How digital insurance companies are changing the landscape

Digital insurance companies are here to stay. No longer merely upstart startups, insurtech companies are permanently changing the landscape and transforming the relationship between insurers and consumers.

Their advantage lies in having purpose-built systems that are optimised for their current business which leaves them unencumbered by legacy. Many are offering a flexible model of insurance that adapts to changing demand by using evolving technologies like artificial intelligence (AI), data analytics, and wearables like watches. Others are radically reinventing the relationship between insurer and consumer.

Here are five ways digital insurance companies are changing the industry landscape, with highlights from some of the startups we think are getting it right.

1. Direct to the consumer

Digital insurance companies are bypassing brokers and eschewing agents to market directly to the consumer. Direct online channels not only help insurers keep overheads low, but also open up opportunities to interact directly with consumers and build relationships with them.

This in turn lets them collect data to further understand their customer and provide a range of personalised products and up-selling opportunities. Having a strong customer relationship allows them to build loyalty, whereas in the case of agent sales, the loyalty is to the agent not the insurer.

Insurance shopping platforms like Coverhound, The Zebra and Insurify are making this even easier and are actively redefining distribution models. While clients can get more specific about what they are looking for, service providers gain more visibility if they comply with demand. These marketplaces help insurers cut distribution costs and at the same time, bring in even more well-targeted leads.

Case Study – Coverhound

Coverhound helps users to find the best quotes, prices and insurance plans across auto, homeowner, renter, and business. Similar to other comparison websites, they also provide access to insurance via phone or online and ensure customers are able to take advantage of any applicable discounts.

2. End-to-end digital insurance

Online-only digital insurance companies offer consumers the ability to buy and renew policies, make a claim and receive a payout all without picking up the phone. These companies use AI and analytics to improve the experience across each of the functions that have traditionally supported the insurance process, including marketing and onboarding, claims, and customer support.

Case study: Lemonade

Lemonade uses a chatbot for its first notice of loss (FNOL) system to provide a seamless end-to-end digital customer experience. Customers can lodge a claim, upload pictures of the damage and attach supporting evidence, all with their mobile phone. The AI interface assesses the initial damage to categorise whether the claim is simple or more complex before using algorithms to run the claim through fraud prevention detectors. If the claim is approved, Lemonade promises to provide claimants with a payout within minutes.

3. Premiums tailored by behaviour, not demographics

Today’s customers see the flaws in blunt segmentation demographics like age and gender. Instead, there’s a growing awareness that insurance can and should be tailored to their individual behaviour.

Telematics, supported by the growing Internet of Things (IoT), are allowing insurers to factor real-time individual behaviour into policy underwriting to reflect real risk.

Motor vehicle insurers have already moved towards ‘pay-as-you-drive’ insurance, charging premiums that are based on individual driving behaviour rather than age and gender. Health and life insurers are following suit by using wearables to collect data like a person’s heart rate, blood pressure, weight, diet and exercise habits, to set premiums according to their biological age rather than chronological age.

In both cases, telematics offers consumers an opportunity to save money if their individual behaviour is safer or healthier than average for their demographic – such as with a cautious, young, male driver or a super fit octogenarian, for example. By incentivising best practice behaviour, these types of products also benefit society at large. Healthier people mean less stress on both public and private health systems.

Case study: Hastings Direct Smart Miles

Hastings Direct Smart Miles offers drivers the opportunity to pay lower premiums if a black box is installed in their car. The box tracks their mileage, driving behaviour and other data to understand the driver better. Drivers are given a score that they can access, along with handy tips on how to improve their score. This gives drivers an incentive to make positive changes to their driving habits and has the potential to reduce the number of accidents on the road. In the event of a crash the black box may help determine who was at fault, speeding up the claims process and keeping costs down in the proces

4. Less bundling, more control

Insurtech startups have infiltrated the insurance market by targeting small, high-profit products like coverage for personal electronics. Items like these were traditionally either covered on an exception basis within a contents policy or excluded from cover if their cost was higher than a set threshold. Either way, consumers had limited control over how they could cover these items.

What consumers now want is to pay to cover only on the items they care about, when they want to cover them. This requires insurance policies to be flexible about both duration and scope. Innovative insurtechs are responding to this demand - and in some cases even creating it.

Case study: Trov

Trov is a smartphone-based insurance app that allows users to insure what they want, when they want, all by text message. Rather than selling an overall home and contents insurance product, Trov offers users the ability to just insure the item that they want. For example, they can insure a pair of skis just for the two weeks they’re on a skiing holiday. The company uses an automated bot and live chat service so the entire transaction can be done on the spot via text while you’re on the way to the airport.

5. Hybrid coverage tailored to the individual

The flip side to the single-item insurance trend is a move towards hybrid insurance. Digital insurance companies are targeting customer groups and bundling together products that aren’t traditionally linked to offer a one-stop solution to their needs. Millennials, for example, can take out life insurance, personal effects cover and travel insurance in one place, instead of taking out multiple policies which cover more than they need.

Case study: Evari

Evari offers hybrid coverage to small businesses who want a simple, online solution tailored to their needs. Businesses can get cover for their tools of the trade, legal liability and professional fees, with every policy tailored to the type of business. It’s 100% cloud-based, and customers can change policies at the click of a button.

A roadmap for traditional insurers

Digital insurance companies aren’t just making their mark on the landscape - they’re transforming it. From intuitive, easy-to-use interfaces to personalised marketing, they’re cutting out intermediaries and developing a direct-to-consumer approach.

So how do traditional insurers avoid getting lost in this new landscape? To stay competitive, we suggest:

  • Tracking insurance trends and metrics in order to respond to changing demand. Metrics such as customer NPS post claim, underwriting speed, retention rate, average time to settle a claim etc.
  • Using data to look deeper into the needs and expectations of newer customer segments like millennials to identify insights in the way they consider insurance, and what this means for your product offerings.
  • Rolling out new products and bundles swiftly and tweaking them if they don’t hit the mark. Enabling an A/B testing process and having a vendor or insurtech partner with an adaptable solution that can help make changes on the go is key.
  • Provide modern, personalised bundled (packaged or multi-cover) policies that offer clients a one-stop solution for all their needs at a price that takes into account their behaviour in real time.
  • Rethinking the biggest barrier to competitiveness - legacy systems. For customers, waiting on-hold to speak to a person or needing to send in applications by mail is a thing of the past. You can’t replicate the speed of digital transactions using old technology.

Ultimately, how effective these new digital insurers will be depends on how committed existing insurers are to adapt to rapidly changing technology and consumers. The underlying message is that while the industry may have to cope with a number of internal and external pressures, their impact remains very much in each insurer’s own hands.

We are Axe, a leading insurance solution provider helping our customers shift to meet their customers’ needs. We’ve built our reputation on having the most innovative and adaptable software in the market. So, if you’re wanting to change the rules, we should talk.