The great standstill: lack of innovation holding back the insurance industry
While many industries are preparing for the fourth industrial revolution and embracing the latest advancements in technology, the insurance industry is yet to catch up. This is not due to its willingness but simply down to some fundamental barriers.
Some of the factors causing this hindrance are company size, extensive legacy and complicated IT processes, and we are seeing insurance regulators and brokers working at odds with one another. While customer-facing brokers are ready to innovate, unfortunately the establishments and their processes are less open to change. The insurance industry has major obstacles in its way to innovative, progress and remain competitive, with disruptive start-ups beginning to emerge in the marketplace.
Start-ups have been pushing boundaries and making radical changes to many sectors over the past few years, some of the most famous being Uber, Airbnb, Deliveroo and Spotify. We are constantly hearing about the “next Uber” of X industry. This “uberisation” of services is now creating a ripple effect into the insurance market, but the processes are not yet in place to support such innovation. Incumbents in all sectors are being forced to adopt new approaches and processes to stay relevant amongst competition from the start-up “boom”. Organisations are all under pressure to create a revolutionary service that consumers never thought they needed but can no longer live without.
However, the likes of Uber and Spotify weren’t successful overnight. Their global success is down to some fundamental processes, ways of thinking and the use of technology. Many of the most well-known market disruptors have used the “tenfold improvement” philosophy, built on the premise of making revolutionary changes, which are ten times better than the last as opposed to just evolutionary changes. This is what makes for a disruptive product or service.
As well as having the right mindset, organisations also need to be practical when it comes to using the right technology. To make your solution a success you need to make it widely available, so your platform is compatible with various operating systems. Take Uber for example, it needed to be developed for iOS and Android for its employees and users to be able to use it. With the insurance market as it stands, operating processes are painfully slow and restrictive. This is one of the key changes that needs to be made moving forward.
If you want to bring a new solution to the insurance market, you currently need to have an immense amount of capital to meet solvency requirements and navigate a complex compliance regime to obtain a licence. The only real way to kick start innovation in insurance is to open up the market; by lowering entry barriers while still maintaining financial security and customer protection.
If current barriers to innovation were removed we could see an array of adaptations to traditional insurance products as we know them. What about a travel insurance app that starts the cover once it can detect via location services on your mobile that you are there? How about providing automatic cover for Airbnb hosts as soon as a guest checks in? The technology is there and from a consumer standpoint they are getting this from other products and services, so it’s simple right? Technically speaking, it is simple but if the operating system or business model doesn’t allow for this then it becomes a huge challenge.
We are just starting to see the insurance market experiment with technology such as telematics, blockchain, machine learning (ML) and internet of things (IoT) to innovate more. Such innovations have already been adopted in the automotive market in the UK where historically, insurance rates for young drivers have been extremely expensive and in some cases unaffordable for many. IoT devices are now offered by some insurance brokers to help identify risk factors so they can offer more fair and accurate rates.
If the current barriers to innovation can be removed over the next few years, we will start to see more developments in this market where technology will be better utilised within the insurance industry to increase transparency and efficiency.
By Liina Laas-Billson, chief business development officer, Black Insurance