In our increasingly fast-paced, inter-connected, globalised world, why is the insurance industry so slow to mobilise? How is it that even banking, one of the most recognisably traditional industries in the world, has managed to mobilise ahead of its financial cousin?
The start of the 21st century has seen an agglomeration of factors that have resulted in leaps in social consciousness, political beliefs, and business practices and structures. The advent of smartphones, ‘digital’ and the commercialisation of the internet have seen industries and organisations around the world scrambling to keep up.
Some industries, unsurprisingly those with a more technologically minded focus, have been quick to latch on to the opportunities afforded by these changes, for example, Philips embracing the Internet of Things. Equally, whole industries are attempting to keep up with the pace of change as with the UK-wide roll-out of smart metering, demonstrating the desire to provide a better, more tailored customer experience in a way that also benefits the companies involved.
These factors have facilitated a more communicative social consciousness, which informs our perception of, and interaction with, the world. A very current example of this is the current American political sphere; specifically the ground-breaking campaigns to nominate a candidate for each of the two parties. The reality in recent months of outsider candidates launching genuinely challenging and in some instances successful campaigns to represent their chosen ideology at the highest level, is symptomatic of a growing global zeitgeist typified by a more demanding and connected consumer / electorate.
The insurance sector, banking sector, and political arena have often been guilty of sluggish responses and in banking, this has seen the rise of challenger banks, as fintech and tech giants increasingly eat away at the size of the ‘banking pie’ while ‘alternative’ political movements across the political spectrum have threatened the identity of each of the main American political parties.
Metro Bank, Nutmeg, Apple Pay, Bernie Sanders and Donald Trump are all challenging the status quo in banking and politics respectively, each tapping into a sense of frustration or apathy towards the current position. Intriguingly, these alternatives have all established their offering by mobilising a collective through the use of new technologies; whether Trump’s extensive personal promotion through multiple media channels, Bernie Sanders crowdfunding, or Apple Pay and Nutmeg’s adoption and commercialisation of pre-existent technologies for financial purposes.
So considering the seemingly inexorable slide towards a (dis/u)topian future dependant on your perspective, why does the insurance market appear so resistant to change? Is the insurance industry different in some way? It is difficult to make that argument. There are numerous areas which are increasingly affecting the insurance market, but two particularly prominent and newsworthy areas prove the scope for change, as well as highlighting the distinct difficulties facing the insurance;
I. Products: there is a growing catalogue of new risk associated with technological advances which could result in uninsured / ‘unisurable’ products. There are ‘risk causes’ and ‘at-risk’ items that the insurance industry is currently ill-equipped to deal with. How does one quantify the risk of climate change, cyber-terrorism, or evaluate liability in the case of ‘driverless’ cars? Is the inhabitant of the car or the manufacturer liable? Think of the numerous products related to the insurance of mobile phones, it is clear that technological advances offer a great opportunity to the sector.
II. ‘The Dark Web’ and capital: how do you track, evaluate and quantify the risk associated with ‘alternative markets’ and then monetise and stabilise the associated risk. The presence of bitcoin and blockchain in the market means that those items that many ‘specialty insurers’ operate in (for example, fine art, rare or valuable items and even arms) are now increasingly available and purchased on an entirely separate market. What does that mean for the way a product’s value is evaluated and, for that matter, the risk associated with the product? Then there is the converse argument as well, related to insuring against the loss of the currency itself?
Much like banking and politics, insurance is an industry ripe for change. Unbelievably, it is a multi-trillion dollar industry that is still, on one level, focussed around paper transactions carried out in person on a single site. It has in recent years been hampered by regulation such as Solvency II and there are efforts across the industry to find innovative ways of reducing overheads and optimising customer experiences. For example, the introduction of drones in place of loss adjusters and XL Catlin, the world’s largest specialty insurer, recently launching XL Innovate. Whilst insurers are attempting to keep up with changing technologies to maintain their raison d’etre they are struggling to change the fundamental way business is conducted with consumers in the same way that Fintech has diversified banking and Sanders and Trump have reconceptualised what was thought possible in a US presidential election.
There are a whole variety of reasons why the insurance industry has been resistant to change. But there is little doubt that InsureTech and digital innovation has a role to play in an industry increasingly coming under pressure to find answers to increasingly complex questions. My argument would be that insurance has simply not suffered its ‘catalyst moment’, and whilst there have been piecemeal attempts to change, we are facing an imminent period of immense transformation in the insurance industry. The industry is struggling to change the fundamental way business is conducted with consumers in the same way that fintech has diversified banking, and Sanders and Trump have redefined what was thought possible in a US presidential election. It is up to insurance companies to manufacture their own catalyst in the insurance industry; to embrace the inevitable oncoming change and if possible get ahead of and ‘own’ the evolution themselves. If they don’t, insurers could be faced with the same irrevocable changes currently re-conceptualising the banking sector and broader political arena.