December 4, 2019
Let’s talk about insurance.
I can hear the yawning already. While you may not think it’s the most exciting of topics, insurance shapes all of our lives in surprising ways. From droughts to car accidents, insurance products mitigate risk that has opened new pathways to financial stability not possible without risk management.
As societies across the globe grapple with increased uncertainty — whether from climate change and geopolitical risk, or the revolution of technological progress — insurance is fundamentally changing.
Technology is making insurance more affordable, accessible, and customizable than ever — reducing barriers to access to insurance for historically underserved customers (i.e. small businesses, independent contractors, lower-income consumers, etc.) and unique consumer needs, where traditional insurance industries may have limited historical loss data.
In our new report, Impact InsurTech, we identify three macro themes that are not only redefining the industry, but also impacting larger socio-economic trends within the US and around the world.
1. Insurance for all.
While there are endless use cases of InsurTech that positively impact specific industries, subsectors and customer segments, the most striking positive impact of InsurTech may be the breadth of increased access to insurance and risk-mitigation products for all consumers.
InsurTech is driving process efficiency across the value chain as well as improved data quality and integration which, combined, have resulted in the growth of hyper-specialized, just-in-time and parametric (triggered by a specific event) insurance products. These emerging formats of narrowly targeted products and services are reducing barriers to consumers accessing tailored risk-reduction coverage.
As one example, firms like Flyreel are using machine learning and computer vision tools to automate commercial property underwriting, providing near-instant risk assessment and pricing suggestions for facilities that would historically rely on a thorough in-person assessment.
This shift is particularly important for historically underserved customers such as small businesses, independent contractors and lower-income consumers. These products also cater to unique consumer needs where traditional insurance industries may have limited historical loss data.
2. From society shaping insurance to insurance shaping society.
Historically, insurance products have been developed in response to routine yet unpredictable losses. Pooling capital and sharing or transferring risks for occasional and unpredictable losses was a natural response to everything from automobile accidents to employee injuries to weather-related crop loss. These products were designed and shaped by events in the world, and had their pricing and structure based on available historic data that projected potential losses.
Today, InsurTech is fundamentally changing this foundational concept of responsive insurance products. As one example, telematics solutions such as Cambridge Mobile Telematics, Octo Telematics and Zubie are helping many major providers such as Progressive, Travelers, Allstate, State Farm, Erie, Nationwide, GEICO and others reward safe behavior.
Through real-time data capture, narrowly designed coverages, usage-based insurance and newly enabled transparency with policyholders, insurance is moving into a stage of shaping and shifting consumer behavior. Transparency and timeliness, linking actual behaviors and decisions directly with risks and costs, are beginning a fundamental shift in how insurers interact with policyholders.
The implications of this reach far. No longer is insurance just a standard market cost that a consumer has little say in other than occasionally shopping for new policies. InsurTech is beginning to bring policyholders inside the black box of insurance to understand how their decisions are influencing their own costs.
3. Micro-transformation to meet macro-risks.
InsurTech is being driven by two ends of the insurance industry spectrum. One is an explosion in millions of new sources of predictive data inputs and processing tools, allowing tailoring and segmenting of coverages and pricing. The other is large-scale systemic and emerging trends such as climate change, geopolitical and macroeconomic instability, and cyber risks. Some of the most promising and high-impact use cases of InsurTech are emerging from the intersections of these two scales of activity.
As one example, in late 2019, following record years of insurance payouts related to natural disasters and weather, The Nature Conservancy announced an expansion of what it is calling a “nature-based” insurance program for coral reefs, a form of parametric insurance for reef repair when they are damaged by hurricanes or other natural events. As a reef takes significant time to heal, immediate payouts enable debris removal and timely repairs to increase the chances of recovery of the reef and its important ecosystem. These payouts have an additional upside for insurers. By expediting reef repair they can help limit costly storm damage to nearby shores, infrastructure and development.
In the big picture, InsurTech is transforming the insurance industry to address a new era of emerging risks, and improving lives along the way.
