The insurance industry is in a state of disruption. Customers are becoming frustrated with some elements of their interactions with insurance. They find that the product innovation doesn’t keep up with the digital landscape, which can leave them without connectivity into the rest of their digital lives.
Much of incumbent insurance industry is a low-touch product, with customers usually only having contact with their insurance provider annually and that relationship is often intermediated. This means insurance companies are able to gain little insight into their customer’s needs due the layers between them.
Innovation is happening. Smaller start-ups are emerging to integrate new technologies into the insurance landscape. For example, fitness bands are used to incentivize customers to keep fit by lowering their insurance premium if they achieve their goals. Lately, large insurance firms and professional services firms have discussed various blockchain or distributed ledger solutions.
Blockchain – or more generally distributed ledger technology – has the benefits of cutting through the intermediation layers to reduce administrative costs in an industry.
A blockchain consists of three main, complementary characteristics: a shared state, a set of rules for updating state via blocks, and a trust model for time-stamping. The records on a blockchain are immutable, potentially reducing instances of fraud. Professor Michael Mainelli, Director of City of London’s commercial think-tank Z/Yen, and his team produced a number of proof-of-concepts last year, successfully covering motor insurance policy and small business policy placement.
At the beginning of this year, Sir Mark Walport, the UK Government’s Chief Scientific Advisor, authored a paper for the government supporting these use cases, claiming the adoptions of blockchain and distributed ledger technology could result in motor insurance being calculated by the state of both the car and its driver, with insurance provision “changing between suppliers depending on behaviour, price and appetite for risk.” He sees this leading to a ‘programmable economy’ involving smart contracts, relying on decentralised networks and agents that require less human involvement, and operating as distributed autonomous organisations that deliver a wide variety of products and services.
The Internet of Things, or IoT, consists of millions of connected devices and enables us to use sensors to gather unprecedented amount of data. Tools can broadcast their state of repair, buses can broadcast their location and electrical goods can be turned off when they’re not being used. Data is more valuable than ever. Out of the sharing economy has emerged another economic model. Using the connectivity of the World Wide Web, people can monetise something they are not using: cars, houses and even their time, using reputation as their currency.
With this fast-paced change of the landscape, an updated insurance model is needed. One that can be changed based on the state of the policy-holder, the risk appetite of the policy provider and that utilizes the data we now broadcast daily.
We are living in a world where I can use Uber to order taxis to the airport, book flights on my smartphone, check in and access an electronic boarding pass – while being upgraded because of my high Klout score, as well as book a hotel and hire a car online for my destination. But I cannot access my insurance policy, or create a new one in the same manner. Soon the car will be self-driving, the airport will be interplanetary and the holiday a shuttle to Mars. How will insurance keep up then?