Adjusting for Insurance 3.0

The insurance industry needs to get ready for ‘Insurance 3.0’ – the next stage to accommodate the changes brought on by the COVID-19 pandemic.

But wait, aren't we still trying to reach level 2.0? Yes and no. The timetables have changed, and insurers need to adopt new approaches fast. Some of this is driven by technology, yet it is most necessary to change the culture and models that insurers rely on.

Let's articulate what Insurance 2.0 is. The insurance game is changing, fast. I would compare several types of insurance to a camera. The camera still exists today, but the majority of cameras are embedded in smart devices. We now get a camera as part of a larger package. That has real consequences, such as Olympus announcing it won't be making camera equipment anymore.

Products such as personal insurance are facing the same danger. Not only is it very feasible for non-insurance businesses to have insurance services, but many are already doing so. Today you can buy a phone with that camera, and insurance is often included. Sometimes that insurance comes through an agreement between the telco and underwriter, but over time those services will be internalised, and the underwriter will lose out.

Insurance 2.0 recognises the rapid disintermediation happening in the industry - not only with middlemen such as financial advisors but also to the companies that control those processes. This system has been further undermined by the arrival of Insurtech trailblazers who are using data, automation and a new approach to the insurance business model to change everything.

For example, internationally we've seen Lemonade Insurance, and local start-ups such as Naked Insurance, take different approaches including flat fees and giving unclaimed premiums to non-profits. They do so while offering vastly lower prices and yet can honour their obligations whilst making a profit.

Insurance 2.0 is also customer-centric. Any honest evaluation of the general insurance industry shows that customers are routinely marginalised instead of supported. It's only been the lack of alternative models that have kept them from leaving. A 2.0 insurance business takes customer data and personalisation very seriously. The prominence of telematics on cars and fitness watches for customers demonstrates this trend.

Every insurance business should aspire to be a version 2.0. So, the bad news is that we've already got to move to Insurance 3.0. Once again, the COVID-19 pandemic has brought the future much closer to now than anyone had anticipated.

What do I mean? In the long-term future, an example of a massive threat to insurance companies is self-driving cars. They don't have drivers to insure, and instead, the insurance will be on behalf of the software company or car company behind that vehicle. Given the tremendously low risk these vehicles are likely to pose, it will make sense that they run those insurance operations internally. Personal coverage for cars will plummet.

Yet this is already happening due to the pandemic. People are driving less, and many use ride-sharing services for quick trips. Something similar will occur around property and workplace liability insurance, simply because many people are no longer going to offices. You might hope that we will return to the old way of doing things, but I get the sense that won't happen. Already I hear business leaders speak of lower rent, great productivity, and - if you can believe it - a drastic reduction in office politics. No, we're not all jumping into our commutes again any time soon.

This is the Insurance 3.0 reality: all the demands of the 2.0 model, now compounded by a future that has arrived much sooner than expected. In 3.0, you can't still debate if you should use automated processes or Artificial Intelligence (AI). Those are a given. You can't still mull if you should be closer to your customer. That's a fact. You need data to understand your customers and technologies that streamline and automate your services to save time and money.

Behind all of that is a new business model. This model can only be built with two ingredients: a data-first culture that collects and implements insights, and a responsive customer-first culture that changes with the market's needs.

Insurance 2.0 is no longer up for debate. It's now a reality that must be embraced, or you'll go the same way as cameras. It's time to define and create Insurance 3.0. We've run out of time: customers are fed up, newcomers are taking away business, new habits reduce the extensiveness of coverage, and COVID-19 has brought everything forward by several years - whether we like it or not. As a result, insurers need to look towards the right technology provider who can offer them the best solutions that future-proof the business and seamlessly transition to Insurance 3.0.

This article was contributed by Kumar Utpal at In2IT Technologies