More than a hundred years ago, the horseless carriage was a pretty dramatic disruption of the status quo. The advance of the automobile might never have taken place if the insurance industry hadn’t been ahead of the curve in understanding and finding ways to mitigate the risk involved in that new technology.
This was the role of insurance in society: to make new innovations a safe reality.
Since then, “insurance” has become synonymous with “risk avoidance.” It doesn’t have to be that way. A plethora of new data being collected in real time means insurers now have the power to identify and mitigate risk before it happens, and price protection accordingly. This can be done whether you call yourself an “insurer” or not.
In the past, from a consumer perspective, the onus of risk was on individuals, who made lots of unpredictable human errors. The Internet of Things is shifting the risk away from the individual to the device – the self-driving car is a perfect example. This will create a different pool of risk than we’ve seen in the past, one that is actually less risky than before. It will fundamentally change the risk pool from individuals to devices, from consumer to commercial.
The sharing economy is also a factor in shifting profit pools and changing the landscape for future risk. With the ability to borrow a car or a ride via a simple mobile app, people will be less likely to own a depreciating asset like car, which on average is dormant 97 percent of the time. Why should anyone own assets that can be effectively shared? For businesses that have traditionally made money in protecting people’s “stuff,” it may be challenging when people decide they can own less of that stuff.
Today’s insurers need to recognize these shifts in risk and profit pools and explore how to reposition their role to be long-term sustainable. They have the opportunity to reclaim their role at the forefront of innovation, just as they did with the horseless carriage, by shifting their thinking from the passive role of writing insurance policies to creating a new value proposition for their customers – whether they’re insuring an auto or a business that makes autos.
Here’s an example. The baby boomer generation, still demographically the largest, is rapidly aging, with all the issues that go with that reality. You can be sure that their core interests are not tied to insurance policies. They think more about concepts such as “living with dignity.” Sure, insurers can sell them long-term care insurance and other traditional products and services. But innovative thinkers are trying to find holistic solutions to their needs – through partnerships with eldercare facilities, financial advisors and other related services.
For example, mobility is a huge issue for elders. Couple that fact with the advances in robotics, and it’s now possible to apply exoskeletons to improve mobility. This isn’t science fiction: Ekso Bionics already has a wearable bionic suit that’s used for people with paralysis.
Another example takes us back to the realm of auto insurance, and how conveniences like Uber and other sharing-economy enablers are affecting the ownership of assets. Even for people who will continue to purchase and insure cars, pricing risk in real-time through telematics and bridging into autonomous drive will allow insurers to customize insurance coverage. This will give customers protection that’s as unique as each individual or machine it’s written for.
Imagine how the insurance industry’s reputation would improve if we were creative enough to partner with providers like these to meet our customers’ true needs!
Of course, the alternative to this sort of creative thinking is to simply stay the course – to use our big data to further fine-tune underwriting and to just keep writing insurance policies against the current risk and profit pools. And keeping our heads in the sand regarding the shift in risk and profit pools being driven by societal and technological change. And therein lies the real risk of these new disruptions: our passive insurance products may become less valuable and more vulnerable to competitors who can crush us with data collection and social presence – competitors such as Google, Home Depot, and Microsoft. For an industry that is about managing risk, it is time to hedge.
The choice is simple. We can adapt, or we can go the way of the horse and buggy. Hope is not a strategy.
Next time we’ll talk about the platform revolution in which insurers team up with new, sometimes unexpected partners to create a new, dynamic ecosystem.
Read more on this topic by downloading the Beyond insurance: Embracing innovation to monetize disruption report.