Macroeconomic trends like the sharing economy and increased sensorization are changing the way insurance companies develop products for their policyholders. That's according to a research brief from insurance consultancy Conning titled "Emerging Business Models in Personal Lines Insurance: Innovation-Based Disruption" released this week.

Digitalization "is creating the need for, and enabling the development of, entirely new personal lines products," Conning writes. For example, increased home- and car-sharing, driven by mobile applications, can "frustrate" insurers who aren't entirely sure when a particular item is in a particular person's possession, or for what purpose it is being used.

But as technology creates new risk exposures, it also provides new solutions for insurers to take advantage of. For example, "products building on blockchain technology may address this problem by providing instant and verifiable notification of any rental/sharing transaction and change of custody," Conning notes. And increased access to big data and advanced analytics "not only allow insurers to price policies more accurately, but also may enable them to modify customers’ behavior. Ubiquitous sensing and connectivity have the potential to move insurance away from paying for accidents and more toward loss prevention," the study says.

Pressure is mounting on insurers from several angles, Conning continues. The insurtech community is pushing insurers to adapt their business models and think differently about their core product by identifying weak links in the value chain. Much of the investment in insurtech is focused on distribution disruption at the moment, the company points out, but even that is having an impact on how consumers behave when it's time to buy insurance.

"Digital capabilities and the arrival of new competitors carving off pieces of the insurance value chain may well drive a significant restructuring of the industry," says Steve Webersen, head of insurance research at Conning. "For personal lines insurers, the key will be trying to figure out which parts of this evolving system are areas where you provide the most value and how you are going to connect to the customer."

Conning predicts five major changes to insurance business models as a result of digital disruption:

  • More flexible, tailored products as coverage demands exceed traditional personal lines insurance products.
  • Commoditized products thanks to increased aggregation based on price.
  • A diminishing role for agents as machine learning and artificial intelligence allow digital to do more than just retrieve prices.
  • An evolving role for the insurer from a post-loss payer to a more active risk management partner, involved in monitoring and loss mitigation, thanks to increased data and sensors.
  • Increased transparency and speed in the claims function.

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