From Insurance Premium to Discrete Event

By Sylvia A. Michalski Strategic Advisor, S. Michalski Consulting The insurance industry, $4+ trillion globally according to a 2016 global insurance markets report published by Allianz,1 is considered to be one that hasn’t changed for over 75 years, with companies developing newer business models focusing on the areas of distribution, policy comparison, and coverage. Consumers often purchase insurance policies, whether home, life, auto, etc., paying premiums without an understanding of what their policies covered or excluded. Businesses also purchase various insurance policies to cover their operations, whether for general liability, errors and omissions, etc. They can insure themselves on a very broad level to mitigate risk. Startups in the UK, US, China, and Germany are showing alternative ways to have insurance coverage: buying groups; pay-by-mile for autos; crisis crowdfunding; social risks (marriage, child safety); this includes paying back a portion of premiums. London-based Bought By Many, an InsurTech firm that uses social media and search data to sell insurance, focuses on consumers’ insurance (via buying insurance as collective groups) for specific requirements such as pet insurance, gadget insurance, or private health insurance. Startups are also focusing on creating new offerings for business buyers, small and large, with better digital offerings, and focusing on specific sectors, from insuring startups in their specific growth phase, or focusing on specific occupations and sectors such as consultants, restaurants, etc.2 Examples of companies offering differentiated insurance offerings include: • Metromile – US startup offering consumers to pay by the mile to drive their vehicle. • Lemonade – US startup offering consumers to buy insurance paying into a common claims pool offering to pay unclaimed pools to the customer’s charity or social cause. • TongJuBao – Chinese startup offering peer risk sharing in such areas as family marriage, missing children, and family unity. • Insureon – US startup offering digital insurance offerings to small-to-medium businesses providing quotes within 15 minutes to various industry verticals such as retail, restaurants, IT, consulting, health care, to name only a few. What is clear about the newer companies offering target insurance offerings is that consumers will be able to focus on direct needs when necessary, as opposed to having no option but to accept blanket coverage that leads potentially to overcoverage. Metromile targets low mileage drivers, stating the 65% of all drivers overpay to subsidize high mileage drivers, potentially saving their target customer up to US$500 yearly. The insurance industry is moving from general coverage to discrete events, whether this means covering only specific areas, for example, life events, and allowing consumers and businesses the benefit of insurance coverage while managing premium costs. Evolving Insurance Options – Consumer Discrete Events New business models are offering consumers alternative insurance coverage simply based on a unique personal situation tied to a discrete event taking place, whether for a day, a month, or other, exclusively consumer-defined time parameter. Specific consumer scenarios listed here illustrate the ever-changing options available, but in truth the scenarios are endless (subject to specific national and state regulatory restrictions): 1 Kathrin Brandmeir, Dr Michaela Grimm, Dr Arne Holzhausen of Allianz, Global Insurance Markets – Current status and outlook up to 2026. 2 2015 BAIN Global Digital Insurance Benchmarking. InsurTech Now and Nex t 48 • Air travellers who fly infrequently, frequently, or take multiple-leg trips As an air traveller, should I insure any flight that I take or all flights or insure those that are likely to be cancelled or delayed? Will I have the data to be informed, whether about weather, the carrier’s operations record, or other events that may impact flight cancellations and/or delays to influence my decision to purchase insurance coverage or not? • Car drivers who drive infrequently or frequently Should I seek insurance coverage for part-time driving based on number of hours or number of miles? Does the premium cost truly take into account my driving record or driving area to determine the likelihood of an accident or theft? Should I require someone who borrows my car to pay to insure themselves whether they drive the car for two hours or a day? Should I insure my vehicle as part of a group? • Renters or homeowners who have varying amounts of personal possessions What should I insure – all personal possessions or specific ones? Should I purchase buyers’ assurance coverage on newly purchased items, or not even consider? Should I seek insurance coverage to qualify for a rental lease with or without a co-signer? There are some good examples of InsurTech already at work for consumers in this way. Insurer AXA has worked with several European startups to offer more innovative coverage for consumers, including French carpooling insurance startup BlaBlaCar, Spanish home exchange community MyTwinPlace, and peer-to-peer German insurer Friendsurance. Evolving Insurance Options – Business Discrete Events New insurance companies like Germany-based Simplesurance Group and US Next Insurance offer businesses digital platforms to shop and compare insurance policy options, including offering specialization in specific professions. More innovative insurance companies such as AXA are offering coverage based on parametric policies to insure against specific weather events for several industries. With the deployment of sophisticated models and analytics, insurance carriers may begin to offer businesses insurance based on specific discrete events defined as those with the likelihood of causing operational hindrance and financial loss, among other areas. The Climate Insurance Group LLS owned by US-based Climate Corporation offers parametric insurance policies reducing farmers’ risks by crossing agriculture with big data analytics. The following list identifies some specific business scenarios illustrating real business need for the insurance buyer, and which may become available in the insurancebuying process: • Weather events – forecasted events or natural disasters As an agricultural business, do we insure against all forecasted weather events or some in case of drought or excess rainfall? As a retail business, do we insure for the potential impact of weather on seasonal sales? Should countries plan for natural disasters to finance funds postcatastrophe for some, or all, weather events? • Security events – internal and external Businesses face disruption to operations from internal and external events, whether hackers attempting to steal information and customer data or employees committing company policy violations. Do businesses start to insure for cybersecurity even if they have installed the most sophisticated infrastructure that would likely prevent such attacks? Businesses routinely insure themselves with policies covering cyber liability, general liability, key officers, and directors’ and officers’ liability because this is mandatory. The analogy is similar to consumer scenarios, though: how much coverage is needed and what is the likelihood that discrete events will take place? There are some good examples of InsurTech supporting commercial insurance in this way: Indio, a US-based startup, developed a workflow management platform for traditional commercial insurance brokers that automates

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