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July 21, 2015

Insurance Gets Ready For Some Major Disruption

Posted by Ranjit Narula (View Profile | View All Posts) at 10:49 AM

Insurance Gets Ready For Some Major Disruption

Recently, I had the privilege of representing Infosys as the moderator at one of Innovate Finance's panel discussions, titled 'The Democratization of Data: The Changing Face of Insurance.' The session was well attended with representatives from startups, investors, and organizations such as Aviva, Swiss Re, and the Lloyds Banking Group. There were four groups with 12 participants each with topics ranging from the one I was moderating to digital, telematics, and risk. We had 45 minutes to discuss the topic and then present the findings to the rest of the group.

What we all discovered is that there are new, disruptive insurance companies that are stirring things up in a very old and traditional business. One of the participating startups had the following claim: Better care starts with technology. Their proposition is that they are a new kind of organization that melds medical care with insurance. Another startup-created website directs you to tell them your symptoms so that they can connect you with a doctor immediately. You can track all your visits, prescriptions, and lab results on your mobile device.

Is this technologically-savvy model of melding insurance with healthcare the future? It could be. The insurance industry is woefully lagging behind almost every other large industry when it comes to IT. That's because most of their IT comes from in-house developers. This model has been working for years - but now, things are changing. Competition in the form of startups who understand the importance of IT in this space are breathing down their necks.

During the event, we discussed that many insurance companies have been laggards in innovation. One of the reasons for this is lack of major disruption in the market. The existing players seem not to feel any threat. How dangerous could that assumption be!

There's no denying that insurance companies can do plenty, if they want to. For one, they have ample consumer data, which includes insights from social media. Yet, no one could cite an example where customer requirements were inferred from social media and customized offers were given. For example, I have never received an offer from an insurance company informing me that my teenage daughter is now learning to drive and she could get a quote from my existing insurer.

Until today, the entire focus of the industry has been on how to satisfy a customer once a claim has been made. But the market is changing and customers want more value add from their insurers. Healthcare providers have adopted this by feeding information to customers on how to lead a healthy lifestyle. If they follow the advice to a T, they avoid falling ill and thereby paying expensive claims or healthcare costs. This is an excellent example of a value-added service.

Granted, the entire data privacy issue is one that is very difficult to handle. Putting something on social media exposes data to the public and therefore, the issue of privacy is not very clear. But, such data can be leveraged by insurers to fine-tune premiums, if the right permissions are sought. There is talk within the industry to ask drivers to answer a minimum set of questions in order to price an insurance product - with an option to answer some more (intrusive) questions that would lead to a lower premium. This seems to be the best way of ensuring the choice of sharing data remains with the customer and not with the insurer.

Without a doubt, the industry needs to do much more on the innovation front. Disruption are already here and there will be more - it is just a matter of time. Whenever they make their presence felt, the insurance industry needs to turn things around fast. For now, it's time to plan, prepare and attack when the time is right.

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