Insurance is part of the glue that holds modern society together, helping governments maintain economic stability and decent standards of living. Regrettably, it also has a tendency to degenerate into a predatory racket if lawmakers don’t do a good job of keeping the industry under control.
The side effect of this struggle: an ever-deepening web of legal complexity that has put insurance in a somewhat unique position in the digital era. While Uber transformed the taxi industry overnight, and even banks now offer user-friendly digital services, regulatory bulk still has insurers asking customers to post off forms and speak to brokers on the phone to buy or change policies.
In a world where people have come to expect near-instant digital everything, insurance companies have been allowed to hide behind reams of regulation to largely go on as they were in the pre-digital age. And while customer satisfaction is falling, I’ve heard few campaigning for insurance to go digital. Thus, the industry seems content, even invested, in keeping things the way they are.
Unwinding decades-old systems, building new digital services, and relaunching the business in the hope that it all works as well as before: it just sounds too risky, too daunting, and too expensive for the old, conservative insurance institutions to seriously consider, if they don’t have to.
If the recent past has taught us anything, however, it’s that pent-up frustration with a given industry will eventually explode, leaving a path of destruction and technological innovation in its wake. For insurance, the signs are already there: the percentage of US adults with life insurance has fallen from 59% to 36% since 1960. And you can forget about selling younger generations those nice-to-have policies if it means doing paperwork, rather than tapping an icon in a smartphone app.
The regulatory structure must somehow make it possible for insurance to be Uberized. We know the technology exists, and it’s hard to believe it would take long for Uber-like insurance apps to emerge if law permitted. In fact, some startups are trying their luck already. The website of Lemonade, a fintech using AI and machine learning to manage policies and claims, tells us to forget everything we know about insurance. Uberization will come in the form of a peer-to-peer insurance model, meaning Lemonade isn’t in conflict with its customers over claims, we’re promised.
In an article titled Why I’m betting on Lemonade, the company’s own William Latza wrote: “Traditional insurers are burdened with centuries of development that got them to this point … I’m betting on Lemonade because it is unburdened by legacy.” He is “convinced Lemonade will bring insurance to 21st century consumers who have learned to shun insurance and insurers.”
There is, of course, reason to be skeptical. In a counter-piece, Why I’m betting against Lemonade, law professor Jay Feinman wrote: “Apps, bots and a giveback to charity just aren’t enough to transform the very business model of insurance.” While he hopes he’s wrong, Feinman thinks it’s too much to expect the complex, rule-heavy insurance game to be turned on its head overnight by a spritely startup.
It’s much more likely that change will happen slowly, piece by piece. Technologists will keep plugging away, finding potential in AI, telematics, blockchain, sensors and big data. Regulators will try to keep up, allowing innovation to the point that insurance remains a lubricant that keeps society functioning. The survival of the old insurance institutions will depend on how they react to this progress.
$2 billion was invested in ‘insurtech’ in 2016. More people are waking up to the idea that with technology, insurance as an operation and as a customer experience can go far beyond what it is today. It’s even possible that Google, Facebook and Amazon could join the insurance game, their infrastructures and hordes of user behavior data more than a match for traditional insurers.
But few are getting carried away just yet. There are rules to be followed – for good reason – and it will take time to change them. Until now these rules have shielded insurance from digital disruption, but it won’t last forever. What can be appified, will eventually be appified, and insurance is no different.
Incidentally, a new SAP Canada whitepaper – IFRS 17: Obligation or Opportunity? – explains to insurance companies how looming regulatory changes can be their springboard into the digital era.