Innovation often opens the door to new products that would never have been possible. Conning asserts in a new report that this is happening with personal lines insurance, thanks to consumers’ increased use of mobile and digital technologies.
Perhaps the biggest growth of new exposures stems from the sharing economy and apps that enable the transfer or storing of financial and other sensitive data also produce new exposures. These are “exposures not contemplated in the typical homeowners policy,” Conning’s report noted.
This creates an opening for insurers and upstarts alike to pursue product innovation that meets the new demand, and Conning said that capital is “flowing into this market” in response.
It’s not an easy process, and there are challenges.
As Conning explains, with the sharing economy (think Uber/Airbnb), insurers continue to look for ways to cover “when an item is in the care, custody and control of an individual.” Coverage, in turn, must dovetail with the sharing economy’s mission to freely and frequently move insurable assets “from the custody of one individual to another.”
Conning sees blockchain technology as one possible solution, at least with sharing economy coverage, because it can provide “instant and verifiable notification of any rental/sharing transaction and change of custody.”
Sensors also point the way toward helping to create policies better aligned with exposures created by new technologies, Conning said.
“With increasing data available through sensors and connected devices, there is the potential for individualized policies covering a broader array of risks – maybe moving coverages on and off,” according to the Conning report. “Sensors in the home allow for coverages that were previously excluded due to information asymmetries and moral hazard.”
New Tech Can Help Recruit Insurance Customers
As Conning points out, transformational technology is becoming increasingly useful in other areas, such as attracting new policyholders and interacting with customers. The industry as it stands remains ripe for this, Conning said, in part because of expense ratios that reach an average 26 percent of net premiums. There’s also increasing room to use technology for improving risk analysis, according to Conning.
“Both the types of data available for analysis (usage-based, sensors, visual data, online data trails) and the advanced analytical tools emerging to process/analyze these data are taking underwriting and risk assessment to new levels,” the Conning report said.
As well, predictive analytics, working more closely with clients and using new data sources/capabilities is already helping make claims handling quicker, better and more transparent Conning added.
Conning envisions possible outcomes for personal insurance business models, thanks to transformative technology. They include: more flexible tailored products, commoditized products, technology increasingly taking over tasks that agent do, wider risk management activities for the insurer, and greater transparency and claims processing speed.
Of course, insurers and startups alike are working to leverage the new technology into products. Slice Labs, for example, is a startup formed to offer on-demand, pay-per-use insurance for rideshare drivers whose backers include XL Catlin. Other insurers including Farmers, GEICO, USAA and Allstate have rolled out coverage and endorsements to address coverage gaps for rideshare driers or the transformation network companies for whom they work.
The full Conning report is: “Emerging Business Models in Personal Lines Insurance: Innovation-Based Disruption.”