversity

According to Rick Huckstep, industry influencer and editor on insurtech at The Digital Insurer, before the rise of the internet, insurers bought policy admin systems. Each product had its own core system costing millions of dollars and taking years to implement.

These legacy systems now stand in the way of insurers as they seek to strengthen channel and product diversity. “Engagement with customers and the development of products are defined by the limits of the policy admin system,” Huckstep said.

He then outlined a plan where insurers partner with insurtech players to rapidly adopt digital capabilities while using existing investments in IT. Direct-to-consumer channels of engagement put insurers’ products in front of more consumers and enable more efficient distribution, but partnerships in digital innovation also provide insurers with access to an unprecedented range of new coverage types without the need to take on additional risk or obtain their own carrier appointments.

According to Bain, insurers are leveraging new ecosystems. These synergistic partnerships build on an insurer’s digital foundation and allow insurers to deliver the products and services their customers want or need.

“With ecosystems, we see insurers offering more of the core products and ancillary services consumers require, such as home, auto, business, pet and travel or the ability to compare auto repair shops and book appointments online,” Gewirtzman said. “Making the consumer’s life easier leads to greater customer loyalty for insurers and is an important factor in remaining competitive in the current and future market.”

Overcoming the Challenges of New Product Innovation

To meet consumers’ growing demands for personalization, EY predicts that insurers will need to offer a wider portfolio of products. Digital, direct-to-consumer capabilities become a big part of this equation, giving insurers the opportunity to act in real time, identifying needs and recommending coverage options while the customer is in the act of buying.

According to Huckstep, “Digital speed to market has never been more important,” a statement that is particularly relevant for insurers currently selling exclusively through external agent channels.

See also: Reinventing Life Insurance  

For insurers still seeking a digital identity, insurtech partnerships allow them to leverage existing investments in IT, while making a rapid move toward D2C distribution.

Building on strong digital capabilities to offer products from an ecosystem of insurance carriers, a leading insurer improved quote conversion rates 4% over a single quarter. Another insurer sold 1.6 more of its own products every time it bundled a solution that included another carrier’s offering.

“It’s successful digital transformations and partnerships like these that prove the case for D2C and product diversity,” Gewirtzman said. “As additional insurers come on board, we’ll start to see more than a few carriers excelling at meeting customer needs. We’ll see an entire industry operating from a customer-focused perspective.”

What’s the role of product innovation and diversity in your customer acquisition and retention strategy?

A Scalable Workforce for Natural Disasters

According to a recently published white paper, insurance carriers can best deal with natural disasters by leveraging an on-demand model that gives them immediate access to an affordable and scalable workforce. By using workers in the field only when they need them, carriers can control costs while quickly and effectively meeting the needs of policyholders.

Natural Disasters Are Getting Stronger and More Frequent

ClimateWise, a coalition of the world’s largest insurance carriers, has reported that since the 1950s the frequency of weather-related catastrophes has increased six-fold. Not only have more than 20 storms causing a billion dollars or more in damage taken place since 2010, seven have hit since 2016. All of these storms have kept carriers busy assessing damage and processing claims.

Days after Hurricane Irma made landfall in 2017, more than 335,000 claims had been submitted in Florida totaling $1.9 million. That’s according to Florida’s Office of Insurance Regulation. However, the storm is predicted to eventually cost close to $100 billion.

See also: Do Natural Disasters Matter To Me As An Insurance Buyer?  

Nearly 88% of these initial claims were made by residential property owners. And, more than 10,000 business owners have reported damages from the storm. If the predictions are accurate, the damage from the 2017 hurricane season would more than double the costliest season on record in 2005. That was when Katrina and three other storms caused more than $143 billion in damage.

And it’s not just hurricanes that are keeping carriers busy.

During the first half of 2017, 49 weather-related disasters hit a wide range of locations across the U.S., including ferocious tornadoes and damaging hailstorms. And, most recently, devastating wildfire outbreaks in Northern California destroyed thousands of structures and caused more than a billion dollars in damage to the world-famous wine region.

Carriers Face Workforce Challenges

One of the major challenges that carriers face during times of catastrophe is how to deploy enough workers to the field to assess damage associated with claims that arise. Traditionally, carriers have understood the value of inspecting assets in-person in the field. However, maintaining an infrastructure capable of quickly completing these inspections in any location across the country has become cost prohibitive for most carriers.

It’s not that carriers are understaffed. It’s just that carriers’ workforces are spread too thin in times of crisis. As we saw in Florida during and after Hurricane Irma, many of the state’s adjusters were on the front line still working on claims made after Hurricane Harvey hit Texas.

A Scalable Workforce is Accessible

Carriers are operating in a cost-sensitive and hyper-responsive market. Even the most sophisticated and progressive carriers often find themselves struggling to effectively deal with scalability issues relating to managing a local, regional, or national adjuster workforce.

Thankfully, natural disasters don’t occur every day.

So, how do carriers manage their workforce to handle the surging need for workers after a disaster strikes as well as the lulls that follow? If they hire more full-time or part-time workers, carriers are in the position of laying them off when the disaster is over. This hiring and layoff cycle represents a huge challenge to HR departments. That’s because there is a significant administrative cost associated with recruiting, hiring, and onboarding new employees.

See also: Harvey: First Big Test for Insurtech  

What carriers need is a geographically-scalable workforce that is adaptable to regional nuances. This scalable workforce is made up of gig workers, also called on-demand workers.

Final Thoughts

A variety of breakthrough technologies and workforce alternatives are inspiring a fundamental transformation of the insurance industry. How well carriers interact with policyholders and gather information in the field will depend on how effectively the industry begins to take full advantage of the on-demand workforce to increase efficiency while lowering costs.

The key to responding to natural disasters – and keeping policyholders happy – is to rely upon an on-demand model. This model is capable of supplying an affordable workforce that can be scaled up or scaled down at a moment’s notice.

Disruptive Trends in Claims Cycle (Part 2)

A few weeks ago, in part one of this two part series, we discussed three trends that are disrupting the insurance claims cycle: the use of sensors, catastrophe support, and decreasing claims volumes. Indeed, these trends are drastically affecting the insurance industry, but there’s more. Investment in insurance technology has reached $3.4 billion since 2010. Most insurers, however, are falling behind in this trend toward digital innovation. In a survey by Willis Towers Watson, 74% of insurance professionals believe that the industry has failed to show leadership in digital innovation. Let’s take a closer look at a few more of the trends insurance professionals should consider.

Trend #4 – Digital Disruption

Insurance customers now want omnichannel access to products and services. This means the ability to file claims in person, on the phone, or, most importantly, through an app or website. The trend toward digital also means more personalized accounts and experiences for policyholders. As many as 76 percent of insurance policyholders report that they would change insurance providers to get personalized service and product offerings that are more tailored to their needs.

See also: Disruptive Trends in Claims Cycle (Part 1)  

Trend #5 – Improving Risk Management

Increased access to data enables insurers to better manage and mitigate risk. With advanced data gathering and innovative technology, insurers can better know the risks involved in any number of situations. For example, wearable technologies such as Fitbits and Apple Watches are revolutionizing health and life insurance by providing data that was never accessible in the past. According to Accenture, 33 percent of insurers now offer services that depend on wearable technology.

This trend toward improved risk management through technology can help insurers become more efficient in the risks they choose to take on. Insurers are now using “predictive modeling” to assess risk. According to Exastax, predictive modeling is allowing insurers to “identify whether drivers are likely to be involved in an accident, or have their car stolen, by combining their behavioral data with the exogenous factors such as road conditions or safe neighborhoods.”

Trend #6 – Innovative Technology

Technologies such as drones and artificial intelligence (AI) are also rapidly changing the insurance claims cycle. Both are being used to assist in claims processing. For example, drones can be used conduct insurance inspections on property damage claims, particularly following catastrophic events where conditions are too dangerous for physical adjustors. It is projected that 7 million drones will be owned by Americans in the year 2020. As a result, it is likely that the number of freelance drone operators working in the insurance industry will go up, radically changing the insurance claims cycle.

AI makes it possible for many insurance-related processes to be completed without any human interaction. Consider that a chatbot called Jim, from insurer Lemonade, can settle a claim in less than 3 seconds. Insurance professionals know that this type of speed is critical and game-changing, particularly in times of increased demand.

See also: How to Be Disruptive in Emerging Markets

Final Thoughts

Like many other industries, the insurance sector is undergoing unprecedented changes as a result of technological advancements. We know that the use of drones, AI, wearables and app-based products will continue to disrupt the insurance industry. It is becoming increasingly important for the insurance industry to respond to such inevitable disruptions and decide how to harness these powerful trends.

Disruptive Trends in Claims Cycle (Part 1)

As technology advances, the insurance business is witnessing an important and unprecedented disruption. Policyholders expect carriers to handle claims faster, better and more efficiently than ever before. Because of this, nearly all (89%) of insurance companies expect to compete on customer experience, versus only 36% four years ago. These changes are spurring unprecedented levels of innovation in the insurtech space.

Let’s explore three insurance claims cycle trends that will change the way our industry operates:

Trend #1 – Decreasing Claims Volumes

Technology is making things safer – from driving automobiles to building houses. In automobiles, collision avoidance systems are projected to reduce auto claims by 8%. Plus, innovations such as rear-view cameras, safer designs and better brakes are reducing claims overall.

See also: How to Respond to Industry Disruption  

Trend #2 – Catastrophe Support

Catastrophes and natural disasters create difficult times both for insurers and policyholders. Hurricanes Irma and Harvey remind us of this somber reality. Recognizing the difficulty that catastrophes create, many insurers have created catastrophe response teams to resolve claims quickly. These teams can now leverage insurtech innovations such as electronic claims filing to deal with catastrophe claims more quickly and help put people’s lives back in order. The use of drone technology in the insurance supply chain has also improved our ability to know what’s true after natural disasters strike.

Trend #3 – Increasing Use of Sensors

Through the Internet of Things (IoT), smart sensors are becoming more prominent across all insurance channels. Sensors monitor data and inform insurers and policyholders if certain risks are increasing. For example, Progressive’s Snapshot sensor monitors driving behavior.

Home sensors can detect risks such as heat, moisture and sound. Consider NoiseAware, which allows short-term rental hosts to monitor decibel levels in their homes to deter large, noisy gatherings that can be distracting to neighbors and also lead to damage.

Because sensors can reduce claims, they can also reduce premiums. This is favorable to insurance customers. In fact, according to one source, 78% of insurance customers are open to using sensors if they decrease premiums.

See also: Preparing for Future Disruption…  

Final Thoughts

It is clear that technology is reshaping the insurance supply chain. This poses many challenges, but also offers many opportunities. Reduced claim volumes, improved catastrophe response and increased sensor usage will all change the way carriers underwrite, sell and settle. It’s critical for insurers to monitor and respond to these trends as technology continues to evolve.

Stay tuned for part two of our series, where we’ll explore three additional disruptive trends.

Sharing Economy: Playing Out in Canada

According to a new study from the Insurance Institute of Canada (IIC), the sharing economy presents both an opportunity and a threat to the insurance industry. In the U.S., the sharing economy has already created 17 companies valued at $1 billion or more, including Uber and Airbnb. Some 27% of the U.S. population participate in this type of consumption. Now, with millions of Canadians who use the sharing economy seeking unconventional coverage as a result, innovative startups are threatening Canadian insurers.

See also: Opportunities in the Sharing Economy  

Opportunity – Widespread Use

Forty-five percent of Canadians report being interested in sharing underutilized assets to generate income. In Montreal alone, Uber provides roughly 300,000 rides per month. This means that new types of insurance policies are needed to support the emerging car-sharing and home-sharing industries. For example, because the sharing economy often includes short-term asset sharing, there is an opportunity for insurance companies to provide unconventional coverage options.

Some insurers are already creating products to satisfy this demand. For instance, Aviva Canada has a policy for ride-sharing drivers, and Square One Insurance developed a product specifically for Airbnb hosts.

Threat – New Competition

All of this new opportunity is fueling the creation of nimble and mobile-friendly insurtech startups such as Prvni Klubova, Lemonade, and Metromile. These companies provide insurance in innovative ways using mobile and AI-driven technology. Companies like these three are potential threats to traditional insurers in Canada. In fact, Lemonade has already gained more than $59 million in funding and is quickly becoming a major player in the industry.

According to a recent study, nearly half of traditional insurance companies are concerned that as much as 20% of their businesses could be lost to new insurtech players. If insurers fail to adapt to new competition, these fears could become reality. And insurance carriers are not the only companies experiencing disruption. Insurance brokers also face competition from new platforms such as Friendsurance.

The Solution

There are two options for traditional insurers to consider when it comes to dealing with swift insurtech startups — compete or partner. Competition has been attempted by a number of traditional insurers, such as Economical Insurance, who launched Sonnet Insurance, an online-only insurance provider. However, due to the rapid pace of emerging technologies, head-on competition presents many challenges. Launching an insurtech solution from the ground up is resource-intensive, especially for companies who are not as familiar with a technological terrain.

See also: Sharing Economy: The Concept of Trust  

Partnering can be a more productive endeavor. Many traditional insurers have recognized this and have already formed key partnerships. For example, Intact and Aviva Canada have partnered with Uber. Intact is also a partner with Turo and an investor in Metromile. Additionally, Northbridge has partnered with RideCo, a Waterloo-based ride-sharing startup. Through this partnership, ride-share drivers can receive as much as $1 million in third-party liability coverage.

Final thoughts

Sharing economy valuation is projected to top $335 billion by 2025. Its impact on the Canadian insurance market will only continue to grow. While many Canadians will benefit from the expansion of the sharing economy, traditional insurance companies will need to adapt in order to keep up with new competition from insurtech newcomers. As a result, we are likely to see more partnerships between traditional insurers and insurtech companies in the years to come.