Home and Auto Insurance Industry - Innovations and Players

Part
01
of four
Part
01

Home and Auto Insurance Industry: Disruptions

As technology advances, the insurance industry is likely to face several disruptions that they will need to adapt to. Consumer behavior, the type of coverage sought, and the changing marketplace will also disrupt the way both home and auto insurance is provided. Although these disruptions have the potential to impact detrimentally on insurance companies, they also have the potential to create a range of new opportunities should the insurance industry adapt.

INTERNET OF THINGS

  • The Internet of Things is the millions of objects in the world that have embedded electronics. These embedded electronics can transfer data over a network without any human interaction.
  • By 2050, there will be 100 billion connected devices of this nature.
  • The Internet of Things will be a disruptive force in insurance. It will allow the collection of vast amounts of information that relates to an individual.
  • Insurers will need to adapt and base their risk assessments on this new information. Traditionally a driver's risk has been calculated by evaluating publicly available data or easily available variables.
  • These include location, gender, miles driven annually, type of car, and age.
  • The Internet of Things will create a competitive advantage for insurance companies that are first to embrace the technology.
  • Auto insurers will have comprehensive and up-to-date data on which to base their assessments of risk. This is likely to create a market where specific discounts or surcharges can be tailored very precisely to the perceived risk.
  • The Internet of Things will allow very specific data to be collated concerning an individual and their behavior. 
  • Insurers will be able to rely on a range of factors personal to the individual in calculating insurance premiums. These could include not exceeding the speed limit or always putting on a seat belt.

ARTIFICAL INTELLIGENCE — COLLISON SENSORS

  • The auto insurance market is price sensitive.
  • The availability of artificially intelligent devices is likely to cause disruptions to the insurance industry as a whole.
  • As the technology evolves, the number of claims is likely to be reduced.
  • Various devices that use artificial intelligence are being used by insurers to minimize risk and add value to their packages. This has the potential to give the insurers adopting this technology a competitive edge.
  • An example of the use of artificial intelligence is in the use of collision sensors.
  • One insurance company has provided its customers with these sensors. They plug into the accessory socket of the car and sense if the driver is in danger of having a collision.
  • The sensor is paired with the drivers' cell phone, and when triggered, asks the driver if they require assistance. Should the driver fail to respond, a call to emergency services is generated, detailing the vehicle's location.
  • The European Union made devices of this nature mandatory in all vehicles from April 2018.
  • The use of these devices has the potential to disrupt the very nature of the insurance industry. The core business could move from being claim orientated to advisory-orientated.

INTELLIGENT AUTOMATION

  • Both the home and auto insurance markets face disruption as the underwriting of new policies moves from a manual to an automated process.
  • A McKinsey Global Institute Report in 2017 found there was an automation potential of 43% in the insurance industry.
  • This has the potential to create ongoing disruptions. 25% of the task force may be consolidated or replaced by 2025 as a result.
  • The growing trend in the insurance industry is aggressively investigating the use of intelligent automation. This technology sees Machine Learning and Cognitive Tools merged with Robotic Process Automation.
  • The impact of this technology is increased efficiencies and lower operational costs.
  • By 2030 manual underwriting will cease to exist for the majority of personal and small business insurance consumers.
  • Technology will enable data obtained from a variety of internal and external sources to be analyzed almost instantly and underwriting and pricing decisions made without any manual input.
  • Claims are likely to be processed similarly. The processing of straightforward claims is now handled by an automated process in 90% of cases.
  • This has resulted in decreased processing times and increased customer satisfaction. This is at the expense of staff in the area. Already the insurance industry has seen a reduction of 70% in staffing in this area.
  • Automation has the potential to increase savings for insurance companies. An automated claims process can reduce costs in this area by up to 30%.

PEER TO PEER INSURANCE

  • The growth in the prevalence of social media platforms and the number of consumers using them has the potential to disrupt the insurance sector.
  • As social networks have evolved, so too has the way consumers are using them. This has seen the development of Peer to Peer Insurance Networks that share the risk of various events among the members.
  • These networks focus on home and auto insurance.
  • Customers with similar insurance interests create an online network. Members then pay a portion of their insurance premium into a collected pool.
  • The balance of the premium is paid to the insurer.
  • Claims are funded from the mutual pool.
  • The role of the insurer is similar to that of a reinsurer. They cover claims that the mutual pool cannot cover and take on the role of policy administration.
  • If there is money in the pool at the end of the year, it is either refunded to the network members or carried forward to cover the next years' premiums.
  • The growth of these networks will disrupt the way insurance companies provide insurance as they move into new roles away from that they have traditionally held.
  • Research has shown that the number of fraudulent claims is reduced when consumers are part of a network of this nature.
  • The networks are better able to select the level of acceptable insurance risk for their members because they have access to information that traditional insurers cannot easily access.
  • The overheads are lower because the network handles the majority of the smaller claims without the need to involve the insurance company.
  • Members are incentivized to attract new members, and in doing so, experience increased savings.
  • As these networks gain momentum, the role of the insurance company will be minimized. This will impact on a range of things, including profitability and staffing levels.

AGGREGATORS

  • In simple terms, aggregators are comparison shopping sites. They are digital insurance brokers.
  • An organization independent of the insurance companies will collect information about various competitors, collate this information on a website, and allow consumers to make comparisons between the insurance providers.
  • They consolidate online information for the consumer and create an easy and time-efficient way to evaluate home and auto insurance options.
  • The aggregator will present information from a range of insurance companies to the consumer and then receive a referral fee from the insurance company selected.
  • The evolution of this new means of investigating and buying insurance has the potential to cause disruptions to the process of using an insurance broker to arrange insurance. The insurance industry must adapt if the role of the traditional insurance broker is to be maintained.
  • Online options are not always quality options, and the insurance industry will need to respond to this development by emphasizing the role the broker plays in ensuring a quality product is purchased.
  • One of the advantages of aggregators is the ability of insurance companies to increase their market coverage without increasing their overheads significantly.

NON TRADITIONAL COMPETITORS

  • As the use of personal data to assess risk becomes more prevalent in the home and auto insurance industry, companies that have access to a wide range of highly personal data are likely to become major players.
  • Potential competition from companies like Google, Amazon, and Facebook will disrupt the very make up of the insurance market.
  • Amazon has already hired insurance professionals and is looking to disrupt the traditional providers in Germany, France, Italy, Spain, and the UK.
  • Consumers are receptive to these new players with 18% of participants in the 2017 Global Insurance Survey stating they would buy home or auto insurance from Amazon.
  • The way consumers purchase insurance is changing, especially as the millennials get older. A recent survey found that millennials are twice as likely to purchase their insurance online in comparison to other generations.
  • This will result in a minimization of the role of insurance agents in the forthcoming future.
  • The survey also found millennials are less likely to engage with traditional insurance providers compared to other generations. This creates an increased opportunity in the market place for these new non-traditional competitors.
  • The familiarity of the millennial population with these new competitors is likely to increase the likelihood of disruption in the insurance industry.
  • Millennials will grow to dominate the consumer insurance market in the coming years. They are the largest generation group in the US.

THE SHARING ECONOMY

  • The proliferation of online market places has the potential to disrupt the home and auto insurance industry and the way they provide coverage.
  • The sharing economy will open new markets for insurance providers, and policies will need to be adapted to reflect a new area of risk.
  • Airbnb and Uber are examples of two markets that will disrupt the insurance industry. Both adopt the concept of a "sharing economy".
  • These market places are experiencing unprecedented growth. Insurance companies need to adapt to this trend.
  • The users of the home facilities are increasingly looking for coverage for the period they are using the asset, and homeowners are expressing a preference to this model of home insurance, rather than face the prospect of lengthy liability lawsuits.
  • In 2016, US insurer HomeProtect was the only insurance company that provided coverage as a standard if the home was being used as an Airbnb.
  • The outcome of these market developments could see insurance move from providing coverage to the owner of the asset to the user of the asset.
  • The auto insurance market faces similar issues with the increase in car-sharing options in the major cities. Typically, auto insurance covers drivers in relation to a specific car. The changing market place has seen an increased demand for insurance that covers driving any car.
  • Insurance companies have been slow to react to the evolution of the market place. There is significant potential for fast-acting companies to gain a competitive edge if they can create coverage that reflects changing consumer demands.

RESEARCH STRATEGY

We extensively searched a range of industry publications, articles, and blogs to determine the disruptions that the insurance industry perceives as having the greatest potential to impact on their business. We cross-referenced this information to the insurance consumer by searching for a range of consumer publications and articles. This enabled us to determine the disruptions that are having the greatest impact on the home and auto insurance industry. We also considered the changing demand of the consumers in relation to these disruptions. Finally, we considered how these disruptions are impacting on the insurance industry. By searching the aforementioned sources, we were able to determine why these disruptions were impacting on the industry and changes that can be made by the industry to best adapt.
Part
02
of four
Part
02

Home and Auto Insurance Industry: Innovative Ideas

Five of the newest and most innovative ideas in home and auto insurance are the use of artificial intelligence (AI) to process insurance claims in minutes, the use of apps to analyze driving behavior, the use of drones to access risk factors and in processing claims, the use of the internet of things (IoT) to find information from networked devices to promote preventive maintenance, and the use of blockchain to simplify paperwork and deliver efficiencies in the claims process.

1. PROCESSING CLAIMS USING ARTIFICIAL INTELLIGENCE

WHAT IT IS

  • One of the newest and most innovative ideas in home and auto insurance is the use of AI to quickly process insurance claims in minutes.
  • AI automates the processing of claims by quickly analyzing documents and photos that have been scanned and comparing them with the contract signed by the policyholder to decide whether a claim should be paid out.
  • One company that is working on the innovation is a French AI company called Shift Technology.

WHY WE SELECTED IT

HOW IT AFFECTS THE AUTO AND/OR HOME INSURANCE

  • When tested on more than one million documents, the AI technology provided a prediction rate of 81% with an accuracy of 97%.
  • Insurers are using machine learning analytics to help their employees in quickly analyzing prices, claims, and social media. For example, US insurer Lemonade has used its chatbot called AI Jim to settle claims in three seconds, including checking the policy details, looking at 18 anti-fraud algorithms and paying the settlement into the bank account for the policyholder.

2. USE OF TELEMATIC APPS TO ANALYZE DRIVING BEHAVIOR

WHAT IT IS

  • Companies have shifted from determining the cost of auto insurance using risk factors from past events, and now use data to identify risk and assist customers to polish their driving behavior.
  • An example of a company leading this innovation is American International Group (AIG) which has produced the "On the Go app" used to analyze driving behavior, including speed, acceleration, cornering, and braking, for performance score production.

WHY WE SELECTED IT

HOW IT AFFECTS THE AUTO AND/OR HOME INSURANCE

  • The innovation affects the industry by helping companies like AIG to use the app to target safer drivers with their auto insurance offerings.
  • AIG witnessed unsafe driving behavior go down by around 50% because of the app.

3. USE OF DRONES

WHAT IT IS

WHY WE SELECTED IT

  • We selected the innovative idea as it has been repeatedly mentioned in reputable publications as one of the newest and most innovative ideas in home insurance.

HOW IT AFFECTS THE AUTO AND/OR HOME INSURANCE

  • This innovation affects the home insurance industry by delivering huge benefits and causing improvements in the claims management process which is sped up and repairs started sooner.

4. INTERNET OF THINGS

WHAT IT IS

WHY WE SELECTED IT

  • We selected the innovative idea as it has been repeatedly mentioned in reputable publications as one of the newest and most innovative ideas in home and auto insurance.

HOW IT AFFECTS THE AUTO AND/OR HOME INSURANCE

  • Analyzed data that insurers get from sensors placed in vehicles and other equipment helps insurers to obtain information related to customer behavior, helping them target their offerings to the right audience.
  • With many items linking to the internet, the insurance industry benefits from connectivity, enabling insurers to provide new services. It also shifts focus from repair to prevention.
  • In the auto insurance industry, the IoT is helping insurers to know the risks they have covered, and also encourages improved road safety and safer driving habits.
  • In the home insurance industry, the IoT helps insurers monitor connected homes with devices such as temperature gauges and leak detectors, to identify potential claim problems and deal with them before any damage is done.

5. BLOCKCHAIN

WHAT IT IS

  • Blockchain is a "mutual distributed ledger system that enables multiple parties to share the same information, without the need for validation from an intermediary, and is impossible to hack".

WHY WE SELECTED IT

  • We selected the innovative idea as the Financial Conduct Authority has identified it as potentially being able to provide innovative solutions in the insurance industry, among other financial services.

HOW IT AFFECTS THE AUTO AND/OR HOME INSURANCE

  • The innovative idea helps to simplify paperwork and deliver efficiencies in the claims process.

RESEARCH STRATEGY

To identify five of the newest and most innovative ideas in home and auto insurance, our first strategy was to find relevant information in industry databases and publications. This strategy led us to sources such as Accenture, The Telegraph, and Insurance Business Applications, which provided the newest and most innovative ideas in home and auto insurance.

Our second strategy was to review the information we found and identify innovative ideas that were repeated at least twice. This strategy provided five innovative ideas in home and auto insurance which were included in our findings.
Part
03
of four
Part
03

Home and Auto Insurance Industry: Players Embracing Disruptions (1)

Leading incumbent insurers in the home and auto insurance industry that are embracing disruptions include GEICO, Allstate, USAA, Liberty Mutual, and State Farm.

GEICO

ALLSTATE

USAA

STATE FARM

LIBERTY MUTUAL

RESEARCH STRATEGY

In order to identify five incumbent insurers in the home and auto insurance industry that are embracing disruptions, your research team undertook extensive research across news, research and corporate sources such as Insurance Journal and Coin Desk. Importantly, we selected incumbent insurers based on being a ranking among the top five insurers by market share in their respective markets.
Part
04
of four
Part
04

Home and Auto Insurance Industry: Players Embracing Change (2)

Five of the top start-ups in the auto and home insurance industry that are embracing change and disruption are Root, Metromile, Hippo Insurance, Lemonade, and Kin Insurance.

ROOT

  • Based in Columbus, Ohio, Root is an auto insurance company that was founded by Alex Timm in 2015. The company incorporates smartphone technology into its insurance to gain a better understanding of individual driving behaviors. After two to three weeks of a test drive, customers get a personalized quote, and afterward, they can use the mobile app to manage their policy.
  • In March 2018, the company raised $51 million in Series C funding and in August 2018, it raised $100 million in Series D funding.

METROMILE

  • Metromile is a San Francisco-based auto insurance start-up that uses technology and a pay-per-mile model in providing insurance to its clients. The model tracks the miles covered by the driver and then uses the data to generate a detailed vehicle diagnostic, which is then used to set insurance rates.
  • Their insurance structure is designed to suit city car owners who annually drive under 5,000 miles. Counting of mileage covered is done by a wireless device that is installed in a vehicle's OBD-11, hence providing adequate billing to customers. With this type of structure, Metromile offers a fool-proof solution to settle any claim dispute.
  • Metromile's associated app is also able to help drivers to easily locate their car in a parking lot that is crowded. In July 2018, Metromile raised $90 million in Series E funding.

HIPPO INSURANCE

  • Located in Mountain View, California, Hippo Insurance is a home insurance start-up that was founded by Eyal Navon and Assaf Wand in 2015. The company enables homeowners to obtain a quote and buy home insurance online.
  • Hippo Insurance obtains data from sources like permit filings, property records, and by taking aerial photography to know the roof conditions of houses. The information is then used to streamline the process of applying for a plan that meets the needs of the customers.
  • The company also provides its policyholders with the internet of things (IoT) and smart home sensors, which help in discerning and avoiding losses. Hippo Insurance has raised $70 million in Series C funding.

LEMONADE

  • Lemonade is a Certified B-Corp home insurance start-up located in New York. Through their app and an artificially intelligent bot known as Maya, the company perfectly crafts their clients' insurance cover.
  • Maya asks their clients their insurance needs and then creates a policy to suit these needs. The Lemonade app is then used once the client's plan is effected to handle the policy and claims. Prospective customers can sign up for homeowners insurance for as low as $25 a month.
  • The company is also renown for swiftly and effectively settling claims without confusion. In funding, the company raised $120 million at the end of 2017, and recently they raised $300 million.

KIN INSURANCE

  • Kin Insurance is a Chicago based online home insurance company that was founded by Sean Harper, Sebastian Villareal, Lucas Wards, and JasonHeidkamp in 2017. The company is determined to lower costs and improve customer experience through new technologies and by providing world-class customer service.
  • Kin Insurance uses several online sources to get information about individuals and their homes and then uses the information to recommend the right insurance coverage. Therefore, the company provides its clients with a more simplified insurance process. The company has raised $17 million in funding.

RESEARCH STRATEGY

To identify five of the top start-ups that are embracing change and disruption in the auto and home insurance industry, we extensively searched through articles, news and industry sources like Forbes, Finsmes, Tech Crunch, Startus Insights, and Bob Guide. We selected the companies listed above because these sources listed them amongst those insurance start-ups that are shaking up the insurance industry through change and disruption.

Sources
Sources

From Part 02
Quotes
  • "On a test of more than one million documents, Shift Technology’s AI had a prediction rate of 81 percent with an accuracy rate of 97 percent. When the AI can’t make a prediction, the claim is sent through for manual processing by a person."
Quotes
  • "The volume of data available within the insurance sector makes it a prime candidate for artificial intelligence (AI). Already there are examples of insurers using more sophisticated machine learning analytics to support their staff in areas ranging from social media analysis to pricing and claims ‒ and this trend is certain to continue."
Quotes
  • "Networked devices in cars and buildings can protect people and property and facilitate proactive, preventive maintenance, thus reducing accidents—and claims. By analyzing data from sensors embedded in vehicles and other equipment, insurers can gain insights into customer behavior."