Emerging technology is changing how we think about and use insurance. Big data, deep analytics, machine learning, the Internet of things, and cloud are all contributing to a culture of high automation and a shift in the insurance paradigm. As today’s insurance companies grow into tomorrow’s, they are embracing these technologies and changing how we approach protecting our possessions, our loved ones, and ourselves.
A very easy way to see how insurers are already taking advantage of emerging technology is to look at automotive insurance. Providers in the automotive space encourage customers to put a device in their cars that send driving statistics back to them. Customers receive discounts, and insurers gain tons of valuable data.
The real benefit for insurers is how they make use of that data. The data they collect is meaningful enough to fundamentally change how insurance products are structured. With enough data, these insurers can, for example, offer real-time rate adjustments, or can create entirely new offerings like pay-by-use insurance models.
Another example of emerging technology’s impact on insurance comes from the consumer IoT market. Self-driving cars are a great example that highlight an important, imminent question in the insurance industry – as we automate our cars, homes, offices, and daily lives, who is truly at fault when things go wrong? More specifically – who is at fault when two self-driving cars collide? That debate will continue for some time and may need courts to help make official rulings. It’s not unreasonable however to think that some personal lines coverages may shift to commercial as manufacturers increasingly assume the risk for their smart devices failing.
Even the way we perceive and use insurance is changing in response to changes in technology and engagement. One of the more interesting ways we see this happening is in the way insurance companies market their products.
Research shows that millennials, in particular, have a negative perception of insurance and its offerings. Life insurance is an excellent example of this. Talking about life insurance can be difficult. You have to imagine the world in which your loved ones deal with the financial questions that arise in the event of your death, which can be a very difficult thought. John Hancock, a United States insurance company, recognized this issue and came up with their Vitality program. The Vitality program re-frames life insurance from a negative conversation into a positive one. It’s still life insurance, but Vitality is about offering discounts and rewards for completing fitness and health goals. The conversation about life insurance is therefore shifted towards extending and celebrating your life, instead of what happens when it ends. And it works – John Hancock reports a potential 68% reduction in claims and 58% reduction in policy cancellations from similar studies.
The biggest driver of insurance disruption is that the availability of data, ease of hosting that data, and speed of spinning up applications to work with that data means the barrier to entry for newcomers is very small. Start-ups are now offering instant rate quotes, peer-to-peer insurance models, and micro-insurance offerings, which poses a potentially large threat to existing global insurers.
In summary, emerging technology leads to shifting business models, and insurance is certainly no exception. The way we use and perceive insurance is changing, and today’s insurance behemoths need to keep up, or they’ll be disrupted out of the market.