Innovation in Insurance: Truth vs. Reality
At the 2017 PCI Annual Meeting, Paul Mang, Global CEO of Analytics for AON discussed innovation in insurance with a focus on truth versus reality.
Mang started by outlining three myths around innovation in insurance:
1. InsurTech will disrupt insurance
Disruption implies a type of industry change where the traditional businesses and models in that industry can be replaced. Think of how ride sharing apps have disrupted the taxi industry. “Disruption” is not the proper term to use in the insurance industry. InsurTech and traditional insurance industry companies can work together on improving efficiency. Because of regulation, barriers to entry, and the channels for distribution, the insurance industry is not easy to “disrupt”, therefore, disruption of the insurance marketplace by technology is a false assumption.
2. Tech startups are bringing radically new ideas to insurance
While there are a large number of tech companies targeting insurance, the ideas are not new for the most part. The speaker referred to thoughts like predictive analytics are the foundation of insurance underwriting. Even claims predictive analytics, ultimately, depend on traditional claims handling methods to be effective. Most of the ideas are not new, but improvement on existing concepts.
3. Insurance industry is slow to change
While insurance is not the fastest-moving industry, much of this is due to the regulatory constraints. The industry is investing heavily into InsurTech with many carriers pumping venture capital into startups. While it is true that the insurance industry is slow to change compared to some other industries, it is still innovating.
That being said, there are three forces that are the framework for change in the insurance industry:
1. Data
Better data helps us make better evaluations about risky behaviors. It also helps us to better understand buyer decisions and claims trends. We have access to many new sources of behavioral data and that is an area where there is more opportunity to change in insurance. We need to learn how to access and utilize these new data sources.
2. Community
People, by nature, like to be part of groups or clubs. We saw a decline in groups and clubs in the 1980s (things like bowling leagues, Elks Clubs, etc). Online groups are now growing and thriving and will become more common going forward. Thinks like match.com, gaming community, even gofundme, are examples of online economies that are growing rapidly. The insurance industry needs to understand the emerging virtual community and the risks associated with it.
3. Time
Consumer expectations are changing. People expect real-time updates and on-demand information. People are also looking to manipulate time to fit their schedules. Think in terms of binge-watching an entire season of a TV show over the weekend. People want more control over how they spend their time. Time is less of a constraint these days, but it can also create risks. 3D printing means you can create products instantly and eliminate the supply chain risks, but there are other risks associated with 3D printing that have not yet fully been contemplated. The on-demand economy also creates the need for on-demand liability insurance products.
Finally, “open architecture innovation” involves multiple people across multiple organizations working to solve a common problem. An example of this is the Apple App Store. Apple doesn’t create the apps, but they benefit from them financially. In the insurance industry we could benefit from an open architecture model.