The modern insurance industry evolved out of London, where business was done in person, contracts and insurance policies were written on paper, and pricing was more subjective than objective. Roll forward 330 years and much of the industry really is not that different. A recent Willis Towers Watson report showed 74 percent of respondents felt the industry had failed to show leadership in digital innovation; remarkable for such a massive global industry.
When Saxon was started in 2011, our vision was clear: use technology to create a better customer experience. We have found that by developing buy online, e-signatures, e-approvals and pricing algorithms, we have simultaneously been able to drive down processing times, and increase customer satisfaction. We are far from perfect still, but our adoption rate of new technology, and the Saxon culture mean that every day we get better and stronger. What is exciting from our point of view, is that the industry is at a tipping point, and the big winner will be the consumer. Here are five technology trends that we are embracing because we believe they are going to contribute to an insurance revolution:
AI has a bad reputation. To many, it conjures up images of mass job losses, robotic “customer service” and infuriatingly limited options. Actually, if it is used wisely, the reverse should be true. AI should allow the 70 percent of transactions that are simple – in insurance, think adding a driver to a vehicle policy or claiming for a lost piece of jewelry – to be processed instantaneously through a medium like Whatsapp, Facebook Messenger or even Siri.
Could AI lead to job losses? Absolutely. But only if we do not adapt. AI will force the human workforce to find a way to provide added value. This could be through delivering a heightened customer experience, being empowered to make discretionary service decisions, or creating a deeper connection and thus driving loyalty.
To the contrary of popular opinion, AI will lead to a much greater customer experience if done correctly. And insurance is a frontrunner in adopting it. Just google “Lemonade” to see the stir they are creating in the market, and all the copycats that are emerging – many of them established, traditional players.
Used by military forces for over a decade, the private sector is embracing their use exponentially since the FAA relaxed their rules in 2016 in terms of their commercial use. The insurance industry has shown a particularly keen interest in drones for several reasons, but the two main ones are:
- It is much cheaper to send a drone to inspect a high building than a person. From the shorter inspection time, to the fewer workmen’s compensation claims, drones save money.
- Post disaster claims inspections can now be conducted within hours of an event. Images of the damage caused by Hurricanes Harvey and Irma were taken very soon after the winds died down. This allows insurers to assess total damage far more quickly than traditional methods. The most advanced insurers are even overlaying real-time images with their policyholders’ information to pro-actively evaluate the extent of damage, and in many cases, offer settlement amounts before a claim is even made.
As for Saxon, as we have developed our own drone program, we have identified another use case: as a verification tool. We have already had examples where we’ve identified customers who had noted on their application form by mistake that they had, for example, a standing seam roof when in actual fact it was shingle. Having inspected the house with our drone, we were able to identify the error and rectified it up front. Without that inspection, in the event of a claim for roof damage following a hurricane, it is likely that any claim would be denied.
It is a painful process applying for insurance. Even with the ease of doing it online, there are still a lot of questions, and all for a product that, while important, is not that exciting. The question, therefore: is there enough available public data that means the way insurance is distributed can be radically improved? Quite probably, yes, but it is about getting comfortable with data sharing and access. Admiral, a U.K. insurer, was trialing a program whereby it was scraping Facebook data and looking for a link between people’s Facebook accounts – frequency of access, time of use, language employed – to develop a pricing and underwriting model. The project ended when Facebook got cold feet. But sooner or later a similar model will gain traction – and should make the process of buying insurance a breeze.
An alternative distribution model would be a pay-as-you-go model. Using car insurance as an example, the two key factors in determining the cost are 1) how much you drive and 2) the way you drive. An app on your phone that captures and transmits driver behavior information can accurately assess both factors, and would allow you to consume insurance as you would electricity. Or better yet, embed the technology in the vehicle and include in the lease cost.
The same Willis Towers Watson survey mentioned earlier, also shows 94 percent of respondents believe that distribution will be the area most radically improved by technology over the next five years. Big data will be central to this.
The insurance industry can be extremely inefficient. The chain of insurance often goes like this: Consumer – agent/broker – Insurer – broker – reinsurer – broker – reinsurer.
If we conservatively assume that each layer is costing the consumer 10-15 percent on top of the pure insurance cost, then it is safe to assume we are paying about twice as much as we would do in a perfectly efficient market. This is one of the reasons why Saxon is committed to being 100 percent direct to the consumer for our products. Incidentally, we have also cut out the broker between us and reinsurers too.
So, one obvious solution to this inefficient market is peer-to-peer insurance. Just like Uber has erased the inefficiencies of the taxi industry, or Airbnb has become so popular as a source for accommodation, the time is ripe for P2P insurance for certain segments of the industry. In fact, Lemonade originally launched as a P2P insurer, but had not prepared the market well enough, so retreated from that brand position.
No doubt that consumer confidence is critical to success – trusting that someone will pay to repair your house takes a bigger leap of faith than trusting someone will pick you up on time – but it is not hard to imagine a set-up that would provide the required level of confidence.
Tesla recently came out and said it would look to include lifetime insurance costs in the purchase price of one of their vehicles, such is the confidence they have in the autonomous driving and collision avoidance technology of their vehicles. Whether or not this is marketing ploy by Tesla to get some column inches, the academic point is extremely valid. At what point, can insurance products switch to becoming warranty products? In the case of a fully autonomous, self-driving vehicle, surely if an accident occurs then it is a product defect? And while this is likely to be backed at an aggregate level by some sort of insurance product, from the consumer’s perspective it would be embedded in the purchase price, and remove the need to buy car insurance annually.
If this is a near reality for car insurance, then it is easy to see how fire-proof homes, or unbreakable phones, will require a new approach to the old way of insuring.
Insurance is a hugely important product and industry, but the reality is no one particularly enjoys buying insurance, reading policy documents or arguing about claims. The good news is that an insurance revolution is occurring, forced by disruptors entering the market, and everything that has not changed in hundreds of years is being critically examined under the new light of consumer experience. There are a lot of reasons to be optimistic.
So while Saxon does not quite have the R&D budget to be a global investor in developing these trends, we will continue to be one of the first to adopt new technologies as long as they are beneficial to our customers.