The future of insurance is all about you
The future of insurance is all about you
10 second overview: “There’s a world of difference between the traditional insurance models of yesteryears and the smart insurance that’s disrupting the industry. Learn what these differences are in this groundbreaking 3-part series. We consider why traditional models of insurance are inadequate for today’s digital native customer, and why the rise of smart insurance means insurance can do more for you at considerably less cost.”
Insurance is entering a new era and the line between traditional and smart insurance becomes clearer with each season. Traditional insurance is the insurance that served baby boomers (born btw 1946 and 1964) and Gen-Xers (born btw 1965 and 1980) when they came of age. The rise of advanced technologies from digital to AI, cognitive computing, robotics, self-driving cars, IoT, blockchain, etc, are fast changing things, making traditional insurance unable to serve the generations of today. Before we delve into why traditional insurance simply won't cut it for Millennials (born btw 1981 and 1996) and Gen-Zs (born after 1996), it helps to go over why insurance matters so much.
It's hard to overestimate the value of insurance. It helps us prepare for risks that could hurt us or destroy the things we value. So, insurance is directly linked to what we identify as a risk and how we define what we value. What do we value? We value the things that make it possible for us to live happy, productive, and stress-free lives.
Half a century ago, a person's matrix of insurable valuables or assets consisted of a house or rental, a car, investments, valuable properties, and health and welfare. Today, however, this matrix of valuables has changed and the risks we face have changed.
For corporations who must answer to their shareholders, insurance is vital in ensuring that bad decisions, market shocks and economic crises do not destroy their shareholders' investments. So, insurance helps individuals by considerably lowering the risk of sudden impoverishment and loss of assets for self and family, and it helps organizations operate efficiently and innovatively in risky business environments. Needless to say, without insurance, the US economy would not have become the behemoth it is today. Without insurance, no one would have been willing to take the risks necessary to innovate and create the layers of value that have made the economy what it is.
Yet, for all its importance, insurance, traditional insurance, is considered the classic grudge purchase— something that's needed or necessary which nobody want to buy. And usually, the only time we have to deal with our traditional insurance carrier is when something bad has happened and we have a claim to file, or when we're buying or renewing our policy. This traditional model of insurance simply won't cut it for the Millennials and Gen-Zs who will dominate the market for the next half century.
For starters, the old model of insurance, which focuses on protecting against loss, is reactive. Insurance companies operating on this model are only relevant when something bad has happened. With this narrow value offering, the old model had very limited profitmaking opportunities, creating a perverse incentive for insurance companies to avoid paying claims in order to increase their profits.
Next, the old model of insurance is also rigid and unable to adapt to changing times and the changing needs of the people. It took the disruptive influence of new digital-first market entrants and radical changes in customer expectations to jolt old players into transforming their traditionally conservative way of managing insurance. However, insurance companies which look to technology alone may miss the core of the disruptions at work in the insurance market.
In their 2019 report, Deloitte stated emphatically that "Customers are the disruptive force in the insurance industry". Today's insurance customers, Millennials and Centennials (as Gen-Zs are sometimes called), are very likely to buy insurance online. Their digital-driven lifestyle of immediacy, constant change and a plethora of choices has put them out of the reach of insurance companies who choose to stick to the old model. These two generations are also strongly motivated by tech-driven, value-added services that improve their lifestyle. This, along with the availability of enabling technologies, has forced the insurance industry to shift from focusing primarily on loss protection to risk prevention and prediction.
Risk prediction and prevention are more proactive and will provide insurance companies with opportunities to interact with their customers outside the traditional claims filing and policy buying windows. With new customer expectations and a shift in the insurance industry's attitude to risk, the old, traditional way of doing insurance is on its way out and smart insurance is gearing up for prime time.
The things we identify or define as risks have direct influence on what we expect insurance to do for us. Half a century ago, there was no smart phone, no Uber, no self-driving car, and no internet. Today, things have changed remarkably.
We are in the shared economy with ridesharing and space-sharing platforms popping up in the US and beyond, self-driving cars are a few years or mere months away from going mainstream, and we live in a time when virtually every information about us is saved and can be traced from our smartphones.
The risks we face today are, therefore, radically different from the ones that informed the rigid traditional model of insurance that held sway half a century ago.
Smart insurance is insurance supported by smart technologies. It is the kind of insurance which only digital-first and insurtech companies can provide. More importantly, smart insurance is insurance designed to adapt to the changing matrix of risks Millennials and Gen-Zs face.
1. Insuring the shared economy
The shared economy is about the "...collaborative consumption of goods and services." Insurance must change and adapt to the unique features of the shared economy. In the era of shared cars and apartments, risks are literally shared, and as a result, single payer insurance products will not suffice. There is need for shared policies for homeowners and renters (as the case may be), and further, for shared policies to adapt to unequal ownership models and unequal usage models. One factor driving the shared economy is the affinity for travel Millennials and Gen-Zs share. Linked to this are far more temporary ownership and usage models which make time-locked policies less attractive.
Smart insurance companies can serve the shared economy because they have the capacity to track uneven ownership and usage patterns using technology and can adjust their policies accordingly. They are also able to provide Usage-Based Insurance (UBI) products such as pay-as-you-live or pay-as-you-drive insurance products which leverage telematics and connected devices to ensure insurance charges are adjusted to usage patterns in real time.
2. Insurance for non-traditional property models
Self-driving cars and robotics are a great example of non-traditional properties which have a different risk model, and which will therefore, require a different insurance model for the future. While these assets can be owned by an individual, the way they operate and the decisions that guide their operations have less to do with their owner and more to do with their manufacturer. So, manufacturers bear a significant portion of the risk in non-traditional property models, and it will require sophisticated tracking, monitoring and analytic technologies to assess these risks in real time.
3. Non-traditional usage patterns
It's not just the technologies that have changed in the past half century. How people do things has also changed. For instance, while owning a car is still considered valuable, many people in the US are driving less, making the high premiums of traditional auto insurance unnecessary.
This changing usage pattern and the rise of the shared economy have made Usage-Based Insurance (UBI) more mainstream, particularly for auto insurance. Variations on this policy include pay-as-you-drive, pay-per-kilometer, pay-per-mile, and even pay-per-hour insurance policies.
UBI in auto insurance is made possible by smart insurance which has the tools to leverage data from sensors, trackers, and analytics to adjust premiums based on real time usage. As more non-traditional usage patterns emerge for other conventional property classes, we can expect smart insurance to provide similarly adapted policies.
4. Insuring properties valued by Millennials and Gen-Zs
According to research, Millennials have been slow to acquire traditional assets like houses and investments, and the older Gen-Zs have only recently entered the job market, making it unlikely that they have acquired the wealth they need to buy houses and invest long-term. Data shows only 58% of older Millennials own homes and before the pandemic, only 45% of Millennials owned a house though over 80% owned a car.
Despite this lag in homeownership, insurance companies would be mistaken to think Millennials have less to insure. Research shows Millennials value their mobile devices, tech tools, legacy video games, sporting equipment, and the connected applications that add ease and convenience to their lives.
Smart insurance is already making it possible to insure mobile and tech devices on usage basis and has shown the capacity to adapt to these product classes.
As new IoT, augmented reality, virtual reality, and virtual property assets like NFTs mature and go further mainstream, there will be yet more to insure against risk and by the very nature of these risks, only smart insurance will be equipped to deliver on this need. Microcoverage options which provide insurance for single properties on a discrete rather than collective basis will also gain traction and can only be supported by smart insurance.
5. Insuring cybersecurity
Millennials and Gen-Zs are undoubtedly the most digitally exposed generations. And as their wealth and asset profile rises in the coming years, they will become the target of data leaks, ransomware, and virus attacks. Smart insurance is the only way to tackle the risks inherent in having so much data online. It is an area of natural fit for smart insurance companies going by their digital-first services and their competitive advantage in the area of technology-enabled capabilities. Cybersecurity products have already emerged but the challenge will be to adapt cybersecurity insurance at the pace of emerging and evolving risks.
6. Providing non-insurance services
In their 2020 report, Deloitte found that 62% of insurance executives believed non-insurance products had become the deciding factor for people when choosing an insurer. These include having access to agents who can provide additional information about insurance policies and faster or automated claims processing, as well as risk or harm prevention services such as automated risk alert systems, roadside assistance, cybersecurity education services, personalized driving tips and driving reports, tech-supported mapping and wayfinding services, real-time property tracking services, etc.
Some of these service options are already being provided by legacy insurance companies that have successfully digitized their services and adapted to smart technologies. However, insurtechs and digital-first insurers have a competitive advantage in the area of non-insurance services and with strategic collaborations, the ability of smart insurance to deliver the non-insurance services Millennials and Gen-Zs require will be enhanced.
Smart insurance is the insurance of the future because it is customer focused. It is focused on helping today's customer find the coverage they need for the properties they value and the unique risks they face today. Smart insurance is also adaptive, and this makes it is future-ready. With technology-based capabilities as their competitive advantage, they have every incentive to keep up with emerging technologies and the risks they bring. They are also conscious of the lifestyle of today's American adult, which is quite different from what it used to be half a century ago.
Ours is the era of the shared economy, when enlightened frugality is a virtue and education is highly prized. Smart insurance is insurance that will help Millennials and Gen-Zs avoid the high premiums that have made insurance uptake much lower for them than for older generations. It will provide more attuned microinsurance services and Usage-Based policies that give Millennials and Gen-Zs the control they want, while also ensuring their loyalty in the years ahead when an unprecedented inheritance windfall will improve their collective buying power significantly.