Apparently anybody with internet access is now an insurance expert. Recently I read this article about the miracle and savior that is InsurTech:
It’s a quick read, so I’ll wait until you return…
To paraphrase Einstein, “Things should be made as simple as possible, but no simpler.” That’s why this statement in the article is inapplicable to insurance:
“The first is customers, who have grown accustomed to an easy, Facebook-like experience in interacting with large service providers.”
Insurance transactions are not equivalent to Facebook “likes.” Technology as a communications tool is fine. I only communicate with my agent via email. It’s easy, it’s 24/7, and it’s documentation of our communication, something that has paid off for me more than once in the last 25+ years.
But technology is only a tool. It’s a means to an end, not an end in and of itself. The insurance purchase cannot (and should not) be reduced to an Amazon-like “1-Click” purchase. Consumers are not buying crew socks or body lotion on the internet, they’re entering into a complex, legal contract which, if not properly executed after identifying their unique exposures to loss, could result in catastrophic financial loss. Lives could be ruined, families destroyed. This is serious stuff, not the subject of goofy box store clerks and prancing lizards.
If I make a bad decision buying a Bluetooth speaker online, I might be out $30 or the inconvenience of returning it. If I make a bad decision buying insurance online, I could lose almost everything I own and 25% of my income for the next 20 years. No matter how consumers have grown accustomed to an easy, Facebook-like experience online, there is more to the “insurance experience” than the purchasing component. Just ask anyone who has ever had a significant claim, especially one that didn’t go so well. Then, there’s this:
“New algorithms for predicting risk, for example using machine learning, will allow for vast automation of the underwriting process, and managing contracts and identities with the blockchain will reduce the resources needed for fraud detection.”
What it may also enable is “black box” discrimination, even if unintended, because no one knows for sure what those algorithms are using to make underwriting decisions. And, if your insurance premium is based on 600 “big data” factors, how do you know what impact each factor had on your premium or what you can do to control your premium? One might argue, as do data analytics businesses selling their services, that this is somehow good for the insurance company…but what about the consumer? Then we have:
“The second source of pressure comes from competitors. Not only will consumers be more likely to give their business to a digital-native insurer, but entire new kinds of exposure are opening that will give a challenger an opportunity to strike. The cybersecurity market is growing everywhere, along with the pressure to contain and manage the risk better, yet traditional insurers are slow to make convincing offers to threatened customers.”
One reason insurers are slow to respond is that developing an insurance premium that is, by law, adequate, not excessive, and not unfairly discriminatory is very difficult to do for a brand new type of exposure or one that is evolving almost daily. If you can’t price the coverage, you can’t determine what the coverage should be or not be.
Insurers caught flack for not responding quickly to the Uber phenomenon. According to some, two early insurers who responded with broad, inexpensive coverage quickly took a beating with two $1M+ claims because they didn’t understand the exposure, overinsured it, and underpriced it.
Technology can be a cool tool but it is not the be-all, end-all savior or nemesis of the insurance industry. Insurance has always been and will most likely always be a mechanism for assisting consumers and businesses in identifying their exposures to loss and enabling them to manage them without going bankrupt. We must always keep that mission in mind no matter what the revolutionary new idea du jour might be.
P.S. I realize that posts like these will probably earn me an industry reputation as the untechnologically-hip, cranky old man who chases youngsters out of his yard daily, but somebody has to point out the warts on the magical frog. As I state above, technology can be a great tool but we must never lose sight of the FACT that this industry exists to help PEOPLE avoid financial disaster. The foundation of the industry is a collection of many thousands of complex legal contracts we call insurance policies. Enough of the delusion that cutesy store clerks, lizards and robots are the solution to managing risk.