Insurance - A Model Ripe for Disruption

By Ralph Hazell on Monday 28 April 2014

Opinion

In the last 6 months the insurance industry has woken up to the fact that the next wave of digital innovation could have a big impact on their industry. At one level there is a lot of room for improvement in the technical efficiency of an industry that has historically been largely paper based.

For instance:

  • Better digital distribution with fewer agents in the chain.
  • Better use of data to price risk.
  • More personalised coverage with flexible periods.

A number of the larger Insurers are now setting up “innovation labs” with the view to assisting entrepreneurial activity so that they can have a front row seat view of the innovation in the sector. As one Insurance professional said to me “We don’t want to wake up in a year’s time to find out that our industry has been disrupted by an innovation that we know nothing about..”

At the extreme level of innovation, the internet could change the way that Insurance risk is distributed. At its core insurance is a crowd based product where the losses of the few are paid for by the premium of the many, so what if we could form online insurance networks with an element of risk retention, a kind of I micro-digital-mutual.

There are a couple of businesses that are doing something like this, one being Boughtbymany, a UK based company that helps people form networks for niche insurance requirements such as Labrador owners insurance or young drivers insurance.  Then there is Friendsurance in Germany that is based around networks that can buy home insurance or liability insurance as a group with a network deductible.

I started my career as a broker at Lloyds of London, and have always been fascinated by the Lloyds syndicate approach and how that might be brought into the digital era. As the founder of Microexchanges that builds P2P marketplaces I was up for the challenge to develop a P2P insurance model.

I developed the concept for “InsureMyFriend” where people can form Insurance networks that would share a level of risk within the network but with an Insurance company still standing behind the network in case of larger claims. We plan to start with mobile phone and tablet insurance. The reason for this is that in this sector there is a high percentage of fraudulent claims as well as overpriced policies due to high marketing costs. We hope to reduce the amount of fraudulent claims due to the behaviour change inherent in a group of people who know each other and lower the marketing costs due to the network effect friend referrals.

Initially my proposition fell on deaf ears, but in the last few months the appetite for innovation has suddenly become apparent.

In March InsureMyFriend was the winner of the Aviva innovation hackathon and then 2 weeks later I came runner up in the London Grand Challenge which means I’ve been sponsored to  go on the executive programme at Singularity University at NASA in California where I plan to further develop the proposition.

Whilst we are still at the product refining stage, I feel that this is one of those ideas whose time has come and with a bit of following wind and the right partners I hope InsureMyFriend can go live to the public later this year.

Insurance has often been a product that people are reluctant purchasers of. The digital innovation ahead of us will make Insurance more  efficient and transparent, and will help people truly understand and appreciate what insurance coverage they have and will be willing to refer friends and share data to make their insurance cheaper.

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