Insurance is a complex business. Backend processes and systems that support it are designed for maximum stability and risk reduction. They rely on trained professionals moving at a steady pace through a well-defined multi-step workflow. Products are sold with the assumption long-term, stable customer relationships with a minimum amount of change or service requests.
People’s lives, on the other hand, are becoming more agile and varied. They change jobs, houses, and cities more often than before. This affects what cars they drive, how long they commute as well as what houses or apartments they are living in.If the pace of life is accelerating, how can the insurance industry adjust to keep up?
Insurance industry: Changing needs require flexibility
When a person was living in the same city and commuting to the same job every day, his needs were quite simple. Nowadays, one may work from home on some days, travel on others, use a bike sharing during the summer, and commute by car to the office when it is raining or cold outside.
With such a wide variety in daily routines, paying $250 every month for a car insurance does not seem like a solid choice. The flexibility of insurance products should increase to catch up with the agility of modern life.
The fact is, technology is here to support that kind of agility. Metering devices can be installed in a car to measure how many miles you drive. That allows consumption-based (per usage) pricing so people who drive less will stop subsidizing those who spent most of their days behind the wheel. If the driver agrees to share more information with an insurance company, she can expect a further rate reduction for careful driving.
Consumers may stop using a car while on vacation or temporarily moving to another city for business. They should be able to adjust their car insurance without calling the insurance agency (during business hours only), or wasting time filling out a long form. Pressing one button on a phone should really be the standard.
For example, Uber has inked a deal with Metromile, the pay-per-mile car insurance service, that will enable Uber drivers to only pay insurance for the time they’re on the road and have different rates if they have a passenger vs. driving alone.
People are sharing cars. If my friend is driving my car, I would like his insurance to kick in the moment he takes control of the vehicle. Cars are getting smarter and consumers have smartphones in their pockets—we can make it happen.
With smart homes, it should be possible to achieve a similar flexibility in property insurance. A house that is protected by a smart fire alarm system represents a smaller insurance risk, as does a house that is not left empty for long period of time. Our insurance bills should soon be looking more like consumption based utility or phone bills, and we should get better rates in return.
Consumers expect insurance products to be available when they are needed and be easily accessible. Travelers who decide on Friday evening to go on a weekend hiking trip out of town would want to increase insurance coverage for next week. And they want to do it without filling in another long form or waiting for a broker to call. Sorry, they are too busy packing.
Such business agility represents a significant technological challenge for insurance companies. They are faced with the dilemma of preserving robust backend systems and internal workflows, while adapting to changing customer behavior and the omni-channel nature of doing business with a new generation of sophisticated and technology-savvy consumers.
As I have argued before, adding fancy HTML on top of existing backend systems is not a viable solution. Insurers should look into introducing new front-office systems to shield consumers from the complexity of internal processes and provide agility, usability and simplicity they expect. Failure to do so will open doors for technology-savvy startups to insert themselves between insurers and consumers and take the business away.