The insurance market has been in a protected state for what seems to long now. Some segments still operate in a fashion not so different from 20 or even 30 years ago, based on trust, a personal relationship with the agent, risk pooling and insurance companies acting as the only holders of the data. The technology innovations are slowly making their way into this industry by first entering the banking sector and then being adopted by insurance, which is a more conservative business. The driving force of change, which should be represented by the clients, is still attached to the old ways and is too afraid of privacy related issues to embrace the change. However, progress is inevitable and disruptive trends like the internet of things, automation, new market models, insurance based on the user’s characteristics, new tax reforms and a growing market that drives lower premiums.
1. Internet of Things
Data has always been the driving force behind computing insurance premiums, and real-time data will have a major impact on claims, their resolution and the way insurance companies organize their activity. The internet of things (IoT) is driven by the decline of prices for different sensors and the Wi-Fi capabilities of most gadgets give the opportunity of sending data towards the insurance company’s servers to be used in computing risks, analyzing claims or just computing new models. The future could bring the use of sensors in cars to indicate the circumstances of accidents, using the data given by wearables to determine health risks and changing the insurance products for homes with the introduction of more and more smart home features. The concerns related to this high degree of technology intrusion are linked to the perceived privacy invasion of sharing personal data with companies. In fact, Big Data is not a tool for Big Brother; it is just a way to build models of a changing reality that can lead to individual pricing and a lower premium for low risk customers. The current concerns related to data theft and data safety can be easily addressed by increased security and customer managed accounts, where you provide as much data as you feel comfortable, keeping in mind that each new piece of information can have an impact on your insurance premium.
2. Increased Automation
Technology does not shake only the customer’s side, but also the provider’s side, who are always interested in cost reduction, without quality cut downs. The traditional model using insurance agents who are either employees or independent brokers is starting to fade away, with multiple implications. The clerks could soon be replaced by robots endowed with artificial intelligence, and the self-service model is getting more traction as people become more financially educated and can make their own choices. Convenience is another influence factor that increases the preference for digitally delivered products, eliminating the broker from the company-client relationship. The cost savings could be reflected in the insurance premium, increasing the chances of the clients choosing to be their own insurance advisors, taking the time to do research and selecting the products that are most suitable.
An interesting sub-trend of automation will be the increased use of gamification in the insurance sector to increase customer engagement and make them feel they are part of something. This is a modern upgrade of the traditional bonus system that had been around for some time in the case of good clients. Decreasing the premium based on client performance was attractive to older generation, but gamification is a trend that can easily catch on for Millennials and Gen Z, since these are people who grew up with games and love doing challenges for rewards. This approach can be also used in training own staff.
3. Tax and Regulations Reforms
Political changes usually bring fiscal changes and it seems that the Trump administration will make some significant modifications to the existing fiscal system. To boost economy there is an announced lowering of corporate taxation, which needs to be compensated by shrinking the possible deductions. The direct effect on insurances will be felt in life insurances deductibility and the most impact is expected to be felt by offshore hedge funds and private equity funds.
Other regulatory issues that could change the insurance game are related to possibly new standards to be enforced by the International Association of Insurance Supervisors related to risk management and prudential standards. On a federal level, the insurance companies are waiting for the political changes to be duly stated, the most important being related to dismantling the Dodd-Frank Act. This means that the FIO (Federal Insurance Office) will no longer continue its existence as until now and there is some tension related to the population’s coverage in this area.
4. New Market Models
The traditional insurance business model was a push one, sustained by even pushier sales representatives or brokers. The products were standardized and based on the average needs of the average consumer. In a world where you can customize your coffee with the push of a few buttons, this is no longer acceptable, and the clients will be inclined towards a “pull” model, where insurers get out of their offices and set camp where the need is, like clinics, travel agencies or any other place their services would be needed.
Another trend is to discharge the approach of self contained and open up to collaboration and connecting the customer with the best offers available, while cutting costs. Some insurance companies will be no more than savvy brokers, carrying no risk pooling, but facilitating the connection between clients and risk mitigation companies.
5. Sharing Economy
There is an increasing trend in non-life insurances of separating the owner from the insured good, weather a house, a car or a facility. An increased importance should be given to the concept of sharing economy, which can get members of a group a better premium price or even their money back if there are no claims. This works best with users with similar profiles and risk degrees.
On the other hand, capitalizing on the sharing economy, you can be the owner of an item together with other people and take turns in using it, like a vacation house or even a car. In this case, companies choose to offer user policies instead of policies for the item, since most of the times the user profiles are very heterogeneous.
These trends might seem like they are written by Asimov, but in a business sector that seems almost frozen in a distant era, change will make its way and there is no more time to take it gradually, disruption instead of gradual evolution will be the general rule.