Insurance has arrived at one of those very interesting moments in time when several streams of capability converge and enable change. Each of these capabilities stands on its own, and can (and likely will) be used to improve various legacy aspects of the insurance industry.
But what if some forward-thinking actuarial and underwriting executives decide on a new course for their business? What if they seize, not simply on the technological capabilities of the times, but also on the cultural and sociological changes that are churning among consumers as they react almost in syncopation with emerging technology?
The likely conclusion will be a new business model for the insurance industry. This model leverages the basic concepts of insurance and risk sharing, but also disrupts both product design and process to take advantage of social and information-based change. A next-generation line of business (LOB) will emerge to consolidate the possibilities into an initial offering focused on smaller, more specific coverages and services. The collective concepts described in this post are what I term as personal risk management (PRM) and active risk mitigation (ARM), but they can also be thought of as being part of a dynamic indemnification architecture (DIA). A DIA would manage the technical, geographic and legal aspects of the necessary communications between the components of a PRM solution.
A mental sketch of the new DIA mechanism shows that focused coverages will be bound together by a master insurance contract. This could be viewed as a "retainer" that authorizes dynamic information exchange and coverage additions, or modifications for either commercial or personal policies.
An example of the types of change required for the new approach to work can be seen in the drive toward simplifying new-business acquisition. The primary mechanism in the auto LOB happened several years ago via straight-through processing (STP) and the ongoing maturation of usage-based insurance (UBI). STP works because insurers overcame the cultural, procedural and regulatory restraints, as well as the technological limitations of their stakeholders/partners to provide the accurate data they needed to make it work in a timely (minutes versus hours or days) fashion. UBI shows the value of policyholder-sourced sensor data, which is used to augment and/or supersede statistical models and rating calculations to provide consumer premium discounts. This points to the value of evidence-based underwriting made possible by our increasingly interconnected world.
Extending these ideas into DIA could create a master transportation policy that would support policyholder-owned, policyholder-used or participatory coverages. Then, as the policyholder is exposed to the varying risks that each mode of the policy covers, the technology layer would invoke the correct coverage "on the fly," taking in relevant data from connected sensors and devices to support the transaction. Likewise, the architecture would cancel the micro-duration policies when they were no longer needed. This could be envisioned as being similar to the gas-saving feature of some vehicles that automatically stop and start the engine as needed. Why can't the same be done with insurance?
In the second part of this blog, we will examine the impacts and implications of rolling out the next generation of insurance.
This blog has been reprinted with permission from Aite Group.
Jamie Bisker is a senior analyst with Aite Group.
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