Many large legacy industries players are afraid. They are afraid of the large tech companies invading and taking over their current industries. One of the industries where technology and large tech companies could relatively easily and quickly spin up new business units is insurance… specifically auto, health, and life insurance. These industries at their core are about synthesizing large amounts of data to predict outcomes or more specifically risk. [Google hopes AI can predict disease by looking at retinas].
How does car insurance change with self-driving cars? Car insurers whether they know it or not are under assault by the tech industry, in the form of self driving cars and other emerging tech. As a result, this insurance vertical will experience some of the most dramatic changes over the next 10–20 years. In the short term, more mobile telecom providers will get involved with car insurance by tracking mobile devices as they connect to different towers or by using small 4G enabled telemetry devices to track driving behavior [O2 Drive in the UK is a great example]. Companies like Google and Apple could also become competitors because of their access to road condition, traffic, and driving behavior data through their mapping applications. Those of you with an iPhone will notice the new feature that detects when you’re driving, could you imagine Apple insurance via Apple maps (they would have a leg up on reducing the amount of distracted drivers)? The data that telecom companies and your Google’s and Apple’s of the world can derive about your driving ability is much greater than anything current car insurance companies can calculate. For example, these tech companies could easily tell how much you drive, whether you drive on dangerous roads, and how you drive in order to give the best drivers a significant discount and leave the worst drivers to be insured by traditional car insurance companies. In Google’s case with their ability to also understand your personality, this will allow them to create better more granular risk categories (i.e. how does your search history correlate to your driving habits). On the other end of the equation for car insurance companies, as self-driving cars become more prevalent, car insurance will have to change from a B2C to a B2B business. Experts predict car ownership will decrease in the world of self-driving cars, reducing the need for individuals to have insurance (not to mention car companies already implemented alternative ownership models like Volvo Care). But more importantly, given the complexity of self-driving cars and their components, insurers will have to begin providing insurance to the companies that make the algorithms, lidar, cameras etc. paying out when a various component of the ecosystem of devices doesn’t work as expected (are insurers equipped to even create actuarial based models for technology components?). There is also a role for blockchain to play here, ensuring that malfunctioning components are accurately tracked and recorded. As exampled by the recent Volkswagen emissions scandal (where they made software to enable the car to fool emissions testing), car companies can’t be trusted to report when their cars malfunction. What’s to stop a car company from, in the event of an accident, having the car erase or alter data to blame another party for the crash? Blockchain will play a significant role in holding drivers, car companies, and car software/hardware makers accountable for when they are at fault or their systems fail to act as intended. Imagine a world where there is an accident, the cars occupant takes a picture, machine vision is used to understand the damage to the car, and using IoT/Blockchain information on the driver/cars behavior prior to the accident is uploaded to the cloud. After a quick claims calculation insurance is paid on the spot, a tow truck comes, and the repair shop is notified and paid in advance. This world is probably only 3–5 years away and given what we just discussed, in a world where Apple (who already offers device insurance) and Google are all working on self-driving cars, and all have tons of cash on hand, it makes you wonder why an owner of a Google or Apple self-driving car would need to purchase insurance from a traditional car insurance company? Looking at it another way, how would traditional insurers be able to compete in a world like this?
Life and health insurance are the areas where technology and startups provide the greatest threat to completely box out, to use a basketball analogy, traditional insurers. Firstly, from a regulatory perspective the ability of tech companies to build solutions from the ground up that address regulatory concerns vs traditional insurers who have had to adapt legacy systems and processes to new regulations, provides new technology based entrants a significant advantage. Additionally, these new entrants can pick and choose which markets to enter, based on regulations, which results in reduced operational complexity which results in traditional insurers being stuck providing insurance in more complex (aka expensive) regulatory environments. In the case of life insurance and health insurance, outside of a deep understanding of regulatory compliance, at the moment, there is no way a traditional insurer could compete with Facebook or Google if they decided to enter the industry. Not only can these companies relatively accurately predict your mood and interests they have access to tons of location and photograph (and now video) data of individuals. With the advancement of machine vision and camera technology this means that a picture or video of you as a child could mean they are able to predict what illnesses you may get later. That picture of you at the beach, that could be used to identify the early stages of skin cancer. Traditional insurers do not and will not have access to this much comprehensive data about individuals, making their insurance models less accurate and therefore less profitable than what Facebook or Google would be able to develop. In addition, the ability to analyze this level of data on such a large scale is a skillset that Facebook and Google have mastered. Specifically, in health insurance when you look at the combination of other technologies like blockchain and IoT (ingestibles) you could create a health insurance company that runs itself. For example, if you have an illness that requires you to take certain steps, medications, and actions a combination of wearables/IoT and blockchain could be used to record you taking certain medications and actions and automatically trigger payment from an insurance company directly to the pharmaceutical company (diabetes and injuries which require a combination of rehab and pain medication are initial obvious use cases). If you don’t take the actions or medicines as suggested you would be on the hook for payment for your medicine/care. For life insurance providers, this tech fueled world is becoming reality even sooner. Similar to car insurance, could a life insurance provider provide its customers with a wearable device that tracks and records certain behaviors and using that information offer variable pricing on life insurance? Google recently announced they can somewhat accurately predict risk of death from a hospital visit. How long until they are able to use there vast data set to get a better understanding of that to outside of overall life expectancy?
Of the tech companies and startup out there Google presents the greatest threat to the insurance industry. They are building self driving cars, dabbling in health care, have access to mobile phone data via android and therefore can track movements, have access to search data so they can better understand interests or the spread of illnesses, and oh yea they are the best organization in the world at synthesizing and handling large amounts of data to make statistical inferences. So, what can insurers do, when even the asset management component of their business is under siege by technology? They need to find ways to keep pace with innovation and rapidly reduce costs/overhead and make even larger investments in technology. For starters, outside of automation, they should work by partnering with some of these emerging technology companies and invest heavily in corporate accelerators. While many insurers are making investments in this space they are focusing on “insurer tech” and more specifically customer service tech (Google announced technology that can make appointments on the phone for you with humans on the other end). Insurance companies need to be thinking more holistically about technology and focus on investing in technology that can deepen their connection with their customers and bridge the gap between the digital and physical world. From a tactical perspective investing in unconventional corporate accelerators and deploying small contained pilot programs testing solutions and establishing success metrics are great ways to start preparing for the incoming competition from tech startups.