The Future of Insurance is...Invisible!

We keep hearing about the ever-changing landscape of insurance and how everything is being evaluated for disruption in this centuries-old industry. In fact, the InsureTech Connect conference in Las Vegas is happening right now as I write this article.

As someone who’s been closely involved with many aspects of insurance for nearly 15 years now, including the technologies being used for commercial insurance purposes, I have a few thoughts of my own I’d like to toss out there.

First, Insurance On Demand will likely be a key driver of the next wave of policies to hit regulators’ desks. We are already seeing usage based insurance (UBI) as a way to price auto, fleet, and other types of policies where we can gather data on a near-real-time basis.

However, much of this is based on setting premiums and deductibles using historic data, and then adjusting over time match driver behavior. Life insurance and health insurance companies use similar models when evaluating a customer’s life expectancy and health habits, and if they could, we would likely see policies modified over time as a person’s health habits are more widely understood. (Wearable sensors anyone?)

In order to get to the real benefit of Insurance on Demand or Usage Based Insurance, we will need to see changes in how we gather, analyze, and interpret data, and in the future we will likely have access to this information well before a policy is even put in play.

For instance, as the IIoT evolution continues, sensors from OEM providers, whether it is your home or commercial HVAC system or your smart car, will be collecting information nearly 100% of the time and cataloging that data. This data will then be run through various predictive analytics platforms that will guage the health of the equipment and provide the OEMs with a way to monitor and get ahead of potential failures. Imagine a future with recalls before something bad actually happens.

However, from an insurance perspective you will likely see commercial insurance companies partnering with OEM providers to gain access to this data on a much larger scale and develop actuarial tables that are much more in line with use rather than demographic or broad-stroke financial information. Currently much of the pricing for auto policies is based on geographic and demographic data, as well as a simple survey of how many miles you expect to drive and for what purpose. The current telematics systems can give us more accurate information about the driving habits and real-world mileage a person drives, thus modifying their policy at renewal, but it doesn’t give us predictive measures by which to price a policy (that and regulators tend to muck up the works). Further compound this with ride-sharing drivers who may not be disclosing their commercial use of their vehicle, and you begin to see where there may be gaps.

Future policies may focus more on real-time sensor and telematics data that sets limits, deductibles, and premiums on a much wider array of information than just the driver’s habits and living arrangements. It may include time of day, routes taken, and typical driving behavior information that can already be captured.

For commercial policies we will begin to price based on the likelihood of failure not from occupancy and equipment size/age, but rather from continuous monitoring of the equipment and predictive analytics. Policies could on then set deductibles, limits, and exclusions on specific items rather than on policies as a whole.

However, there is a giant challenge in all of this that insurance companies are spending massive efforts to tackle, and tech startups are trying to beat them to it:

Relevant Data Insights

The key to any player in this space coming out ahead, whether an incumbent or startup, is leveraging all of the connected devices, sensors, and ancillary information and building concise models around all of the information. Everyone knows that the data is key to winning this game, but in so many cases the data is being pulled in from every proprietary device and platform it can, and gaining insights into this data remains a major challenge.

The inability of a company to easily and accurately pull insights and useful information from raw data will be what prevents it from growing market share in this new era. It does no good for a company to capture telematics, IoT, OEM, smart grid, or any other type of information if it is captured in a silo.

The real benefit comes in the synergistic and holistic view of the information to build a precise model of what is actually happening. Failure to do this will result in insurance companies using outdated pricing and risk scoring models that are akin to the economic models which failed to foresee the financial collapse of 2008.

In this increasingly complex and technologically driven world the two players, incumbents and startups, will be forced to act in a way that is unprecedented in the industry’s history. They will be forced to develop symbiotic relationships. Most tech startups don’t understand the insurance industry and how to create an insurance company, and most insurance companies are so far behind the technological curve that it doesn’t make sense to try beating startups at their own game.

This is exactly why we see conferences like InsureTech Connect, and the Insurance IoT Summit, as well as companies like Techstars and Plug & Play catering so much to these types of startups and bringing in insurance companies to cooperate. In the future we will see larger incumbents partnering not only with startups, but also each other to make insurance a seamless transaction that is embedded in everything we already do. Assuming the regulators can be made to see the light, we will see a massive transformation in the insurance industry in the coming decades.

The writing is on the wall…only it’s hidden behind a sensor and encrypted in the cloud. The insurance of the future will be invisible!

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I love talking and writing about the future of technology and business. Staying still is not an option for me. The bigger the challenge, the more fun finding the solution becomes, and I love being part of that conversation.

If you feel the same, reach out and let's connect!