By FINTECH Books Contributor, Onno Bloemers
The end of the current model
The classical insurance business model is under fire. Existing insurers struggle. Often quoted reasons for this include regulatory pressures and legacy landscapes. But there is a more fundamental problem. Insurers lack the skills to effectively design implement a new, future proof value chain. They simply never had to.
Insurtechs fill the gap
InsurTech startups are keen to exploit this growing imbalance between customer expectations and service offered. The easiest way is to provide a specific solution
for an aspect in the value chain. We see all kinds of solutions improving customer experience,solving old-fashioned, cumbersome bureaucratic procedures filling forms etc.
Confusing aims and means
But the real innovation will be taking place at a more fundamental level. My view is that insurers have over time confused aims and means as did the American railroad companies a century ago.
An insurance policy has traditionally been the primary solution to manage specific risks, through the transfer of this risk among a large group of individuals or businesses. Incumbent organisations are quite well capable to manage this as their core business.
A new paradigm
However, with the rise of sensor technology, big data and IoT a completely new paradigm arises where offering a policy as your primary solution to manage risk is much like the tail wagging the dog. It makes more sense to start by analysing data to find better risks patterns, use this to educate customers and change their behaviour, while at the same time getting to know your customer using all available technologies.
Then you can offer a range of solutions that fit your customer’s risk profile and preference. This might include technological solutions or specific services, e.g. maintenance. Only after risks have been reduced this way, a policy might come in to cover the remainder.
One model for insurers is to evolve into organisations offering a much broader set of risk management solutions. Insurance policies won’t disappear, but will not be the core aspect of future competition.