The insurance industry is in a unique place right now, something akin to the calm before the storm. There are multiple changes in the world, especially when it comes to technology and innovation that are about to rock the boat and bring serious changes and we wanted to write an article taking at least a basic look at them. Several of them will likely become more in-depth articles in the future. We won’t go too far in depth on any one of the forces today, but we want to at least give a summary of each. We really look forward to hear what you guys think on what we chose and what we missed.
1. A Change of Systems:
The insurance industry is known for running on old systems, many of which are 30 to 40 years old. Many companies are finally making the move to completely rip out their ancient home-brewed terminal based systems and move over to fully modern, commercially available systems. You only need to take a peek at Guidewire’s list of 180 P&C carriers to realize that carriers of all shapes and sizes are moving to their standardized system including: AIG, Allianz, American Family, Aviva, CIG, CNA, Hartford Steam Boiler, a few of the Farm Bureaus, Mercury, Nationwide, PURE, QBE, SafeAuto, TokioMarine and Zurich. Whether they go to Guidewire or to someone else, the point is that they’re finally ripping out really old, outdated systems and moving to modern ones. This will be a huge change that will improve service to agents and customers alike, and it might also have the effect of making it easier for insurance professionals to move between carriers and be able to hit the ground running because they already are familiar with the system. On the agency side, Hawksoft seems to be gaining lots of converts among small and medium sized agencies to their very cost-effective, modern, cloud-based solutions.
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2. Telematics and Usage-Based Insurance:
Historically, people pay their insurance based on “average” use, and in places like California, mileage driven has huge effects on the premiums you pay. The deep dark secret of personal lines auto insurance is that those who drive very little subsidize those who drive a lot because there has never before been a way to charge people based on the miles they drive.
Telematics involves plugging a small device into your car’s OBD-II port, which most cars model years 1996 and newer are equipped with, and allowing the company to track your driving. There are currently two basic ways to use the telematic devices, the one favored by most major insurers which involves rewarding you for low risk behavior. Progressive was the pioneer in the telematics area with their SnapShot program which has been around for over a decade. More recently more traditional insurers such as Nationwide (SmartRide) and AllState (Drive Wise) are getting into the game. Liberty is getting into the game in an interesting way by offering their telematics option Onboard Advisor to their commercial auto customers.
The other way of using a telematic device is providing true Usage-Based Insurance, charging people for the exact number of miles they drive and the risk they incur as opposed to a simple estimate. This is likely to result in decreasing auto premiums because only those who think they are less risky than normal will sign up to participate in usage based insurance programs.
The most interesting companies in the Usage-Based Insurance space are Metromile and InsureTheBox. Metromile offers an app that tracks your driving, monitors your engine’s health, and provides you access to cool data and services related to your car and gives you usage-based insurance meant for urban dwellers who don’t drive much and are overpaying for their insurance compared to how much they drive. Their mission is to give every driver access to great, cheap services and disrupt the auto insurance industry. Interestingly, they give away the telematics device and app, even if you don’t buy insurance from them. Their board of directors is made mostly of Tech people with only 2 insurance guys, one from Progressive and one from Esurance. For now, it’s only available in California, Oregon, Washington, and Illinois, but they’re planning to expand to urban areas in the rest of the country soon. InsureTheBox is a similar service in the UK, their focus is more on rewarding safe driving rather than on by the mile insurance, but it’s still a cool idea.
3. Fast, efficient, and easy to use specialist wholesalers:
Specialized insurance wholesalers that work on only one product and do it quickly, efficiently, cheaply and simply are starting to crop up to offer agents the ability to offer previously hard to quote products and making them easier by investing in modern systems and processes designed to push this one type of product out the door. The one example today that is making waves is PersonalUmbrella.com which is advertising heavily in the trade media about their ability to write up to $10M in personal umbrella coverage in 3 minutes and with just a few questions, a much improved process over what used to be a difficult to quote line. They are planning to offer their services in 49 states and have already been approved everywhere except for South Dakota, Louisiana, West Virginia, Vermont and New Hampshire. Alaska is the only state they’re not planning to enter. Shops like PersonalUmbrella.com could change the landscape by helping smaller producers compete with the big brokers more effectively in some lines.
4. The Internet of Things (IoT):
Can you change your thermostat from an app on your phone? If you can’t yet it’s coming soon, especially after Google bought Nest and is going full force into the home automation market. InsuranceTech.com did a great job in explaining this in a recent article. The IoT is the new era where many of our things, especially appliances, but so much more, will be equipped with tiny processors, sensors and a TCP/IP internet address thus allowing us to take full advantage of whatever data they collect. Tangible items will not only be connected to the internet but also to each other. Once this takes off, the risk management possibilities will be amazing, imagine being able to react immediately to claims or even being able to prevent claims entirely by detecting ahead of time that your oven is in danger of causing a fire. Imagine commercial insurance where even after the policy is sold we continue monitoring an ocean of data coming from the customer’s operations and helping to improve their risk management practices to minimize claims.