Disruption is a hot topic in most industries these days and there’s no shortage of people queuing up to explain that insurance companies and advisers are on their way out.
Many will assume that technology will be the cause of the disruption, whether through ‘blockchain’, big data, wearable technology or alternative developments.
Sooner or later, one of the big tech companies will enter our market we’re told, market dominance assured. Google, Facebook, Amazon and others clearly have the data, customer centricity and distribution know-how to make a dent in pretty much any market.
That said, I’m not convinced they’ll have the appetite for the balance sheet risk that comes with being an insurance provider rather than facilitator. That said, there is clearly scope for technological disruption.
One of the most interesting potential insurance disrupters is Lemonade - not the drink, not singer/songwriter Beyonce’s sixth studio album, released earlier this year, but a start-up based in New York and currently focusing on property and casualty insurance.
Insurance is seen by too many today as a necessary evil rather than a social good. It’s not always been that way. They’re interesting from a number of perspectives. There’ll certainly be some clever technology behind what they’re doing, and they have a neat app. They have adopted a kind of ‘peer to peer’ insurance model, echoing the foundations of insurance at Lloyds of London.
They aim to address what they see as the inherent structural problems of ‘slow to change’ insurers weighed down by legacy processes and attitudes.
They also want to address the belief that insurers make money by denying claims, leading to a cycle of distrust, with huge sums leaking out of the system through a combination of inflated claims and the cost of fraud prevention measures.
It’s this second point that I think is the most interesting and challenging for mainstream insurers, rather than simply technological disruption.
The Lemonade approach involves the application of behavioural insights to try and remove what they argue is an experience that’s adversarial and distrustful. They analyse behaviours to see what brings out the best and worst in us and look to improve the behaviours of all involved.
They make a profit on the premiums, but propose to pay out underwriting surplus to good causes (may be possible in GI, harder to see how it could be done in life).
Insurance is seen by too many today as a necessary evil rather than a social good. It’s not always been that way.
I worked for a number of years for a home service company where agents collected premiums on the doorstep, were seen as family friends, and were often invited to the weddings and funerals of clients they had served for many years.
Long before the days of big data, these agents accumulated a wealth of insight into the lives of their customers that could inform how to nurture and grow that relationship. And of course, thousands of advisers have strong, trusted relationships today.
That said, we need to seek out ways to improve our collective reputation, whether deserved or not, and Lemonade’s approach provides a timely challenge.
Technology and behavioural change could be a powerful cocktail – we need to be shaken and stirred to action. In the world of Protection, surveys regularly suggest that consumers believe payout rates to be below 50 per cent (despite their being well into the 90s).
In the first six months of this year, Zurich paid out more than £1bn claims in GI and Life claims in the UK. This is a huge number, and evidence of genuine social good, but the on-line comments under financial press articles on any weekend shows that collectively we have more to do.
There will be disruption going forward. I’d be less worried about the technological side – insurers don’t need to see the new start-ups automatically as threats but as potential partners.
The bigger challenge is changing public perceptions and behaviours, so that they expect claims to be paid, they trust us with their data and expect us to use it to craft better, bespoke propositions and communications for them, that insurance is seen as a social good, not a necessary evil and that there is a genuine community of interest.
If we can’t do this, and others can, it won’t just be Lemonade who will have a pop at us…
Peter Hamilton, director at Zurich UK Life
