Do you remember how insurance used to work in the 20th century? Customers would pick an insurance company when they bought a house or car and stay with them for years, whether they were happy with the service they received or not. Price rises, laborious claims systems, poor customer service, it didn’t matter. Finding information about other insurance companies was hard. Switching was harder.
Since then, times have changed. Technology has democratised the insurance industry. Now the customer holds more of the cards. But how?
The Rise of Price Comparison Websites
Perhaps the biggest revolution in the insurance industry came in the early 2000s with price comparison websites (PCWs). PCWs enabled customers to see every price quote from every insurance company for the level of cover they needed on one screen. Then, in a matter of minutes, they could purchase insurance. It placed the insurance industry firmly within the ‘switching economy.’ A survey by Gocompare.com in 2016 found 19% of UK drivers switched their car insurance provider in the previous year.
Incidentally, while PCWs are commonplace in the UK, there is still room for growth elsewhere in Europe. 68% of UK motor insurance customers use PCWs to find cover, but only 38% of German drivers use them.
Startups are emerging that aim to make buying insurance even easier. Cuvva is a mobile app that allows drivers to buy pay-as-you-go car insurance in minutes. Customers can buy car insurance by the hour, which is ideal for people who drive infrequently or want to borrow someone else’s car.
Insurtech Startups Are Making Insurance Easy
Claiming on insurance used to be a murky, bureaucratic process which involved a lot of forms and even more waiting around. Tech changed all that. Now, customers can make claims online, using their smartphones to send pictures and videos. They monitor their claims online, with companies employing automated chatbots to help them. Customers can also upgrade and downgrade their cover online to suit their needs.
Tech has made the claims process transparent and far less stressful for the customer. Again, insurtech startups are taking this concept to the next level. The US insurtech startup Lemonade allows customers to cover anything they own via their app, even low-cost items such as headphones or jackets. If the customer needs to make a claim, it can be done in a few taps and swipes. Lemonade calls it ‘the 3-second claim’.
Tech Makes Insurance Fairer
Because of the insurance industry’s inherent bureaucracy, it was often thought to be unfair to the customer. Companies would raise renewal rates for seemingly little reason. Claims would be turned down with very little feedback. As technology levels the playing field and insurance companies must compete harder to win business, insurance companies must strive to help the customer more. It is technology that helps them do this.
For example, car insurance companies use tech to reward safer drivers by reducing their premiums. They use in-car telematics systems to see how safely drivers conduct themselves on the road. The telematics system produces a score which insurance companies use to calculate next year’s premiums.
On the other hand, insurance companies have more weapons in their arsenal against fraud and spurious claims. For example, wearable devices and IoT-enabled home appliances collect data on a minute-by-minute basis regarding location and everything happening around them. They can be used to prove or disprove what a claimant is telling their insurance company when they make a claim. Another example is insurance firms using drones during claims assessments, capturing video from above. All of these innovations make insurance fairer on both sides.
Tech Cuts the Insurance Company Out Altogether
Social media technology has enabled insurance users to bypass the insurance company model altogether. Peer-to-peer insurance (P2PI) involves consumers forming their own insurance pools over social networks. They pay part of their premium into a mutual pool, which covers them in the event they need to make a claim. They also pay a small premium to a conventional insurer to cover them in the event of a claim that is worth more than is in the mutual pool. The insurer will also look after the administration for the network.
At the end of the year, any money left in the mutual pool is rolled over to next year, which saves members a great deal of money on future premiums. It’s thought that in P2PI, there are fewer fraudulent claims because people don’t want to be thrown out of the network if they are found out. P2PI also saves the customer money on handling costs and marketing.
A new startup, Teambrella, uses blockchain technology to eliminate conventional insurance premiums. Users place their premium into a digital wallet which is only touched if a member of the P2PI network makes a claim which is approved by other members.
Technology Enhances Competition
Thanks to technology, insurance companies have to compete at every level to win customers which is how customers can end up getting a better and better deal. In 2018, customers demand the same treatment from their insurance company as they receive from companies such as Amazon or Google. They want exactly what they desire, as quickly as possible. If their insurance company can’t meet this demand, they can take their business elsewhere or bypass them altogether.
We at Hampleton can’t wait to see what the future holds in this area.
If you would like to find out more how technology is impacting the financial sector, download the Hampleton Partners Fintech M&A market report today.
Keep an eye out for our Insurtech M&A Market Report, due for release in November 2018.
Here are some more insurtech startups and scaleups we’re keeping our eye on:
Brolly – Personal Insurance
The smart new way to manage, optimise and save on your personal insurance.
Rightindem – Customer Managed Claims
AI, digital & self-service claims.
Spixii – Helps insurers design and implement white-label chatbot solutions
On a mission to bring customer-focused innovation to the insurance industry, designing insurance chatbot technology with advanced analytics
Jonathan Simnett, Director & Sector Principal
Jonathan has been involved in the technology business for over three decades, founding, managing and turning around businesses and helping management and their investors in fast-growth technology segments to grow, manage change, enter markets, transfer technologies, acquire, merge and sell.
He holds a Master’s degree in Science and Technology Policy from The University of Manchester, attended the Stanford Graduate School of Business and blogs on technology innovation, marketing and management at “The World According to WestFour”.