Anthony Hilton: Tech’s challengers stalking Stone Age insurers

Insurers: Many have been dreading their "Uber moment"

19 October 2017

If you want to know what is happening in insurance go to Bristol. That is where you will find Tällt Ventures, a business which mixes data intelligence on more than five million start-ups worldwide with industry analytics and consultancy for clients hoping to launch tech services and companies.

Given its business model has barely changed over 200 years, insurance is ripe for technological disruption, waiting for (and in many boardrooms, dreading) its Uber moment.

Tällt reports that a tidal wave of money — some $1.69 billion (£1.3 billion) last year — poured into the industry to finance technological innovation, looking at how insurance is sold, how it is marketed and how its back offices are run and claims handled and paid. So even without anything as radical as Uber there is quite enough happening to scare the wits out of the more traditional players.

Some are being talked about today at a conference in London organised by the Association of British Insurers, others were discussed on Monday at another conference for the Association of Financial Mutuals.

The message from both is that although insurance will surely survive, a lot of the sector’s companies will not.

Some people think the entire approach needs to change, on the basis that the electric light did not stem from continuous improvement of the candle. Dan Ariely — an American behavioural economist who has featured in this column before for his suggestion that paying management big bonuses is virtually guaranteed to destroy the business — is now part of a new insurance start-up.

Explaining at its launch why they were hoping to do things differently he said: “If you tried to create a system which brings out the worst in people, you would end up with one that looks like the current insurance industry.”

His new company Lemonade is in many ways what a mutual insurance company would look like if it was invented today with the benefit of modern technology. It first uses data to identify a group of like-minded people who have in common that they would like to contribute to a good cause — the local school, a charity or such like.

It then suggests this group self-insure. The premiums that would normally have been paid to a company for their home or motor insurance instead go into a local pool, which is held where no one can touch it in escrow, but still belongs to the group.

Any claims are paid out of the pool but what is left at the year-end goes to the charity of their choice. The company, Lemonade, makes its profit from the small slice of each premium it takes for arranging everything.

That is a simplified version of the process but the clever thing about this business model is how it encourages better behaviour. Individuals do not inflate their claims because it would mean less is available for their chosen charity; the company does not unjustly resist or seek to whittle down claims because it is not its money. Indeed, at the opposite extreme, Lemonade says it has set the record for the prompt settlement of a claim — three seconds!

Insurance mutuals in this country struggle to be recognised as a force for good because from the outside they look too much like a conventional public company, and the rewards in pricing and service are not easy to make apparent. Perhaps they need to rethink their offer along Lemonade’s lines.

A second big shift picked up by Tällt is the move from insurance to prevention — putting a fence at the top of the cliff rather than providing an ambulance at the bottom or, more prosaically, instead of paying up when something goes wrong, the business stops it going wrong in the first place.

This is all to do with the internet of things, the system whereby even the most mundane household device will have a computer chip allowing it to be connected to a network. At present, insurers pay up for waste food after the freezer fails, redecoration after a burst pipe, or the towing charge for a stranded car.

In future, by being able to monitor these machines, they will see when they are about to break down and can fix the problem before it happens. Thus, they turn the negative experience of cleaning up after a disaster to the positive experience of preventing the disaster in the first place.

The third trend is for insurance on demand: at the moment, insurance companies provide products such as home, motor, travel, health and other cover and then try to sell it to customers whether they want it or not.

But thanks to technology, insurers will follow a person and provide cover on demand, when it is needed and the customer is in a mood to buy. If he or she wants to drive a car, a picture of the vehicle is sent and instant cover arranged. The driver doesn’t pay when the car is parked. If they want health cover they send a selfie (facial recognition analytics already tell as much about health and lifestyle as a 10-page written questionnaire). In China where personal data is less controlled than in Europe, insurance firms know when someone with a mobile has entered an airport. So, they offer them cover against flight delays. This is all done automatically.

In this vision of the not-too-distant future, insurance will be about protection and prevention and companies will make their money from fees or consultancy rather than from what is left after the claims are paid. Insurance will be led by demand, provided to the customer when the customer needs it, but only for as long as it’s needed. And everything will be digital, demanded, paid for and delivered by mobile.

What we do not know, however, is whether any of the existing companies will still be around to provide it.

Some face a major challenge because, as Aviva’s Mark Wilson has been heard to remark, insurance is stuck in the Stone Age while other businesses are circling Mars.

Anthony Hilton: Tech’s challengers stalking Stone Age insurers

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