Q&A with Doug Grant, Partner at Insurance-Canada.ca
How is innovation changing insurance?
Insurance has a long tradition of innovation. Most of us buy insurance. When confronted with a process that feels burdensome or outdated, entrepreneurs sense an opportunity to challenge the status quo, to do things better. Some will develop a solution, take it through incubation and bring it to the market, either as a new insurance provider or, more frequently, as an app for practitioners to use.
This is not new. Insurance has been innovating since Lloyd’s Coffee House in London for over 300 years with new products, services and ways to serve customers in order to capture market share. Competition is keen; it always has been.
Among industries, insurance was an early adopter of computing – this is only natural since data is the basis for insurance. From 2000, the implementation of “modern” processing systems enabled a change in focus, from digitally paving the cow-path to real digital transformation, opening the gateway to better service and product innovation.
Can you give an example of this transformation?
There are many examples of reduced friction costs and improved customer experiences in virtually all areas of insurance. As more people become comfortable with – or even prefer – digital services, the industry is actively increasing them. For example, my wife and I have different group health benefit plans. My dentist electronically submits the bill to my insurer; the response provides enough information to submit (paper) any costs not reimbursed to my wife’s plan. Reimbursements are automatically deposited and we receive notifications by email. This process involves only one piece of paper – everything else is digital.
Or take Track Day, which offers auto insurance for a person driving on a racetrack, which is not covered by standard insurance. This is essentially a self-serve, on-demand, all-digital, no-paper, low-cost service. A home insurance solution that addresses the challenge that many tenants do not purchase insurance is Zipsure. It was created to address that market by offering low-cost and all-digital policies until tenants print their copy.
What are some of the comprehensive programs that are changing the market?
In the Vitality program from Manulife, tracking fitness-related activities through a wearable device and participating in active health programs offers lower insurance premiums and other rewards. In auto insurance, usage-based programs from a number of insurers track driving performance and habits with a smartphone app. Rapid feedback through a dashboard, even gamification to compare the driver’s performance to a peer group, can enable close monitoring of patterns and how they influence the insurance premium.
What are the challenges associated with these insurance trends?
Newer technologies can come with cyber risk. Societal changes, for example the sharing economy, can create gaps in insurance coverage: a personal car used for commercial services without commercial insurance is not insured. Some insurers have addressed the gaps with new products or product enhancements, but there is a challenge: how do insurers define and price a product when there is no history of exposures and losses to build from?
How is technology informing customer service and the development of products and services?
Newer digital technologies, such as analytics, machine learning, AI and voice, plus more available data enable:
- Anytime, anywhere communications by customers for self-service
- Better product development, pricing, underwriting and rating
- Digital marketing automation for broader product awareness and targeted marketing
- A whole new level of customer experience and engagement
High-profile startups like Lemonade and Trōv are often in the spotlight. The former is focused on tenant insurance, a market underserved by traditional products, processes and costs. Lemonade is taking advantage of innovative thinking and digital tools; it experienced a marketing bonus when a claim was purportedly reported, settled and paid out – all in three seconds. Trōv may be creating a new market. As the next generation moves away from ownership of big-ticket items – homes or autos – towards experiences – trips or special events – this startup offers on-demand insurance, for example on expensive camera equipment, but only while customers are “in the field.” Clearly, these two are in the InsurTech fold.
What is InsurTech?
InsurTech has been associated with technologies like AI and blockchain, with new applications or systems built with such technologies and organizations using these apps to be more digital. Matteo Carbone, founder and director of IoT Insurance Observatory and a top InsurTech influencer states, “all insurers will be InsurTechs.” The conclusion? An InsurTech is a firm, a business.
In addition to innovation with new technologies, InsurTechs have a second characteristic, a different culture that follows “learn fast” principles: be iterative by capturing ideas, building, learning, refining, all done with speed. Hence, InsurTech could fall into either of two groups: one, InsurTech(nology) providers who build apps but don’t use themselves, and two, insurance practitioners – incumbents or startups – who build or buy the apps and act fast.
What are the defining characteristics of InsurTech?
InsurTechs look to serve insurance customers better, have a culture eager to improve, are willing to make mistakes and learn and iterate, discover new value in data and see technology as a key toolset for their people.
How does competition affect the industry?
For the insurance industry, the bar of competition is getting higher and the speed faster. Collaboration and teamwork are essential. Who would have envisioned 24-hour hack-a-thons in insurance? From ideation to rollout and iterations of learning and improving – fun times indeed.
What does that mean for consumers?
Insurance consumers – you are in the spotlight like never before. More choice, never easier or quicker to research and buy, in the way you choose. You can engage with insurance, with growing options to help manage your risks. Insurance has a purpose, to help in time of need; but when all is said and done, life is a whole lot easier if you can avoid the need – auto accident, flood in your basement, lengthy illness, privacy breach – in the first place. Hence the focus on managing risks.
Ah, the insurance conundrum. Better risk management will reduce claims and losses, and competition will drive down premiums. Will natural growth, new risks (cyber, or the next cyber) and new markets (sharing, tenant, experiences, on-demand) more than make up the difference and enable growth?
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