Insurance Disruption is Happening Right Now
Kevin Wang | July 22, 2016
Insurance occupies a sector of our economy that has not seen any major technology disruptions until recently. Its history goes back to the Lloyd's of London in the 1600s, who mitigated their risk exposure by posting notices of their cargo headed for the New World. The cargo would ship out only when enough merchants signed up to undertake the travel risk. The risk-takers eventually came to be known as underwriters and the bonuses they received for undertaking that risk were called premiums.
With a space so antiquated and full of consumer trust issues, why has nothing changed? Well, 66 percent of consumers have distrust for the insurance industry. Seventy percent of consumers feel that choosing financial products are confusing, according to Deloitte. The distribution model is outdated; insurance agents are still making house calls. Market conditions create an interesting opportunity for startups vying for a seat at the table. There is a need for newer distribution models, a simplification of consumer products, and a shift in a mindset among customers.
Also, today’s household decision makers are becoming harder to sell to. A 2015 LIMRA study found that the majority of Gen X and Y consumers know they are under-insured, but less than 20 percent are likely to buy life insurance.
Millennials also have a strong opinion about current insurance policies. Bob Mozeika, head of Munich Re’s Executive Innovation Strategy, stated at the Plug and Play Insurance kickoff event, "Millennial's really want more transparency in their products… people want to fully and easily understand their coverages and value they are receiving, Not just easy access".
There are many barriers to entry for new innovative insurance companies. For one, insurance companies have been slow to adopt technology innovation. They are also making expensive acquisitions with price to book values falling between 10x to 16x, according to Deloitte.
Large insurers have had difficulty implementing IT system integrations. Many still rely on old legacy infrastructure. With current regulation stifling advances in peer-to-peer insurance there are still many significant barriers to entry for insurtech startups to get off the ground.
The market is already starting to make way for disruption. In the past six years, early stage insurtech funding has grown from less than $50 million to close to $350 million, according to CB Insights. The new inflow of cash mimics the trends in the FinTech space.
New 'insurtech' companies are leveraging the power of shared economy made popular through services like Uber and Airbnb. On top of that, there are now more effective communication platforms to reach customer segments. The Internet of Things and Big Data have given unprecedented insights into customer habits in real time. New tech such as autonomous driving will also significantly change the future of auto insurance, explains PwC. These tools will allow the insurance sector to move from a reactive model, to a proactive one—a revolutionary turn.
We are starting to see mobile and in-app solutions develop in this market space. A number of high caliber startups are beginning to deliver innovation especially in the on-demand insurance space. Trov offers a mobile app that tracks, prices, and delivers insurance coverage for single items and possessions. Early this year, they raised $25 million. Slice Labs offers on-demand insurance to the ride-sharing economy on the drivers’ side. They just closed $3.9 million earlier this year. Bunker raised $2 million in a seed round in effort to provide insurance for freelancers, otherwise known as on-demand employees.
These investments pale in comparison to the massive war chests of major insurers. That said, the nimbleness of these startups, tapping into the on-demand hype, could eat away at the market extremely fast.
Business models are being reinvented as we speak, especially in the insurance sector which is often marked by low customer interaction, limited service levels, complex IT systems, and masses of data. A new digital revolution has created more data enabling new risks, tailored products, performance warranty, and new ways of underwriting. It has given insurance companies access to customers they have not been able to access before.
Given the complexity of insurance products, technology can arm agents with resources to access traditional customers in new ways. Industry has also not been growing at the same rate as GNP and is losing relevance. There is a desperate need for innovation to expand boundaries of insurability in an effort to bring new premiums into the market.
Disruption may not necessarily mean a complete overhaul to the traditional underwriting and premium model, but can we improve the risk assessment process? What about the way in which policies are sold to consumers? Will insurance policies work like the real-time stock market? Will we need completely different insurance products to safeguard against new and emerging tech such as cyber threats?
That’s a lot to think about.
(This article was written by Kevin Wang and Ali Safavi from Plug and Play Insurance, in collaboration with Robert Mozeika and Philip von der Schulenburg from Munich Re and Daniel Gadino and Prashanth Ajjampur from Deloitte.)
Featured articles
- Martha Notaras Will Join ITA LIVE 2019 as a Keynote Speaker
- Five Things to Consider When Evaluating Your Cyber Risk
- ITA Pro Magazine, January/February 2019
- Major Ransomware Attack Could Hit U.S. with $89B In Economic Damages
- ITA Announces 1st of Three Keynote Speakers at ITA LIVE 2019
- Electronic Chat with Jeroen Morrenhof
- Legacy Systems Are Dead. Really? Don't Count On It.
- Now Accepting Nominations for the 2019 ITA Bridge Awards
- It's time to register for ITA LIVE!
- Registration is Now Open for ITA LIVE 2019!
- What to Expect from a Digital Experience Platform Implementation
- ITA Pro Magazine September Edition is Now Available
- It's National IT Professionals Day
- Save the Date for ITA-LIVE 2019
- OneShield Software and UrbanStat Work Together to Improve Real-Time Analytics and Risk Decision-Making
- ITA LIVE 2019 - SAVE THE DATE!
- Insurance Technology Association Announces New Editor-in-Chief
- August 2018 Edition ITA Pro Magazine is Now Available
- Enterprise Architecture in an Agile World
- Top 10 Tips for Securing Your Mobile Devices and Sensitive Client Data
- Industry Insight: 4 Global Insurance Trends in Digital, Data, Content Services and Security
- Diving Deeper into Prioritizing Your Strategic Digital investments
- Why Content Rules
- How Mass Personalization Will Open the Small Business Benefits Market
- At Year End 2017, Will Your Organization Be Protected from Cyber Risks?
- Do Insurance Bots Dream of Mitigating Risk?
- Conditioned to Respond
- Managing & Mobilizing Insurance Data in a Connected World
- Race to the Finish Line
- New Tools, New Opportunities in Claims
- ITA LIVE: Reaching Insurance Industry Crossroads
- Advice to Insurance IT Leaders: Keep Your Eye on the Ball
- New Date, Venue for ITA LIVE 2017
- Guidewire Makes Major Push to Small and Midtier Market by Acquiring ISCS
- Insurance Disruption is Happening Right Now
- Insurity Adds Strategic Investment Partner, General Atlantic
- Beyond Transformation: The Convergence of Finance, Risk, and Actuarial Functions
- The Rapid Evolution of Consumer Protection Regulation
- Talent Hunt: Finding, Attracting, Retaining Top People
- Insurers Flexing Their Distribution Models
- Technology Driving Disruption in Insurance
- Fear of ‘Next Bubble’ Challenges Life, Annuity Carriers
- Technology Allows Commercial Lines Insurers to Stand Out
- Single Sign-on Viewed as Biggest Tech Challenge for Agencies
- ISCS Observes 20th Anniversary; Scurto Predicts Major Changes Ahead
- Policyholders and Their First Impressions
- Progressive Making Progress on the UBI Front
- High and Dry: Insurers Search for Disaster Recovery Plans
- Insurers Sign The (Un)Dotted Line
- Reflections of a Retired Insurance CIO
- Mobile Device Management Just One Answer to BYOD Issue
- Lessons from GEICO and Progressive on Winning the Critical Buying Stage
- You Are a Target for a Cyber Attack
- Web-based Systems are the Next Evolution in Claims Technology
- Gaining a “Wow” Experience from Web Users
- Time to Shift from Business/IT Alignment to Business/IT Alliance
- Healthcare Insurers Changing to Consumer Model
- Organization is the Key for Selecting Software Vendors
- Analysts Expound on the Needs of the Mid-tier Insurance Market
- Finding the Cure for Obamacare’s Website
- New Software Solutions Benefit Insurers on the Inside and Outside
- Products, Market Impede Investment in Systems for Life Insurers
- Combatting Cyber Threats: Predict, Prevent, Persist
- The Future of Telematics Heads Beyond Insurance
- The Shame in Cyber Security Lapses
- Building Policy Administration Systems for the Future
- Insurers Look Into The Eyes of Their Policyholders
- It’s a New Dawn for the ITA
INSURANCE IT NEWS
- RLI Selects DataCubes to Optimize Certain Underwriting Processes
- Reinsurance Software WebXL Version 4.3 Released by Prima Solutions-Effisoft Group
- Direct Online Could Grow to 12% of Small Commercial Insurance Market by 2023, Says Novarica
- David Fisher joins FRISS board as non-executive member
- Gulfstream Property and Casualty Insurance Company Selects Roost®Home Telematics Solutions
- Promutuel Insurance Extends Guidewire PolicyCenter to Support Personal Lines Including Data Management and Policyholder Digital Engagement
- Global Insurance Accelerator Announces Nicole Cook as Next Managing Director
- 60% of Carriers Planning to Increase Quality Assurance Activities in 2019, Says Novarica
ELECTRONIC CHAT
The Email Chat is a regular feature of the ITA Pro magazine and website. We send a series of questions to an insurance IT leader in search of thought-provoking responses on important issues facing the insurance industry.
-
Electronic Chat with Jeroen Morrenhof
Bill Sinn
ITA interviews Jeroen Morrenhof, CEO of FRISS, one of the leading fraud and risk mitigation companies serving the P&C insurance marketplace... READ MORE
ITA LIVE 2019
The tide is up! It's time to register for ITA LIVE 2019, our annual educational and networking conference! Our theme is "The InsurTech Revolution: Cutting Through the Hype." and we'll be bringing in a torrent of industry thought leaders, amazing insight and wonderful perspectives on the world of insurtech and its impact on the insurance landscape.
ITA LIVE 2019 will present real-life examples of true startup technologies that are helping insurers gain real advantage -- and a competitive edge -- in the marketplace. We’ll highlight the more successful InsurTech partnerships, while offering case studies that demonstrate exciting innovation and cutting-edge techniques impacting all aspects of the insurance ecosystem.
Ride the wave to LIVE 2019. Sign up today! We look forward to seeing you in May, 2019!
BLOGS AND COLUMNS
-
This month, the ITA celebrates Insurance Careers Month and encourages carriers, brokers, agents and our industry associations to plan their own... READ MORE
-
The Hidden Costs of Custom Software Systems
David Pittman
Customization in the general sense has a very positive connotation. However, in the world of software systems, customization quite often falls short... READ MORE
only online
-
Down Market Opportunities Beckon Benefits Insurers
You have surely heard it said that small businesses are the growth engine for America. Today, the phrase has a special ring to it for benefits... READ MORE
-
Technology at the Heart of Change in Insurance
With stagnant growth and lingering low interest rates, the life insurance industry faces a challenging future... READ MORE
-
Got Policies? IVANS Service Helps Feed Commercial Lines Producers
Finding insurance carriers willing to write commercial lines risks has always been a challenge for producers... READ MORE
-
Technology Changes Coming Faster than Ever for Insurers
As Guidewire Software prepares for the start of Connections, its 11th annual user conference that begins on Nov. 2, Brian Desmond, chief marketing... READ MORE
Vendor Views
-
The Hidden Costs of Custom Software Systems
Customization in the general sense has a very positive connotation. However, in the world of software systems, customization quite often falls short... READ MORE
- Vendor Views
Partner News
-
Distracted Living: What It Means for Insurance
One important trend in society over the past decade is our increasing ability to create and consume a seemingly unlimited amount of digital content... READ MORE
- Partner News