Forward-thinking insurers keep abreast of changes in the industry and watch them as they take shape. By now, everyone in the industry should be aware of the meteoric growth in the significance of insurtech. It’s no longer a question of when insurtech will disrupt the insurance industry. The questions to ask now are how, and how much, will the disruption impact insurers.
Here are three insurtech trends to keep on your radar.
Usage-Based Auto Insurance
Insurers are using cutting-edge technology to closely monitor the driving behavior of their customers so that they can gain a more accurate picture of how their customers drive. When usage-based policies were first offered, they relied upon users plugging little black boxes into their vehicle’s ODB-II port which wirelessly sent information to the insurance company. It was an effective system, but the insurer bore the cost of manufacturing and distributing the technology.
Now, sensors in modern smartphones can collect and share the types of telematics that insurers need to assess risk. Not only can insurers do away with the little black boxes, they can get more detailed information about driver behavior. Since data is collected by the smartphone, insurers can assess distracted driving risks by determining how often someone uses their phone when they are behind the wheel.
The result of this close monitoring is that many drivers are rewarded for their safe driving behavior with lower premiums. So, what’s in it for the insurer? Claims costs are going down. That’s because usage-based insurance programs attract drivers who are confident that they are safe drivers. And, they plan to prove it to reduce their insurance premiums. As it turns out, these drivers are less risky drivers and are consequently more profitable to insure.
Even though insurers may offer them lower premiums, insurers win because they are paying fewer claims. Additionally, when it turns out that a customer doesn’t drive as safely as they thought they might, the insurer can always raise their premium, further adding to the revenue generated by implementing a usage-based program.
Usage-based auto insurance is a trend that is gaining momentum. The global usage-based insurance market is projected to grow at a CAGR of 38.1 percent between 2016 and 2024 to reach $252.8 billion. Factors driving that growth are fewer accidents, lower claims costs, and higher customer loyalty.
Entering the scene back in 2010 with the emergence of Friendsurance into the market, peer-to-peer insurance has been steadily maturing. Often described as a “social insurance company,”’ Friendsurance has a very unique business model. Customers with the same insurance type connect with each other, and if no claims are made by the customer or any of their connections, the customer receives a pre-agreed maximum cashback. As claims are made, the cashback decreases for the customer and their connections. Regardless, Friendsurance customers don’t ever have to pay more than the premium.
Now, according to Rick Huckstep of the Digital Insurer, peer-to-peer insurance is entering its third wave: the self-governing model that leverages blockchain technology. Teambrella is an excellent example of this model. The concept is to form customer teams with large numbers of people. Each team is a self-governing community that consists of peers that collectively manage all insurance functions such as setting policy rules, accepting new members, making and approving claims, and deciding on reimbursements. Another thing that makes this model unique is that peers only pay when a claim is approved. There are no premiums.
Although questions have been raised about the scalability and sustainability of peer-to-peer insurance, it’s certainly a long-running trend to watch. Having gotten its start in 2010, it will continue to harness the power of communities to transform the insurance market.
Partnerships with Insurtechs
As more insurers begin to understand how insurtech companies can add value, there will be an uptick in partnerships. These partnerships not only enable insurtech companies to thrive, they empower insurers to provide better services while reducing the cost of acquisition of insurtech capabilities.
An example of such a partnership is Bold Penguin’s integration with Ask Kodiak. Bold Penguin is a commercial P&C insurer with a focus on creating a better, digital marketplace for agents. Ask Kodiak is a provider of a cloud-based, coverage search platform for property and casualty insurers. According to Michael Albert, co-founder of Ask Kodiak, the partnership creates market efficiency through transparency and insight.
“The integration with Bold Penguin helps agents quote new business faster and gives insurers more desirable classes of risk by their own definition,” explains Albert. “It's about putting the robust search functionality and appetite matching of Ask Kodiak where it is most useful and accessible for agents, and Bold Penguin is using our API to do just that.”
Managing Disruptive Trends
It’s not enough to know what the trends are. Thriving in the quickly evolving insurance industry means determining what new technology trends fit the insurer’s business model and starting to leverage them.
When assessing their business model, insurers might find it necessary to tweak that model to take advantage of insurtech. This is the best way to manage disruptive trends.