As it has for many global business sectors, the COVID-19 crisis has had a sustained and damaging impact on the global insurance industry. The pandemic has created a significant amount of doubt and disruption across a sector that is often relied upon for its stability and security, and the full cost to insurers is almost certainly still being counted.
If the pandemic has brought positives to any part of the insurance community, however, it is surely insurtech. 2020 saw a much greater openness towards insurtech solutions from a wide range of insurers, including some who had previously treated technology-enhanced policies and products with a certain degree of scepticism. More relationships between insurers and insurtech providers are now being instigated and solidified than ever before, and these relationships will continue to evolve in the coming year as insurers start to reassess their priorities and partnerships in the wake of COVID-19. Technologies that solve high-value, real-world problems for insurers have long been seen as a ‘nice-to-have’ – in 2021, expect to see the needle shift firmly in the direction of ‘need-to-have’ instead.
Insurtech providers have been steadily proving business cases for their solutions for a while now. A few years ago, it would be common to see insurtech providers engaging in lots of introductory trial partnerships with insurers, building a base of real-world results, yet still struggling to demonstrate the level of impact and value that insurers are truly looking for ahead of a full-scale rollout. But the pandemic has changed the dynamic – particularly in segments such as home insurance, given that more people are now spending more of their time than ever inside their own properties. After a year of increased disruption and risk, both insurers and policyholders alike will be looking for greater certainty and new ways to decrease costs while increasing peace of mind.
For home insurers, telematics-based insurtech will increasingly be seen as a critical proposition for managing underwriting losses and mitigating future risk and uncertainty in 2021 and beyond. Telematics products can deliver excellent underwriting results because they allow for far more granular insights into customer policies and their individual risk level. These devices enable proactive monitoring that can pre-empt high-value claims drivers – a leak detector, for example, can spot a small, hidden leak that would otherwise turn into a costly damage-causing issue if left undetected. They also allow policyholders the opportunity to take a much greater stake in their own cover by demonstrating positive customer behaviour, which further benefits the insurer as it means potential costs and prospective risk can both be significantly mitigated.
As insurers continue to benefit from risk mitigation as a result of telematics products, customers will also want more engagement with their insurer about reductions in the cost of their premiums. Insurtech often enables a greater frequency of these two-way interactions beyond the acquisition and renewal cycle, giving greater scope for greater insistence from the customer’s side that a direct cost benefit is attached to a telematics-based policy. But with this will come a growing appetite among insurers to make devices compulsory at the point of acquisition or renewal. Mandatory installation of leak detectors, for example, could increasingly become a condition of certain policies particularly in the high-net-worth space, where average claim values tend to be higher.
This game of ‘cat and mouse’ will help to solidify the role of insurtech as a necessary part of policies in years to come. If the data insights provided by proactive monitoring devices reduce risk, why shouldn’t a policy premium also reduce? But as more customers begin to eye savings on their premiums in exchange for installing these devices, why shouldn’t more insurers begin to make them a mandatory part of the policies they offer?
We have seen this dynamic play out before. In the vehicle insurance space, ‘black box’ policies confer benefits to the driver in terms of reduced premiums, but only if they continue to drive in a way that will mitigate the risk of crashes. Homeowners meanwhile have been incentivised to install energy-generating technology in and around the home, such as solar panels, through the prospect of reimbursements on household bills further down the line.
In the wake of a pandemic year, as insurers increasingly looked to technology to deliver greater value for their customers, expect also to see them move much more quickly to distinguish those technologies that drive long-term value and are therefore worth an insurer’s time and investment. Insurer focus will continue to swing towards insurtech providers who can evidence consistent and measurable results in real-world use cases. As this ‘sorting effect’ accelerates, insurers will grow more confident not only in what works and what doesn’t, but in the idea of insurtech as a vital component of customer policies.