There is a growing energy around trying to predict the future of the insurance industry. Much of that energy is aimed at the use of technology and seeing what’s possible when we apply new stuff to our current approach to handling risk.
I’m more interested in the future of handling risk, as it gets to the purpose of our industry.
When you look at many of the startup companies attempting to disrupt or reinvent insurance, at the end of the “ultimate” experience, we are still delivering a policy … a hunk of money to replace the financial loss from a seemingly random event.
So what might that future look like? Here are a few possible frames for that answer:
Finding new, emerging risks
Risks are both great and small. Loss of life, health and home are financially catastrophic to most people, and the insurance industry has been keenly focused on these risks for decades or centuries. Smaller risks, like the loss or theft of a phone or credit card, interrupt the continuity of one’s lifestyle are perhaps not a catastrophe; however, they are a nuisance that insurance can ease. And then there are new, emerging risks that the industry is and should be serving, such as
Cybersecurity and “overliving” one’s assets.
Prediction and prevention of risk
There is also a school of thought that suggests the insurance industry should enter the space of prediction and thereby prevention of certain risks. Data is critical to the underwriting of all kinds of insurance and is traditionally used to set rates. This includes weather patterns, health statistics and lifestyle information. Why not turn this data outward and offer products and services that let consumers in on the patterns, perhaps helping them to avoid risk in the first place? This is smart; however, I am not sure the insurance industry is wired to provide services vs. products.
Where does the power from the current insurance model come from? (Photo: iStock)
What about power?
Where does the power from the current insurance model come from? While we have many experts who know a lot about the numbers, stats and so forth, the power really comes from the raw material that makes insurance: people and their money.
While the thought of people being the raw material for insurance may conjure up science fiction scenes akin to the classic film “Soylent Green,” it’s actually true. Getting people to pool their money together for common good is a powerful thing. It gives people with little resource the ability to financially hedge against risk even though they are not wealthy enough to replace their own losses.
Where else does similar power exist? One example is utilities. We love to hate our energy companies, water providers, phone service companies and internet providers. But really, they are doing the same thing — pooling people’s money together to create access to something we couldn’t do individually. You can say the same thing about toll roads, trains and other services we share with strangers every day.