It’s no secret, technology is having a tremendous impact on banking, finance, and insurance. Billions of dollars are pouring into fintech companies around the world, which can have a surprising impact on our individual daily lives. While some think new financial technologies have solved everything that was wrong with banking and insurance, the reality is a bit more complex. While emerging technologies have improved service levels and the speed in which information flows, however, these same technologies have also created new unforeseen challenges.
One industry that is going through a period of tremendous upheaval is insurance. Technology, politics and other factors continue to contribute to changing norms for insurance, but the rise of autonomous vehicles and advances in underwriting and risk management are also changing the auto insurance industry.
All of this change is upending the almost antiquated way that insurers – especially property insurance companies – position their products. For example, a recent survey noted that that more than 60 percent of all Americans with a home or renter’s policy were underinsured.
Insurance is something everyone needs, but it’s also something we hope we never have to use. This is part of the driving force behind the change to this industry. This means that the impetus to make the entire process more user-friendly while lowering the cost is there. In fact, this sort of re-engineering the customer experience is something that more and more CEOs and senior executives need to take to heart if they want to remain competitive.
One example of a potential disruptive business in the auto insurance markets is Metromile. This company started in 2014 and might be one of the unicorns (startups valued at over $1 billion) that you have never heard of. Metromile sells auto insurance not based on what car you drive, but rather on how may miles you drive. This tweak to car insurance has helped it find a niche with people who drive fewer than 10,000 miles per year.
Putting aside the differences in how Metromile underwrites and reinsures their policies, the company has developed a mobile app which is easy-to-use and intuitively guides the customer through every step of the process. This means that the company does not need to deploy an extensive agent or customer service network – thus reducing overhead, a saving which can be passed on to the customer in the form of lower premiums.
That being said, the biggest opportunity to disrupt auto insurance (as well as other forms of insurance) is in managing risk. In fact, this might be an opportunity for new technologies such as artificial intelligence (AI) and blockchain to play an important role. While AI can be used to review complex data sets, blockchain can be used to reduce transaction costs, making it possible for insurers to offer boutique policies, including supplemental insurance.
Beyond this, sensors have the potential to be more widely used in tracking driving behaviors. This would help insurers to recognize which drivers represent an increased risk and could help to either warn drivers or even provide them with alternative services that might offer different coverage based on their specific driving.
Another opportunity for sensors is to provide general feedback on the driving habits of other drivers. This would allow insurance companies to rethink how they rate good drivers who happen to be surrounded by bad drivers.
Finally, fintech is even upending how insurance companies raise the cash they need for their policy pools. These include peer-to-peer models, which turn fellow customers into underwriters by choosing which beneficiaries they want their money to insure. Ultimately, the insurance industry is going through tremendous changes and while it is too early to know how it will end the trend is clear – technology will impact insurance.
