What Are The Key Challenges For Insurance In The 2020s?

Insurance is an industry with a very long history. Risk mitigation was taking place thousands of years ago, especially for traders traveling long distances on rivers or across the sea. Dangerous voyages needed some form of protection in case an expensive ship was lost.

Most modern insurance can be traced back to people insuring business ventures in London in the 1500-1600s. In fact, the Great Fire of London in 1666 caused a boom in property insurance at the time. It also helped to clear the city of a bubonic plague, so it wasn’t a disaster for everyone.

This brief history lesson is important when thinking about insurance because it has been a fairly static product for hundreds of years. The insurer assesses a risk - fire, theft, or even death - and offers a policy price based on that risk. This even applies today for most policies we buy, but the world of insurance is rapidly changing.

Let’s consider some of the changes that are redefining how insurance can continue to be a vibrant industry in the 2020s. What are the trends and challenges that are changing such a traditional industry?

???????InsurTech: new digital-first insurance products that are offering innovation and the ability to shake up how many products work. For example, only paying car insurance for the times that you actually use your car, rather than requiring an annual policy.

???????Personalization: the ability to price risk based on a much deeper insight into the behavior of the customer. For example, a young driver would typically pay much more for auto insurance than an older driver, but telematic systems can report exactly how a driver behaves in their car - a young driver that drives carefully doesn’t need to be penalized.

???????AI: Artificial Intelligence is helping companies to automate many procedures and business processes that traditionally required manual processes. For example, claims processing. Some insurers now offer an automated claims platform that will pay out in seconds if there is nothing unusual about the claim that requires further checks. Lemonade has a 3 second record claim time.

???????Analytics and proactive service: the ability to study how customers use their insurance products and to reach out to existing, and potential, customers with proactive ideas, suggestions, and products that should be helpful based on insights about the customer.

???????Retention innovation: similar to the above, but focused on retaining existing customers. Can insight be generated that shows the type of behavior patterns that occur before customers leave for a competing insurance company? If these patterns can be identified then create actions that can protect against the possible loss of this customer - offer them a special offer to sign up for one more year.

???????Smart health: with Apple Watches and Fitbits becoming so popular it is now possible for many people to notice illness or health problems before they actually feel ill. This creates a new opportunity for health insurance companies to proactively be involved in promoting and monitoring good health - rather than just paying for treatment when the customer is already ill.

It is worth noting that many of these challenges can also be seen as opportunities. They enable the insurance company to be more interactive, to build a relationship with the customer.

This has always been a classic insurance problem. The only time the customer really has to interact with their insurer is when they are being asked for cash for a policy and when they have a crisis and need to make a claim. Traditionally these experiences have not been positive leading many customers to feel negatively about their insurer.

With more interactivity there is the opportunity to be more supportive, to become a part of the customers lifestyle. This allows insurers to build a stronger bond with their customers and to offer a more useful service.

The industry is changing rapidly and InsurTech is driving much of this change, but smart insurers that think about the customer experience and how the brand can support customers - rather than just selling more policies - will help insurance to evolve into a new environment that is much more exciting.

CC Photo by Tierra Mallorca