|By Kevin Benedict||
|May 19, 2014 04:22 PM EDT||
In this article, my colleague Peter Abatan shares his observations on digital transformations within the insurance industry.
The Insurance industry has traditionally been slow to change, but that is changing as crowd and social insurance models are beginning to emerge.
Companies like upstart BoughtByMany connect people with similar insurance requirements who are able to aggregate demand for products that insurance companies have hesitated to insure on an individual basis in the past.
Another start-up, InsureMyFriend embraces P2P to form a network with friends and family to lower the individual’s insurance premiums. Each approach has its benefits and both lend themselves easily to social media. They have the potential to reduce insurance claims because consequences impact the entire group and social pressures are predicted to make people think twice about risks.
These two companies presented their business models at the London Insurance Disrupters meetup held at the end of April this year in London.
BoughtByMany has about 18,000 members in about 180 interest groups. Overall, the average discount negotiated has been around 18.6%. The attraction to the insurance companies that BoughtByMany brings, lies in the fact that the cost of acquisition is much lower relative to the other channels these insurance companies use to acquire customers, this also applies to InsureMyFriend.
Typically, 90% of their traffic is driven through Facebook in which customers join the group for which they are interested in. Once joined, they can invite friends.
InsureMyFriend makes it possible for you to link up with friends and family that you trust and provide a way of managing the “pot of money” that you are all setting aside when a claim needs to be made. Since the syndicate is made of people who trust each other, the claims are likely to be very low.
However, if your network has too many claims, a certain percentage of the premium that everyone puts into the pot will be paid to an insurance company to cover larger than expected claims. In the case where there are no claims, premiums are reduced in subsequent years.
This type of insurance lends itself to smaller items like smartphones and gadgets, as these are easy and cheaper to replace. Motor insurance for young people is another possibility for the BoughtByMany business model with the benefit of getting a 50% rebate or more on their premium if they can stay accident free after a whole year. Such incentives are thought to change behaviours and encourage safe driving.
Even though social networks are the means by which groups are formed to buy insurance, this process does not lend itself to fully assessing the risk that members are exposed to. In other words the person who goes on holidays twice a year assumes less risk relative to the person who takes 5 holidays a year. Social media is less of an exact science compared to a person’s actual lifestyle and buying behaviour. Hence, while it may be that Facebook is the platform from where social and crowd insurance are promoted and grow, it will be platforms like Amazon, eBay, Walmart and JohnLewis.com where these types of insurance may flourish because they have more personal information (read more on Code Halos) on the individual and their lifestyle.
I wonder if these models alone will really disrupt the insurance industry to the extent that its current business model needs to change? I am not convinced it will. It may require many more players in the market for the insurance sector to sit up and take notice. The biggest benefit at the moment is the low cost of acquisition for the insurer. For customers it is the potential to get reduced insurance premiums and customized policies.
The disruption to the insurance industry may not come through crowd and social insurance alone, but through many changes that are impacting the industry at the same time:
- Quantified self
- IoT (internet of things)
- Mobile technologies
- Big data
- Crowd sourced policies
- Social insurance models
In developing countries where the insurance industry is not as mature, one could see the opportunities for the growth of social and crowd insurance where uninsured liabilities are very high and possible pay-outs for a non-fault accident are very low. It may be insurance co-operatives are formed to cover risks, rather than mainstream insurance companies. Members will own a stake in the co-operative encouraging them to take less risk in order to minimize payouts.
Today, the regulatory environment is holding back the insurance industry from going through the disruptions that has shaped other industries. It won't be long, however, before smart start-ups will begin to find ways to work around those barriers to provide a better service to the customer and in the process change the way we relate to insurance as a whole. One thing for sure, is that very soon the way we source insurance will change from how we know it today.