Insurance is an ancient business. Humans have always understood risk and organisations have offered protection against risk for hundreds of years. 14th century insurance policies are recognisable as policies insuring against risk and as colonial nations explored the world, ship owners would buy policies to protect against their vessel not returning.
Insurance today does not appear to have changed very much. A 17th century ship owner buying a policy that would pay out if his ship never returned to port is very similar to a car owner today. If the car is stolen or damaged, the insurance company pays out.
But many businesses today are using and creating innovative ideas that don’t fit into the traditional insurance model. Take professional liability insurance as one example. This is the type of policy that protects a professional from the effect of bad advice or professional actions – a lawyer giving bad advice or an architect creating a poorly designed building that is dangerous. When the client claims damages, the liability insurance kicks in to protect the professional.
But what if your business is a peer-to-peer lending firm matching savers with borrowers directly? Or you are creating a new block chain exchange? Or you are launching an app that gives medical advice?
With new types of risk comes the problem of how to price that risk. Innovative new companies are finding that traditional insurance companies don’t really understand what they do and therefore the cover is either prohibitively expensive, or just not offered at all.
I recently read about a new insurance broker called Digital Risks that acts as a middleman in cases like this. They study the business and attempt to calculate the type of risk involved and then work with over 20 insurance companies to try creating a policy. But ultimately the broker still needs to find a way to manage the risk with a regular insurance policy.
Peer-to-peer insurance has been growing for the past 5 years and may offer an answer. Those who understand a new type of service and the risks involved may want to invest in insuring against that risk – with the opportunity also offered to other investors. Instead of a big company underwriting the policy, a group of investors achieves the same objective. It sounds very similar to the Names system of underwriting at Lloyd’s of London, but in general peer-to-peer insurance hasn’t had the same visibility that peer-to-peer lending has enjoyed.
I believe digital innovation will create big changes for the insurance business. If a major insurer explores the use of a policy underwriting system that resembles Facebook and charges less than any regular policy then I believe people will be willing to explore new ideas. At the end of the day, insurance is about protection from risk. If new methods of creating policies can be shown to still protect the customer then they will experiment.
Our white paper Insure Against Loss examines in detail the opportunities in the insurance sector. In this paper we will explore how delivering an exceptional customer experience can increase customer engagement levels and reduce customer churn.
Let me know what you think about some of the innovations and change in how insurance works by leaving a comment here or get in touch via my LinkedIn.