Touchless digital insurance, for years a mirage somewhere in the future for the insurance industry, is here to stay thanks to Covid-19. High-growth breakout successes of the past few years such as Lemonade, Hippo, Next, Root and--if I may be bold, my company Neptune--highlight how innovation in the use of data can change every aspect of the insurance supply chain.
I recently participated in lively panel discussion at the recent WSIA InsurTech Conference entitled, “Leveraging 3rd Party Data Tools,” along with Bob Frady of Hazard Hub, Nick Blewden of Lloyd’s and Barbara Ingraham of Verisk. We agreed that the leaders in the space are voracious consumers of data, constantly searching for new data sources to apply to underwriting, marketing, renewals, claims, reporting, reinsurance, operations and more--essentially every area of the business.
For example, Hazard Hub aggregates and analyzes mass quantities of data while continuously adding new sources, such as for wildfire risk characteristics and scoring. Data is available via API (application programming interface) for immediate use in underwriting. The outcome: carriers can deliver immediate quotes, rather than suffer the delay of paper-based workflow and manual underwriting.
The ease of use of digital insurance, it was agreed by all, occurs as a direct result of effectively managing large amounts of data elements in real time. A significant and underappreciated side benefit is the improvement in data quality, which also results in more nuanced risk assessment and better pricing along with lower loss ratios. For example, rather than "neighborhood level" risk assessment and rating as done for federal flood insurance, private digital flood insurers evaluate risk at a structural level with building boundary sub-analysis. The outcome: a price unique to that home's risk, often with more coverage for a lower rate.
Panelists also discussed the full effect of touchless insurance, where an agent or consumer can shop, apply, bind, sign, and pay for a policy in minutes, online, with no physical inspection or manual intervention. This streamlined approach expands the markets by making it easy to buy (and understand) insurance.
To highlight the scope of the problem and opportunity for touchless insurance within the insurance industry, consider this scenario: Imagine that you are shopping on Amazon for clothes or furniture or tech or whatever, and at the end of the process, you click BUY, and a message pops up: “Thank you for your interest in Amazon. One of our representatives will call you within 7 days to tell you if you qualify to buy our products and how much they will cost. Have a nice day.” Antiquated? Yes, but this is still the primary user experience for insurance shopping throughout most of the industry.
A relevant question is whether digital insurance is an opportunity or risk for big incumbent carriers. For example, early in my career, I worked for AT&T when it held a monopoly on the US telephone business. Despite having the immense talent of Bell Labs, 100 years of business experience, and all the data, when the market was deregulated AT&T lagged way behind more nimble competitors like MCI, Sprint, and many others. Does the same inertia exist in large insurers, or will they be able to leverage their talent, resources, and especially data to thrive in the future?
A glimpse at the answer came from Nick Blewden of Lloyd's, who shared details of Lloyd's Insights Hub, an innovative new data platform about the Lloyd's market and its performance. Lloyd's is in the midst of a 3-year modernization plan to improve performance and update its business processes. Many other incumbent carriers launched or accelerated digital initiatives during the last year, driven by the Covid-19 pandemic. However, handicapped by legacy IT systems, bureaucratic cultures, and cost constraints, carriers are not matching the insurtechs’ rate of policy growth.
For incumbent carriers with large legacy IT environments, a quick and effective way to get to market AND accelerate their move to digital is to partner with insurtechs that are pioneering the way with 3rd party data and digital insurance.
In summary, likely future outcomes will be driven by Covid-19, touchless digital insurance becomes a base requirement for business as people demand touchless transactions. The use of third-party data in real-time has brought small startups into prime position in the market, and incumbent carriers will race to find ways to retain market share while upgrading their own digital capabilities. The longer-term answer is likely to be a merging of the speed and innovation of insurtechs with the size and expertise of legacy carriers to create the next phase of insurance.
