After much research, we predict the following technologies will shake up and change the insurance industry in 2016. What is most interesting is that 4 out of 5 of the technologies weren’t made with the intention of being used in the insurance industry. This raises a lot of questions about the insurance business. For example, is insurance integrated with so many aspects of life and business that it is actually not surprising at all that the following would have some sort of influence on the industry? And is the insurance industry finally starting to practice more flexibility and innovation that this is the start of many technologies to change the industry in the next few years? Will we be able to recognise the insurance industry in a few years? Only time will tell.
- VIRTUAL REALITY
At first glance virtual reality seems nothing more than an extension to a gaming experience. But with recent heightened attention it could be set to transform a lot more than just entertainment. In the last few years there have been substantial examples of alternate uses that could change many industries, insurance included.Because of Virtual Reality’s immersive experience, it is able to capture a person’s attention on a very deep level. This aspect makes it a great tool for safety training and promotion. A Los Angeles-based market research firm, Lieberman Research Worldwide has partnered with Travelers insurance company to explore this business opportunity. Through a virtual reality mobile application they intend to reduce work related accidents in the manufacturing industry. Simulated hazardous situations such as falling from a platform or being hit by a forklift will educate workers on how to act safely in what will feel like real-life situations.NRMA promoted safety using VR by simulating what it’s like to be in a car crash. At an exhibit in Sydney, 2014, NRMA replicated the experience of being in a car crash using a real car linked to a hydraulic system that moved the car simultaneously to the virtual movements of the simulation. The “driver” was able to look around them and see a 3D reproduction of the inside and outside of the car, in attempt to get people to fully understand what happens in a crash in the hope they will want to do more to avoid a real-life one.
Investment bank Merrill Lynch wanted to accomplish something similar using Virtual reality. However their aim was to compel people to save more for their retirement. A study from Stanford identified that people have a hard time saving for their retirement because they don’t identify with their future self. The test subjects that interacted with a computer generated older version of themselves were willing to save more than those that didn’t. Merrill Lynch was so impressed with the virtual reality technology they used it to create their own app called ‘Face Retirement’.
AXA insurance also used virtual reality as an innovative marketing tool, partnering up with Google to implement a distinctive brand engagement campaign through an existing mobile game. With the aim of capturing the attention of the younger market, AXA Insurance created virtual AXA retail agencies that players could visit and battle it out for ownership of. The campaign included branded shields and other protective items. It increased significant brand awareness and engagement, both in the game and in real life.
These examples indicate VR as a technology to impact the insurance space in the near future. Given that insurance is such an intangible purchase until you make a claim, virtual reality would be able to demonstrate in a truly mesmerising and entertaining way the real-life benefits of being insured.
2. THE SHARING ECONOMY
The sharing economy is changing whole industries at a rapid rate. Uber disrupted the taxi industry; GoGet and Car Next Door have shaken up the car hire and transport industry; Airbnb have rattled the accommodation industry; and WeGoLook is now revolutionising the insurance industry.
Founded in 2010, WeGoLook was developed from a friend’s need to go look at an Ebay item, and the business is growing at a rate of 300% per year. Based in Oklahoma City, this relatively new company is pioneering on-demand field inspection and verification services. Through their website people are able to order 1 of 20,000 “Lookers” from around the world, including here in Australia, to inspect anything from a property or car, to heavy equipment and auction items. They can also pick up and deliver, as well as custom tasking. The limit is endless.
The service that WeGoLook provides is particularly useful to the insurance industry, particularly in disaster situations or in remote areas. What would usually require costly resources and travel, can be fulfilled by a “Looker” close to the area, costing a fraction of the price. There aren’t many Lookers here in Australia yet, but there’s no doubt that WeGoLook will become as popular here as Uber before long.
Peer to Peer (P2P) is another business model taking the Share Economy by storm, and we should expect to see more of it within the insurance industry this year. Also founded in 2010, Friendsurance is a German independent broker that wanted to make insurance more affordable and more transparent. Instead of people paying high premiums and getting nothing in return, Friendsurance rewards small groups who take out insurance together with a cash-back at the end of each year that they remain claimless.
Not only does this business model benefit policy holders but the insurance companies too. Actuary Chris Logan who started PeerCover in New Zealand told Insurance Business Online that ‘the P2P model has seen benefits including fewer fraudulent claims and less exaggeration on claims’. Property Casualty 360 points out that this concept is nothing new in the insurance industry and is fact based on ‘the same principles as some of the earliest insurance concepts’. Because these types of policies can be offered online, overhead cost are reduced. It’s old fashioned insurance with a contemporary spin.
American start-up Lemonade is promising to ‘reinvent the insurance business model and make insurance a delightful experience for customers’. The Peer to Peer start-up will be highly technology focused and deliver a similar service to that of Friendinsurance. With support from leading global reinsurance partners including Berkshire Hathaway National Indemnity and Lloyd’s of London, the company is set to launch in the coming months. If successful, we have no doubt we’ll see something similar here in Australia very soon.
3. DRIVERLESS CARS
Google tested its driverless cars last November in South Australia with much success. Four more Australian states set to follow with additional tests on public roads in 2016. Could we be seeing driverless vehicles among the traffic sooner than we thought? According to The Australian, Japan and Singapore have already passed the trial stage and are ‘set to kick off driverless taxi services as early as next year’.
The idea of driverless vehicles has the insurance industry questioning the future of car insurance. Not just how it will work but whether it will be needed at all, given that accidents are estimated to decrease by around 90%. While it’s easy to assume that the insurance industry will suffer, with further thought this doesn’t appear likely. It can be foreseen that there will simply be a shift in focus of the type of insurance and the entity taking out insurance.
It is predicted there will be a decrease in private ownership. Cars are less likely to be owned individually; rather most people will have a car contract and pay for it as they use it, much like a mobile phone plan. You could consider it as ‘shared cars on-demand’. This could lead to a shift from the individual as being the insurance policy holder to manufacturers, technology and ride sharing companies holding the liability.
Self-driving cars are expected to operate as a linked network via the internet. This presents an opportunity for hackers, developing a new market for cyber security and insurance. This also questions who is at fault in an accident. Since the human is no longer the driver, is it the fault of the technology company or the car manufacturer? Being able to answer this question will necessitate access to data recorded at the time of the accident. Mervyn Rea of Zurich believes this may require a change in insurance processes and privacy laws.
While it may be that car insurance will no longer be needed by individuals, it may be wise for passengers to take out additional health insurance cover, in the event an accident does happen. There are still many variables that could result in an accident, whether it is a drop out in WiFi, a mechanical malfunction at the fault of the manufacturer or natural wear and tear, or hackers taking control of the vehicle.
Will everyone decide to adopt ride sharing and the ability to feel comfortable as a passenger in an auto controlled vehicle? It will be the market that ultimately determines whether driverless vehicles succeed. If they do, it appears to be a matter of adaptation for the insurance industry to avoid any drawbacks.
4. WEARABLE TECHNOLOGY
Wearable technology has the potential to dramatically change health and life insurance, but not without customers giving up a significant amount of privacy. Personal data could give real insight into a person’s actual behaviour rather than presumed behaviour, revealing their genuine risk status. It’s how that data is used as to the size of the impact of wearable technology on the insurance industry.
Lancaster University’s Emmanuel Tsekleves points out that there are flaws in the system. How do you tell the difference ‘between an insured person going for a walk, and the family dog running circles around the yard all afternoon’? The only sure way would be with an alarming height of surveillance. Will people be prepared to give up their privacy and at what price?
In addition to infringing on peoples’ privacy, technology is also making it harder to purchase life insurance according to Russell Cain, Life insurance adviser and chief executive of lifeinsurancedirect.com.au. He has observed some life insurers are embracing technology but believes many are using it in a way that benefits their bottom line and not delivering value back to their customers. We can anticipate that these companies will eventually end up losing out to those companies who are rewarding consumers in exchange for their personal data.
While there are strict rules in Australia on ‘how health insurers can price based on personal characteristics’ some companies have come up with creative alternatives to rewarding more health conscious customers. NIB rewards their active lifestyle customers with frequent flyer points through a partnership with Qantas. The points can be used for flights, shopping, or towards the actual insurance premium.
Medibank Private and Coles have a similar deal, where customers are rewarded triple the fly buys points when they purchase fruit and vegetables. The points can then be used towards their health insurance costs. In these circumstances, while the customer is rewarded, the health insurances benefit too, as they have more insured customers who are less likely to claim.
However it is the unhealthier group of insured people that are less likely to benefit from this type of scheme. Is this fair? Well that probably depends on who you are asking. But one upside could be that the incentive of savings could encourage people to be healthier where they can. And this could lead to an overall decrease in cost of healthcare given there should be a significant reduction in claims.
The number of drones being used both privately and commercially continues to grow. Also known as UAVs (Unmanned Aerial Vehicles), the insurance industry are early adopters of drones due to their ease of access and reduced costs.
There is less interaction required from the pilot of a drone compared to that of a remote plane because of their use of smart technology. They are able to detect distances from nearby objects and autonomously return to their home location with the aid of tracking and GPS technologies.
Militaries around the world initially saw the potential in drones as precise killing machines, putting in most of the research and development that has gone into drones. Today they are making their way into the public and commercial spaces due to the variety of uses they provide.
Their uses cover everything from feral animal detection for farmers and shark detection for beach goers, to search and rescue situations, assessing the condition of fires for emergency services and postal delivery to remote and isolated areas. Ambulance drones are currently being used in areas of Europe that are inaccessible to vehicles, delivering a defibrillator and instructing a person how to use it, saving someone’s life. And in an Australian first, insurance company IAG used drones to view and assess damage Victoria’s Great Ocean Road fire disaster this summer.
Before physical access was granted by authorities, IAG directed drones into the affected area, giving a significant head start to the assessment process for customers’ claims. Risks that assessors often face at site visits such as fallen power lines, asbestos, landslides and unsecure structures were also avoided. The customers who took IAG up on their offer to use drones returned ‘extremely positive feedback’, IAG reported.
It has also been suggested drones could benefit the insurance industry in relation to crop insurance. Drones could assist in the claims process to evaluate the extent of loss as well as to establish the actual cultivatable land. It is estimated there are $100 million worth of fraudulent claims made annually relating to crop insurance. This figure would be expected to drop with the use of drones as they can speed up the claims process, delivering pay outs to farmers more quickly and minimising the opportunity to create staged damage to crops and fraudulent claims.
There is no doubt that drones will play a significant part in insurance processes within Australia. To think that a technology originally designed as a weapon of war could be employed by the insurance industry is somewhat perplexing.