Have you ever wondered why the word “farm” appears so frequently in the names of American insurance companies? It stems from the dissatisfaction farmers felt after being charged the same insurance premiums as city dwellers, despite leading far less risky lives. This pushback led to a monumental shift in the way insurance companies viewed and protected their customers, as organizations quickly realized that people who face less risk should be entitled to preferred rates.

The world continues to change, and insurance companies realize it’s time to catch up. In just a few months, 30 of the largest insurance companies have joined Plug and Play’s Insurtech program for one-on-one access to today’s hottest insurance-focused startups, showing they are ready to innovate the industry.

But to really understand where the disruption is stemming from, we first need to remember that at its foundation, the insurance business comes down to managing risk and customer service. That is very broad, so to make things easier, we bucketed the areas ripe for disruption.

Product innovation and improvement

Today’s insurance companies built empires on traditional business models that have not changed in decades, and thus have become extremely inefficient. On the other hand, today’s consumers have evolved greatly, quickly adapting to new products and services being released daily. Service providers with slow response times or clunky interfaces have no place in a world where a taxi can be called within minutes of a single click. In working with today’s insurance giants, we have identified the main areas of improvement in four categories:

Improving user experience is without question a top priority among industry leaders. User experience touches nearly every facet of a company, especially within an industry as service-focused as insurance. Startups are improving user experience by leveraging technologies like video chat for instant claim processing, bundling services for streamlined policy management, using drones to make underwriting quick and painless, employing chatbots for better customer service or adding devices to cars and houses to instantly notify authorities in the case of an emergency. It can take 10 years to build a good reputation — and 10 seconds to destroy it. Insurance companies help consumers at their most vulnerable moments, so it is imperative that the customer-facing part of the business should be as seamless as possible, or a lifelong customer will be lost over a single bad experience.

Risk assessment and underwriting is at the very core of the business. An insurer’s ability to protect its customers at a fair price is only as good as its ability to calculate and underwrite the risk. There has been a huge push in leveraging machine learning and new data sources to better understand the risks we face on a daily basis. We are constantly collecting new data points to provide insight into our daily lives, and with this information, insurance companies will be better equipped to protect consumers from unexpected tragedy at a fair premium.

Risk exists everywhere, therefore insurance applications are infinite.

Prevention of loss is becoming more of a focus for insurers, with a shift in the industry to move from merely compensating for risk to mitigation of it. Protection is more than just helping you up after you have fallen, it’s about stopping the fall before it happens. Advancements in cybersecurity, sensors for the auto industry and connected home devices are all contributing to reducing risk before an incident. This isn’t specific to P & C insurance either. Life and health insurance companies are heavily investing in preventable health technologies through fitness trackers, educational apps and programs that incentivize healthier lifestyles in an effort to reduce the cost of healthcare.

Cost reduction is a key component to any business and is often the difference between success and failure. Many insurance companies are starting to leverage new technologies to streamline outdated processes. This could be anything from more profitable ways of improving the enterprise by using uniform applications across industries to more niche applications such as reducing fraud. In addition, technologies enabling instant claim processing, better underwriting tools or enhancing agents’ capabilities by digitalization can cut down the operational costs on a massive scale.

New insurance products

Many new technologies have brought about a huge shift in the way we interact with the world around us. With these advances come unfamiliar liabilities, risks and market opportunities. For example, with technologies like autonomous driving, there is an expected decrease in the auto insurance market size, which means corporations will need to compensate by finding new product offerings and becoming “specialty insurers” rather than just a traditional auto insurer. Risks in the future will not be as easy to segment or blanket with overreaching policies and will require more specific expertise, tools and flexibility with the shift of liability.

On the other hand, technology can empower traditional types of insurance offerings, as well, and open the way for different carriers to offer products that were not cost-efficient before. For example, blockchain-enabled technologies can result in dissimilar ways to insure or improve the way products are offered and distributed (i.e. Smart Contracts allowing instant claim settling, digital currencies playing a large role in microinsurance, etc.).

New market trends

Risk exists everywhere, therefore insurance applications are infinite. Trends in the market, cultural shifts, political changes and many other factors can play a huge role in the insurance market indirectly. For example, when the concept of “shared economy” came into existence, it resulted in increased risk for assets like homes and cars by being used for commercial purposes. This not only opened the door for insurance giants to expand their product offering, but also created an opportunity for nimble startups to move in and bite off a chunk of this quickly expanding market. Startups like Slice, which focuses on flexible policy offerings for the shared economy, or Stride Health, a new health insurance platform for the increased number of independent workers, are capitalizing on growing niche markets that were previously overlooked by insurance giants.

These trends won’t be be slowing down anytime soon, and there are always going to be technologies that impact markets and social behaviors in large scales. It would be wise for insurance companies to stay ahead of such trends across industries. At Plug and Play, a common interest of the insurers is to have scope across all of the industries, from mobility to new materials, to stay ahead of the latest trends that may have an effect on their markets.

Conclusion

Insurance is on the verge of a massive overhaul. Many technologies have changed the way consumers buy and use their most valuable assets, so shouldn’t their policies change too? Drones armed with high-tech sensors, IoT and big data analysis provide vast amounts of additional information to insurers. Technologies like AI and new distribution models streamline the way customers interact with their providers.

Insurance touches every part of our lives, and out of thousands of startups in Silicon Valley, almost all relate back to insurance in one way or another. Insurance giants are flush with capital and are are flooding to Silicon Valley to find the next startup to change the future of insurance.

Featured Image: vectorbest/Shutterstock



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