Management Strategies

10:30 AM
Eileen Maier
Eileen Maier

Insurance Innovation: Changing With the Times

Price flexibility, telematics, and micro-segmentation are among the trends influencing business transformation in the insurance industry.

Over the summer, the car services Uber and Lyft went into battle again, this time protesting proposed legislation in California that would raise insurance premiums for their drivers. According to its author, State Assemblywoman Susan Bonilla (D-Concord), the bill would ensure that the driver is covered when doing personal driving and when picking up passengers.

This bill, which passed in September, is yet another indication that times are, indeed, a-changing.

For insurance carriers specifically, news stories like this are forcing discussions about changing with the times. The Uber/Lyft challenge is a great example of how a market innovation drives the need for an insurance innovation. This case involves innovation in coverage and pricing flexibility, since drivers need different coverage for when they are on the clock as a car service versus when they are private drivers. Adapting to these changes impacts how an insurance policy is priced and billed.

Pricing flexibility is just one example of the market changes to which insurers must adapt. Here are a few other trends gaining momentum.

Telematics is the ability to track a driver's behavior across metrics such as distance driven, time of journey, harsh braking events, and rapid acceleration to determine the driver's safety profile. The cost of telematics devices and services has gone down, and many insurance carriers have begun to offer drivers access to additional discounts if they agree to implement a monitoring device in their vehicle. Similarly, insurers are seeking competitive advantage by devising "pay as you go" and other usage-based programs.

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Savvy insurers recognize a particular group whose members show a similar appetite for coverage. One UK company provides a great example of micro-segmentation with its peer-to-peer (P2P) segmentation, in which drivers are grouped together according to risk. Premiums for each group are pooled, and any unused money at the end of the year goes toward lowering renewals for the next year. P2P segmentation is particularly interesting because it's a brand-new spin on segments, which have historically been defined by members' demographics.

Omnichannel customer interaction
Today's customers likely engage with their insurance companies via a number of avenues. The expectations for stellar customer service and usable information are high, regardless of which touchpoint (online, home phone, mobile device) is used.

Nonfinancial reparation
Traditional insurance typically reimburses insureds dollar for dollar for their losses. Increasingly, however, customers are pushing for nonfinancial reparation. In Australia and certain European markets, for example, when insureds are faced with loss of personal property -- from, say, a kitchen fire -- it is standard for them to request a brand-new kitchen, rather than a check.

Most insurers recognize that innovation is required to keep pace with our changing world and ever-changing customer expectations. They know that, if they wait too long, they will fall farther behind. One of the challenges they face, though, is trying to initiate this transformation amid the change they see around them with systems that hold them back. Legacy systems were built to do a particular thing in a particular way; they address a problem only in the context that it was known. That's why designing an auto policy for an Uber or Lyft driver will throw these systems for a loop.

Given the current trends and the certainty that the future will bring more, insurance companies evaluating new systems are encouraged to ask some key questions:

  • How adaptable and flexible is this software?
  • How nimble will it make my business, so that it can quickly adapt to future growth opportunities?
  • Will the system continue to perform as contexts change around us?

There is no escaping the rapid pace of innovation. New business models from companies like Uber and Lyft, advancement in telematics technology, and the service expectations of the hyper-connected customer will soon be yesterday's news as leading insurance companies embrace and adapt to these changes. What will tomorrow's headline bring -- and will you be ready for it?

As Vice President of Global Presales at Guidewire Software, Eileen Maier oversees pre-sales support and the development of sales enablement programs for the extended global team of Guidewire sellers. View Full Bio

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User Rank: Apprentice
11/27/2014 | 1:44:38 AM
P2P microsegmentation is not innovation
P2P is not innovation. It is still built on the concept of mutual. What would be innovation is individual risk pricing based on connected data instead of risk pooling .

Similarly innovations worth talking about are risk prevention through connected device and predictive analytics, seamless customer experience across device and channel e.g moving across channel/device while transacting without losing consitency of information and experience and the list could go on.
User Rank: Author
11/27/2014 | 12:36:33 AM
Legacy system replacement
Interesting ideas here, Eileen. Whether insurers pursue omnichannel, telematics or micro-segmentation initiatives, they'll really need systems that support present and future innovation. Rather than legacy platforms that are confined in their abilities, insurers will need systems that can adapt to the rapid pace or technological change.
User Rank: Author
11/27/2014 | 12:29:48 AM
Re: Ride-sharing is not innovation.
Highlighting the spotlight on Uber and Lyft is a good way to introduce a discussion on innovation. The two services try to provide a new, easier service for customers but they're in the rocky stages of becoming legitimate. The kind of innovative insurance coverage described here is one way to help them become more widely accepted.
Nathan Golia
Nathan Golia,
User Rank: Author
11/26/2014 | 6:40:00 PM
Re: Ride-sharing is not innovation.
Seems a little harsh. Lots of new approaches to old problems have run afoul of legacy legislation. Creating the right kind of insurance coverage for these companies is a first step toward legitimacy.
User Rank: Apprentice
11/25/2014 | 11:22:18 AM
Ride-sharing is not innovation.
Sorry, but ride-sharing in its present - law-breaking, tax-evading form - is hardly an innovation.

Uber has billions of dollars. Why does it still refuse to comply to laws and regulations by

which thousands of small local transportation businesses are operating and having no

problems of compkying with ?


I can't call this inovation. There is a far better and more fitting word for this and that is "fraud".
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