The first recorded insurance contract was issued 673 years ago in Genoa, an important Renaissance-era trading center, to cover losses or damage to ships and cargo. Many other developments have come about as a consequence of high-impact events. Property insurance grew out of the Great Fire of London in 1666. The panic of 1837 and the subsequent financial crisis spurred the growth of mutual life insurance. Car insurance was introduced not long after the dramatic drop in the price of the Ford Model T. And employer-provided health insurance took off during World War II to attract workers to factory jobs as wartime production ramped up.
The evolution in the sector continues today, and this time it’s driven less by historical events and more by the coming-of-age of new technologies. Artificial intelligence (AI), augmented and virtual reality, automation, blockchain, drones, internet of things (IoT), mobile apps, predictive analytics, social media platforms, 5G and the cloud characterize an increasingly digital industry. Some examples: Advanced analytics drive personalized marketing; camera-equipped drones provide high-resolution images of property damage for speedy assessment; IoT devices can monitor consumer behavior to improve risk modeling.
New opportunities arise as insurers use new and emerging technologies to create ecosystems of partners, platforms and third-party services. For example, carriers can create an ecosystem of the brokers through whom they distribute their products and effectively manage that distribution on the blockchain. “The blockchain will probably disrupt the entire value chain in the next few years,” according to Chak Kolli, global chief technology officer, Insurance, DXC Technology.
Disruption can come from companies outside of the insurance sector, too. That’s already occurring in China, where the country’s largest ride-hailing player is building an insurance ecosystem around its software platform. Didi Chuxing rolled out multiple financial services last year, including car and medical insurance, that are accessible from its own ride-hailing app and available to both drivers and users. Its subsidiary, Dirun Tianjin Technology, this year took a 32 percent stake in Hyundai Insurance China, whose business spans auto, casualty, property, health and reinsurance.
Many more changes are on the way for how insurance is delivered, priced and serviced. Insurers are investing in or partnering with insurtech firms that can help them move to the digital world. Many insurtechs have focused on providing self-service platforms, mobile applications and other novel approaches designed to appeal to millennials who want different ways of researching and buying insurance. In addition to forging partnerships, some big insurance companies are themselves being more proactive on this front. The Hartford, Aetna, Cigna and Travelers have cofounded their own insurtech hub in Connecticut, for example.
It’s not just about the technology, either. Millennials may have different reasons for buying insurance and are looking for more flexibility in policies. For example, they may be less interested in buying big, long-term insurance policies hooked into traditional events like marriage and having children and more drawn to short-term policies designed around experiences or offerings that let them individually customize and adjust coverage levels as they need them. Some startups — and even brand-name insurance companies — are capitalizing on this.
Insurance companies that aren’t thinking hard about how they can disrupt their own business models should be. To prepare for disruption from other players, it’s time to embrace the change.