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.
- 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.
- 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.
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.