Consumer Insurance Disruption On The Horizon?

Scenario: Consumer insurance is turned upside down due to disruptive startups, demographics and new economic forces.

The multi-trillion dollar consumer insurance industry is feeling the pressure of disruption. Startups and companies outside the industry are testing completely new models that deconstruct “the way it always has been done.”

And how do you sell insurance to generations that are willing to accept far more risk than their parents? How can legacy insurance products resonate with a nearly dominant population that embraces lifestyles that delay or eliminate acquisition of assets such as cars and homes?

According to Pew Research, the Millennial generation (typically defined as ages 18 to 34) will surpass Baby Boomers as the nation’s largest living generation at about 75.3 million. Don’t forget that Gen X (ages 35 to 50) is projected to outnumber the Boomers by 2028. Think about the 25% or so of young people who choose not to have health insurance. How will the insurance industry respond to their own research indicating that Millennials are less likely to have auto, life, homeowners, renters, health and disability coverage?

How many insurance companies saw the sharing economy coming and big data being used by consumers rather than only by them, let alone the major changes in demographics? Certainly, it doesn’t help insurance companies’ prospects to enter this new marketplace burdened by legacy overhead, marketing/sales traditions, conservative operational policies, economic models and technologies. To understand and prepare for a wide range of disruptive forces in the industry, it’s prudent to start asking many questions and using some imagination about could be — even it seems far-fetched.

So here’s what the disrupted world of consumer insurance could look like. Elements or versions of some of these scenarios already are being tested in the marketplace.

Consolidation — Insurance is sold as comprehensive packages along the lines of target age mutual funds rather than as separate policies. There could be teen, college, young adult, family, senior packages. A consolidation model would simplify purchasing and include automatic adjustments over milestone life segments.

Lifetime risk coverage — Cradle to grave umbrella policies cover every type of risk/liability/type of insurance as part of a massive public pool. This could take the form of a private sector, nonprofit or quasi-government program emphasizing purpose over profit alone.

Integrated insurance — Car insurance, for example, is sold as part of lease or shared service rentals by these auto companies rather than through traditional auto insurance companies. This would accommodate the trend toward decreased car ownership. The same goes for other purchased products. Homebuilders or developers could insure residences, major appliances might be insured by their manufacturers, etc.

Risk reward model — Some auto insurance companies already offer “good driver checks” if policy owners don’t have accidents. Consumers demand that idea carried many steps further, with larger refunds of premiums for all types of insurance if they are good risks. Or perhaps a new portfolio of monetary incentives will be created to attract and retain customers.

Gig economy insurance — As the freelance/gig economy skyrockets, new unions, professional social networks or organizations form to also provide comprehensive consumer insurance coverage as part of membership. And that insurance is underwritten by the organizations, not by insurance companies.

Consumer driven regulations — Just as Uber and Airbnb have sparked regulatory changes in their industries, antiquated insurance regulations are prime to be updated and streamlined. Consumer pressure due to popular disruptive startups would tip the scales to overcome political and industry influence.

Crowdsourced insurance — A new hybrid insurance model arises from the use of crowdsourcing, such as generated pools of people and capital building self-insurance collectives or virtual insurance companies. What’s to stop Facebook, Google, Amazon.com or future capital rich IT companies from crowdsourcing their members to establish creative insurance models?

Policy complexity eliminated — Disruptive insurance providers remove the mass of incomprehensible legalese and defensive clauses, partly by getting regulations changed? They write policies using simple language, reflecting completely transparent models and presenting straightforward risk criteria, costs and benefits.

Transferable insurance — The full range of insurance policies become transferable within families or members of groups as risk is bundled or managed in new ways.

Consumer based marketplace — A very transparent “policy and company facts” service analyzes big data about insurance companies and their performance for product buyers to make better-informed decisions. Just as insurance companies run algorithms to assess policy underwriting risk, consumers use the power of big data to force insurance companies to compete for their business on price, simplicity of policies, service quality, financial status, pay rates of executives, political contributions, social responsibility, hiring practices and other factors.

Automated insurance — The personnel costs, operating liabilities, physical assets and other human based expenses are essentially eliminated by fully automated, AI driven online insurance companies. Policies are completely customized for every individual and his/her life characteristics, with online capability for customers to change anything, any time with no human interface.

IoT insurance — Health, property and life insurance becomes part of the Internet of Things, so policies are responsive in real-time to a wide range of integrated sensors. This behavior and condition monitoring may be considered no more invasive than current health related systems, as long as customers see real benefits through savings and other perks.

Non-insurance — For generations that increasingly eschew traditional insurance, they drive the creation a new non-profit model of asset and liability protection. This completely different insurance model may veer more towards investments or self-insurance or as a package no one can define yet.

For insurance industry stakeholders, it’s easy to dismiss disruption and scenarios like these. They cite reasons such as insurance companies will go bankrupt if they cave to market forces, risk analysis data cannot support radically new models, regulations will not change, and the tried and true mantra of “it’s not the way insurance can work.” The business world already is littered with bankruptcies and business closures caused by such thinking.

How can insurance companies respond to disruption other than digging in to fight a losing battle to maintain the status quo? One option is to disrupt themselves by creating the new products and services, even at the cost of destroying their own legacy products and services. Think how the Apple iPhone destroyed the market for their own iPods — but Apple built an even larger profit center with the phones. The other option is to re-package, re-design and imaginatively market updated products and services to appeal to insurance-averse generation. That will be challenging for an industry not known for big innovation.

What do you think consumer insurance will look like in 10 or 20 years?

Imaginexxus produces proprietary content for publication, as well as original content for clients, on the subject of imaginative product, service and process development. One of Doug Freeman’s roles is a business scenarioist, developing possible outcomes and unintended consequences related to products, services and actions.

Relevant resources on this subject:

“5 reasons millennials aren’t buying insurance from local agents”

“Why Millennials Resist Any Kind of Insurance”

“Insurance Companies have a Big Problem with Millennials”

“Are Australian Insurers Lagging Behind the Innovation Race?”

“The Next Industry Ripe For Disruption: Insurance?”

“Big Bang Digital Disruption: Is the insurance industry in Asia next?”

“Disrupting Insurance Distribution”

“Can Technology Disrupt The Consumer Insurance Market?”

“Disruption is the New Reality in the Global Insurance Industry”