As we approach 2017 insurance companies are going extinct at the same rate as old-fashioned banking institutions. Those that are not there yet will get swept under the rug at their refusal to innovate. Problems integrating with the 21st century are not just an absent digital presence, but instead the complete lack of a reactionary approach to the changes to insurance needs; both physical and digital. To call for all doom and gloom though is not appropriate. There are still plenty of opportunities for insurance companies to maintain their profitability and customer relations well into the 22nd century and it starts with insurtech. For now, though it is largely insurance vs insurtech, and insurtech is winning.
Insurtech is a new tradename for a growing class of apps, software’s, and startups that are reinvented a tired and lacklustre insurance industry. For centuries insurance has run with a number of assumptions about their clients. It has served them well in very predictable ways. Today, the insurtech group is finding the idiosyncrasies in their client’s desires in everyday living and offering them insurance products and services tailored to exactly those needs. The tech component comes from the integration of their insurance plans with the existing technology. That is the definition of insurtech.
Yes, insurance has come a long way, namely in traditional insurance companies getting back to the roots of a local representative that can be trusted, similar to how old-fashioned banks are able to stay afloat. There is still something to be said for having a physical relationship with a qualified professional and be able to be serviced by them in real-time. So to have insurance companies developed powerful websites, integrated social media, and made their information and services available on a mobile device.
In our changing world, the largest percentage of the population is in the Baby Boomers, but the fastest growing population are the millennials. They have struggled to find their place in the workforce and become the traditional home and automobile owners their parents and grandparents were. Now that they are becoming comfortable with their adult lives they have markedly different needs than those Baby Boomers and even Generation X do. For the advantages of insurance they need someone to cater to their needs differently.
Traditional insurance assumes that millennials want life insurance, without recognizing that their wages and benefits packages are not nearly in line with previous generations. Traditional insurance also fails to realize that the majority of time for millennials is spent connected to their mobile devices and online. In both cases, millennials have different insurance needs than their parents or grandparents that only the insurtech companies seems to take advantage of.
What they are missing is the tech component. When the insurance companies learn to pair with the brightest stars of the insurtech startup realm and make deals with existing tech juggernauts like Facebook, Apple, and Paypal they can begin to offer their insurance product backed by the best there is. As we will see in the insurtech examples, it is not always the typical tech companies that are garnering the attention. Sometimes the brightest minds in diverse insurtech fields such as health and automotive can pair with the insurance industry to develop potentially disruptive changes to the landscape.
Those who have been the victim of natural disasters such as flooding or house fires know all too well the problems inherent in personal property coverage. Typically belongings are covered at the value that it would cost to replace them (known as retail replacement value) at the time of the accident, not when they were brand new. Taking into account ageing of home furnishing and electronics hardly results in much payback.
Trov is one insurtech company trying to make that process a little bit easier. The company makes a real-time software solution that allows the insured to snap photos and create a database for their precious personal belongings. Although it does not solve the age-old problem of irreplaceable memories, it does allow more accurate coverage as insurers can replace items exactly as they need be. Real-time management allows users to track the increasing or decreasing value of their belongings including fine art, jewellery, furniture, etc. All of this is done on a mobile device stored on the physical phone and on the cloud.
The old-fashioned insurance industry has been ever slow to adopt a digital footprint. It is often no surprise that few companies have even considered coverage of digital assets. Today, a person can indeed have more personal property on their smartphone or tablet than in physical belongings. In a freelance culture, many millennials have taken to profiting off of producing their own content like videos and blogs. From a larger scale perspective, digital startups will need insurance in case of the loss of a domain name, website backups, the death of a founder, etc.
Digital Risks is taking on the responsibility of providing coverage of digital assets for clients. Keeping in line with their clientele, Digital Risks offers monthly plans tailored to its customers, all accessible through a smartphone or tablet. No need for physical paperwork and no need to meet anyone in an office. What better example could there be of insurtech companies being responsive to the needs of today?
Another problem with the worn-out insurance industry is that they often assume all clients will want and need constant coverage throughout the duration of the plan. Travel insurance, provided for only a day or a week of a vacation was a breakthrough, but what if that was even too much? Now insurance by the hour is one of the finest offerings from insurtech insurance today. Again it caters to the responsive nature of the market that will be the future: millennials.
A great example of a short-term insurer is Cuvva. This insurtech startup blows other companies out of the water by allowing clients to take a photo from their smartphone of a license plate for a vehicle they are driving and receive by-the-hour insurance for that vehicle. This reactionary business is perfect for the freelance culture today as millennials lack the funds for the same type of cars their parents drove and are far more likely to borrow, share, or hire an Uber driver. They pay as they need to and nothing more. That is great value for everyone and one of the many advantages of insurance.
Every other industry has been successful at allowing potential customers to see the gamut of offerings available to them all with one search or one click. Popular travel sites like Trivago show hundreds of results for the same hotel at different prices. It would make sense for insurance to offer the same. All too often though the industry is stuck in the mindset of only offering quotes and information related to premiums when they have connected to a customer with a telephone number and physical address. Then they can haunt their lead with unsolicited marketing without actually informing them.
PolicyGenius is making insurtech news as it recently received more than $15 million in venture capital funding. The website for PolicyGenius gives users a comfortable suite of easy-to-use tools that allow them to compare all types of insurance against hundreds of competitors. They also offer free tools that let users know what they need, specifically for their unique situation, and then give quotes without annoying phone calls or constant email spam. This is just one more great company learning to use insurtech insurance to be reactive to a changing demographic.
According to VentureClash, a leader in insurtech news, investments in insurtech rose from $800 million in 2014 to more than $2.6 billion in 2015. The evidence suggests that some of the more powerful and well-recognized insurers are creating incubators for innovation in their industry. Many insurtech startups are being created specifically for acquisition.
One resource that is still largely untapped by the insurance industry as a whole is customer education. Bridging the gap between traditional insurance companies and the innovations in insurtech companies revolve around catering to and educating the customer. According to Daily Fintech, only 1 in 7 Americans understand the insurance plan they have through their employer, in an age where lifestyle decisions and implications for choosing a plan could mean coverage or lifelong debt.
Education is one element that the insurance companies can take advantage of. Another is their wide set of data and capital to partner up with established companies making devices and apps that track the personal health of a person or their property.
FitBit is one great example of how technology can be utilized and partnered with the advantages of insurance, allowing insurance companies to have a better understanding of the individual’s health and wellness. Great scores can be rewarded with discounts and less than adequate readings can lead to financial penalties. There is no better way to be reactionary than with motivating people to better health by rewarding them financially.
This is only the tip of the iceberg. Traditional insurance needs to partner with startups to use apps, artificial intelligence and the like to accumulate real-time and authentic data of their clients. Think self-driving cards for auto insurance. Every facet of traditional insurance can pair up with the best-of-the-best in their corresponding industry.
The reactionary nature of traditional insurance moving to insurtech can often be compared to traditional banking’s slowness in integrating to fintech. The inability for traditional banks and government policies to integrate such powerful tools as banking API have put them dramatically behind in fintech.
Something as useful as insurtech with banking API - that seamlessly allows for customer data to be put to use for the benefit of the customer in such cases as real-time benefits on their smartphones or tablets - benefits the traditional bank in so many ways. Saving time, utilizing less human resources, and ultimately saving money, the bank would be taking a reactionary approach to the needs and desires of the customer: to have better money saving and money making decisions in real-time.
Like banks though, traditional insurance is still a stalwart in our 21st century. The reign will not last forever, as community banks and old-fashioned institutions will continue to ask: where did our customers go? They will be left in the dust. Traditional insurance has every reason to integrate with insurtech startups. Not only is it in everyone’s best interest. It will keep their businesses alive.