insurtech - baycurrent - five new... · due to new technologies products like wearables, niche risk...

12 BayCurrent Consulting

Insurance industry with trillions of dollars in premiums is one of the oldest industries which hasn’t changed much for last few decades. Due to assured long term profits and low competition, the industry had not felt the need to transform. Strict regulation and vast capital requirements have made it difficult for new players to enter the industry. However recent rise in a new generation

of consumers who are internet savvy has put pressure on insurance companies to innovate. Technology startups with the support of venture capitalists are coming up with innovative business models to satisfy the under insured and uninsured segments. As of 2017, around 1,500 InsurTech startups already existed. In this article, we would like to discuss some major trends in InsurTech.

In InsurTech, interesting trends are emerging. Based on the movements of start-up companies,

we share the future of InsurTech services

InsurTech -5 new trends and future -

13InsurTech -5 new trends and future -

Trend 1: Flat fee insurer model

In Japan, Sougo Kaisha, also known as mutual company, is unique to the life insurance industry. Under this special form of company, the policyholders play the role of shareholders to some extent. Parts of premiums leftover after paying the claims are paid to the policyholders as dividends. Although mutual company concept is not unique to Japan, it is not as big as in Japan. One of the reasons why mutual life insurance companies are popular in Japan is because they resolve the conflict arising between the traditional non-mutual life insurer, who are incentivized by profits, and policyholders, who cannot receive any refund even when premiums unused. This is one of the fundamental reasons for claims not being paid fast enough and not in full amount. To resolve the conflict, recently we are seeing some InsurTech startups coming up with innovative insurance products. One example is Lemonade.

Lemonade, a property and casualty insurance company is transforming the traditional insurance business model. Unlike traditional insurance companies, Lemonade takes a flat fee from the paid premiums and uses the remaining to create a money pool to pay as many claims as possible. The flat fee is used to pay operation expenses, to buy reinsurance, and to make certain profits. After paying off all such claims and cost, the leftover money, if any, is donated to a common cause as decided by policyholder. In case the money pool is not enough to pay the claims, reinsurance is used. As per Lemonade, their data scientists predict 40% of the premiums as leftover in the pool after paying off all the claims and cost.

InsurTech -5 new trends and future -

Flat fee insurer model Chart1

Players

Customer

Premiumpayment

Claim

Claim payments

Leftover donated

Flat fee

Expenses & reinsurance cost

Insurer

NPO

Explanation

Join policy Claims processing Leftover to social causes

･Insurer charges a flat fee from premiums. The flat fee is used for paying expenses, buying reinsurance and making some profits

･The remaining part of the premiums is put in a pool to pay for claims

･Since the insurer is not incentivized by less claims. All the valid claims are paid fast and in full amount

･In case the money pool has become empty reinsurance is used to pay claims

･Leftover money in pool is donated to NPO as decided by the customers

Money pool Money pool Money pool

NPO

Image


Trend 2: Social insurance platform model

Although the flat fee model has more advantages than the traditional model, there are some shortcomings; high operation costs like customer acquisition/infrastructure creation, new risks created due to new technologies products like wearables, niche risk where the volume is low or risk is very high for insurers not showing interest in providing insurance products etc. The solution is Peer-to-Peer (P2P) or Social Insurance. P2P is a risk sharing network where a group of individuals pool their premiums together to insure against a risk. The costs are logically very low because the network is managed by the policyholders without any insurer.

Each member has the option to be part of the jury pool who are picked randomly to verify the claims. One of the companies which provides a platform to create such social insurance products is besure.

In besure platform, people with similar risk can come together to share the risk by pooling money into a “risk sharing pool”. Rules of the pool are decided by the pool members themselves. Whenever there is a claim, the jury team is picked randomly to verify the claim and accordingly approve the claim if it satisfies all the criteria stipulated while creating the pool. However the approved claims are paid only at the end of the coverage period. The payment amount is calculated based on the number of approved claims and the pool amount. This is to make sure that all approved claims are paid some amount.

Social insurance platform model Chart2

Image

Players

Explanation

Create a pool Join the pool Make a claim End of coverage

･Create a risk sharing pool like computer theft, damage to appliances, mobiles, personal items etc.

･Invite family members, fiends, co-workers and even public who share same risk to join the pool ex: protection to new mobile device like iPhone x, event cancellation...

･Depending on pool type, invited members and public join the pool by accepting the rules.

･In addition members can opt to become jury for verifying claims.

･Platform automatically activates the pool once enough members join the pool. A flat fee for platform maintenance is deducted from money pool.

･Members within the pool can connect with other members to share knowledge for reducing risk like how to take care iPhone...

･When tragedy happens create a claim to compensate

･Jury members are picked randomly to verify the claim

･For claims approved by the jury the payment amount is calculated at the end of coverage period. Currently Jury is performed by members. However it is possible to automate the claims verifications by using AI

･At the end of coverage period. The payment amount is calculated based on the number of claims

･If there is any money leftover it is returned back to members excluding those who are already paid for claims

･Pool is closed

I have a risk not supported by insurers

Tragedy! No worries I have social insurance

Let me share my risk with others with same risk and save money

Create a pool on besure platform

Let’s share risk

Same risk

Money pool

Money pool

Jury pool

I can protect from risk

Premium is inexpensive

I will be jury No time to be jury

Platform automatically activated

End of coverage period

Rejected

Approved claim.Payment amount calculated at end of coverage period.

Enough members

Raise claim

Jury team

Randomly select jury members to verify claim

Platform calculates the payment based on number of claims approved and pays

Not covered Covered

ClaimsPayment

Money pool

Leftover money in pool is returned back to members excluding members paid for claims

Leftovermoney

payment


If there is any leftover in the pool after paying the claims, then it is returned back to the members excluding the members who are already paid for claims. besure charges a minute flat fee for platform management.

As per besure, a risk sharing pool is a "we're all in it together" support system in place to protect the community from whatever form the burden takes. The affected individual can lean on their peers for emotional support, advice, or ask the community for financial help (by submitting a claim). For risk sharing to work, all members of a pool must embrace the same risks. This is why each community pool is made up of people who share the same interest or need to protect against the same loss or event. For example, a pool that protects snowboards would be made up of snowboarders (all of whom have embraced the risks associated with being a snowboarder).

Chart 2 explains how the platforms like besure are run. The major advantages of this model are low maintenance costs, rewarding members who have no claims and also sharing knowledge among members to prevent tragedies. Since the pool is managed by the members themselves, most of the operation costs are nil other than the platform maintenance costs. Some operations like jury can be automated by using AI. Thereby it is not required for members to spend time on verifying the claims.

Unlike traditional insurance policies, members who don’t claim share more leftover money in the pool. According to besure, community risk sharing certainly lessens an individual's financial burden, but it may also reduce the overall chance of negative events occurring as member knowledge (e.g., experiences, skills, and life hacks) becomes communal knowledge.

Trend 3: New insurance products in a digital world

Growth in shared economy and IoT has created new opportunities for insurance industry.

Shared economy risks need newinsurance products

Shared economy, a collaboration to share assets and services like ride sharing, space sharing, asset sharing etc., is providing opportunities to earn more. The worldwide market of shared economy is estimated to be around USD 335 billion by 2025 almost 22 times of 2014. However shared economy has its own risks like personal safety, space damage, theft etc. Chart 3 provides the risks consumers in USA are worried about when using shared economy services. Sixty percent of the respondents cite personal safety as their greatest concern with the shared economy.

For shared economy to grow exponentially, it is necessary to create protection from these risks.This is where insurance companies can play a role. However as per experts traditional insurance products are not fit for shared economy. That's because traditional insurance products are based on tangible assets whereas the assets in

shared economy are non-tangible like servicelevel, reputation etc. and also the assets are shared across multiple players. For example, a car owner using his/her car for ride hailing service is not covered with his/her personal car insurance and buying a commercial insurance will be costly. Similar risks exist in other shared economy business models like in home sharing, personal shopper/delivery man, ride sharing, freelance labor, car sharing, commercial space sharing, equipment sharing etc. These new risks need new type of insurance products which are on-demand and personalized.

Chart3

There s̀ a risk to personal safetyinteracting with strangers

There is no guarantee of the quality of the service or facilities

People sharing their assets could have them damaged

People sharing their assets could have them stolen

There aren`t sufficient safeguards or protections inplace for users of the service if something goes wrong

60

48

46

43

37

Main risks of using sharing economy services according to consumers in the U.S. 2018

Source : Statista


Prediction and Prevention ofclaims through IoT/Wearables

Until now insurers spent more time on underwriting and claim handling but not much on predicting and preventing the claims. For example in health insurance, as per experts around 50% of the claims are due to lifestyle of the policyholder which can be avoided by improving the lifestyle using wearables. In addition, around USD 3.2 trillion is spent on health expenditure in USA. These costs can be reduced by using wearables. By using data extracted from wearables, data analytics and AI, it is possible to predict the risk of getting hospitalized in advance, suggest risk mitigation plan, monitor the progress and reward the policyholder by reducing the premiums. By improving the health of the policyholder, insurers and government are

able to reduce the costs by preventing the claims.There are some insurance companies which already started wearable based wellness program like Oscar NY, John Hancock Life Insurance Company etc. Due to these programs, policyholders live longer and claims will not arise soon. In life and health insurance where the interaction is very less, such program will help the insurers to build good relationships and increase the trust between insurer and policyholder. Overall it is a win-win relationship for both insurer and policyholder.

Life & health insurers more engaged with insured in near future Chart4

Image

Image

Description

Key challenge

Join wellness program Earn points Increase health status Get rewards

･Insurers provide wearable device to insured for a minute initial fee or free

･With the acceptance of insured, the wearable data is shared with insurer

･Some people may not like wearing smart devices. Convincing them is challenging

･Smart devices to remotely monitor the health will be needed

･Technology to identify who is actually wearing the smart device so that fraud can be prevented

･Who should possess the user data like device maker, insurer etc. should be discussed

･Overcome regulation hurdles like in some countries rewards like reduction in premiums are not allowed

･Convincing insured to share wearable data for heath benefits

･Properly analyze the wearable data for effective health status assessment

･Insureds accumulate points by tracking the wellness activities they do. For example; ‒Point for walking certain number of steps, running, cycling etc. ‒Points for sleep minimum 8 hours, good blood pressure etc.

･Wearable data is uploaded to cloud

･Insurer with the help of doctor, data scientist etc. evaluate the health and accordingly recommend actions to insured

･Based on insureds progress, the health status of policyholder is decided

･Based on health status, insurer gives rewards to insured/policyholder like low premiums, discount coupons, etc.

Smart glass

Smart lens

Smart clothes

Smartwatch

FitnessTracker

Smart phone

100 steps

8 hour sleep

1km jogging

1km cycling

Upload data to cloud

Analyze data and recommend action

Wearabledata

Insured

Health feedback

Insurer, Doctor, data scientist

･100,000･200,000･300,000

Point

･Bronze･Gold･Platinum

Status

Insured

Rewards

Health status

Insurer

･Low premiums･Discount coupons･Wearable device fee waiver

＝1Point


Trend 4: Digital insurance platform fortraditional insurers

In a digital era where the customer needs are ever changing, insurance providers need digital infrastructure to introduce, evaluate, and adopt new products/technologies/business models. Building such infrastructure in-house will be costly and slower. Also integrating with third party systems like hospitals to evaluate medical data for underwriting, telematics systems to evaluate the fraud in auto insurance, wearable devices for

evaluating the wellness of a policy holder, payment systems etc. will be complex and time consuming.InsurTech startups like Slice have already started providing service similar to IaaS (Insurance as a Service) platforms for a fixed fee per month. Slice cloud platform provides pre built solutions like multiple channels to engage with customer, end-to-end insurance value chain capabilities including pricing, rating, licensing, underwriting, policy issuance, and servicing etc., and managing regulatory requirements. By using these platforms, insurance companies can become digital insurers faster and at a low cost. By outsourcing the tasks to backend, insurers can concentrate more on customer.

【Reference】 Increasing health expenditure

The chart below shows the US national health expenditure as percent of GDP. In 2018 it is estimated to be around18.2% of GDP around USD 3.3 trillion.

U.S. health expenditure as percent of GDP 1960-2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2000

1990

1980

1970

1960

2018＊＊

Source : Statista *Forecast

18.218.017.917.717.417.217.317.317.417.316.6

15.915.816.1

13.312.1

8.9

6.9

5.0


Trend 5: Insurance ecosystem for consumer

As per a startup CEO, in future consumers buy insurance through two channels;

Marketplace: In this pattern, customer decides to buy from a marketplace due to reasons like either there is no insurance product in market to protect his/her risk, compare the prices or personalize the insurance policy. Usually consumers come here through advertising in social media, search platforms, messaging platforms or it can be smart home devices.

Online platforms: In this pattern, consumers mostly buy the insurance in the platforms they frequently used in their daily life like accommodation platforms, e.g., Airbnb, expedia etc, mobility platforms, e.g., uber, grab etc.,

In such a scenario, it is necessary for insurers to integrate with online platforms and marketplaces.InsurTech startups like ZhongAn Online P&C

Insurance Co. Ltd, a Chinese online-only insurance company, is an example of similar eco system.ZhongAn, which considers itself as a technology company, is established in 2013 by three of China’s largest companies; Ant Financial of Alibaba, social media group Tencent and financial services group Ping An. Alibaba is top shopping site in China with more than half a billion active users, Tencent owns the top instant messaging app WeChat with more than 1 billion users and Ping An Insurance is one of the world's largest and most valuable insurer. By collaborating with these top companies in China, ZhongAn has created an ecosystem around the customer to sell innovative insurance products. ZhongAn offers a wide-range of personalized products to its Chinese consumers covering five important areas namely lifestyle consumption, consumer finance, health, auto and travel. Some of the policies cover delays in flight schedules, broken smartphone screens, accidents that involve drones etc. Most popular products sold by ZhongAn is ‘shipping return’ product which provides insurance on the cost of returning goods that are bought through the internet. ZhongAn

IaaS platform in the future Chart5

Customer

Medical data DNA data Weather data Crime data Regulator approvalTelematics dataWearable data

IaaS (insurance as a service) platform

Platforms, marketplaces

･Provides end to end insurance value chain functions ･Integration with multiple ecosystems and marketplaces ･Integration with 3rd party systems for customer data ･Integration with multiple ecosystems and marketplaces ･Usage of new technologies like block chain, AI etc. ･Paper free processes ･ …

･Insurance companies use IaaS platforms to manage the value chain due to prebuilt integrations, data analytics and AI which makes the process faster, cheaper and safer･Due to integration with third party data like hospital medical data etc. , claims can be verified faster automatically･New players can enter the industry faster by using IaaS platforms

Digital insurer 1 Digital insurer 2 Digital insurer …

Buy insurance

Request for quote, …

Personalized Insurances, Comparison, buy,…

Image


is able to sell policies with tiny premiums of less than 10 cents due to massive transaction volumes (around 10 million policies are sold per day).

Preetham Edamadaka:

Senior Manager, Baycurrent Consulting Singapore office.

Copyright © 2019 BayCurrent Consulting Inc. All rights reserved.

Future customer interaction with insurers Chart6

Customers Lifestyle apps Insurers

Damage, returns etc.Shopping (e.g. Amazon)

Mobility (e.g. Uber)

Accommodation(e.g. Airbnb)

Freelance (e.g.Taskrabbit)

Activities (e.g. WeChat)

Social media (e.g. facebook)

Request quote

Multiple personalized insurance quotes

Buy/Use stuff

Stuff with protection insurance

Order

Goods with damage insurance

Share ride

Customer with motor insurance

Share space

Guest with damage insurance

Request job

Job with accident insurance

Buy event ticket

Ticket with cancellation insurance

Share data

Privacy insurance

Select insurance

Deliver insurance

Select insurance

Deliver insurance

Select insurance

Deliver insurance

Select insurance

Deliver insurance

Select insurance

Deliver insurance

Select insurance

Deliver insurance

Select insurance

Deliver insurance

Select insurance

Deliver insurance

Market place(e.g. PolicyBazaar)

Communication(e.g. WeChat)

Motor, theft…

Damage, theft…

Accident, …

Cancelation, …

Data theft, …

Various insurance

Protection, …

Image

insurtech - baycurrent - five new... · due to new technologies products like wearables, niche risk...

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