Suresh Dhanushkoti heads up CoreLogic insurance solutions and is uniquely placed to analyse what the history of data can teach us in the face of rapidly advancing and radical challenges facing the entire insurance industry today. In the second of our three part series, Dhanushkoti, delves into disruptive technologies, parametric products, and the potential of block chain.
Many aggregators and digital players are defining a new standard of customer experience and transparency, focusing on the ease of comparing and buying insurance. Just look at Lemonade, disrupting via an innovative new business model, proclaiming to “offer renters and homeowners insurance powered by tech and driven by social good”. Lemonade promises “ zero paperwork and instant everything by replacing brokers and bureaucracy with bots and machine learning”. No doubt Clayton Christensen ’s  ‘jobs to be done’ framework is an inspiration, with his eloquent argument that customers don’t buy a ‘product’ but actually hire a product or solution to do a job for us.
The upwardly mobile millennial group find traditional insurance products constraining and incompatible with their lifestyle. Trov  has targeted this massively under-served market segment with functionality which enables items to be insured with a single swipe. Just as they live the rest of their lives, Trov enables insurance with convenience and only when they need it: a markedly differently offering to traditional, time consuming processes.
Filling market gaps with parametric products
Similarly, California’s ‘Jumpstart’ is looking to address a market gap where four of every six houses are uninsured for earthquakes, due to high insurance costs.
The start-up broker is looking to use a parametric product whereby the policyholder pays a monthly amount knowing that they would get a set amount paid automatically if a ‘trigger event’ (say an earthquake) happens with certain parameters (e.g. an earthquake registers in their area with a certain per-agreed intensity).
Whilst not a true insurance product and doesn’t indemnify against pure losses, it would pay an agreed amount when a specific ‘trigger event’ happens. Payouts from parametric products would be enough to pay for minor repairs only. Rebuilding the home wouldn’t be possible: but if the consumer wants a product to enable minor fixes following a tremor (the ‘job to be done’), then this could be just the ticket! Especially, for example if you are a part-time Airbnb host looking at weeks of lost income without it. You can see the application of parametric insurance principles for Agri insurance too, with risk tied to a specific parameter such as hail or temperature.
SwissRe is already planning to introduce a parametric product for insurers for earthquake reinsurance, a more sophisticated product where the solution can be customised to match the assets at risk, with triggers to suit the required payouts.
Whilst parametric products may currently be used for sophisticated buyers in markets such as re-insurance, turning them into a consumer product will require the clearing of regulatory hurdles. Should this be successful however, the possibilities are very clear.
Advancing the technology frontier
Innovating the actual business model is one approach - innovating with technology advances is the other. Technologies are rapidly emerging in data and analytics, mobility, social, user experience and a host of areas.
Advances in distributed ledger technologies such as Blockchain offer much promise in their ability to connect many eco-system participants with a new approach to sharing information and assist with reimagining or reengineering current business or operating models . Think “Blockchain”, and many glaze over, their thoughts jumping straight to ‘bitcoin’, but it’s nothing like that. Blockchain is an open, distributed ledger, recording transactions between two parties efficiently - in a verifiable and permanent way  . Potential applications of Blockchain are impressive:
- A precious stone requires analysis for signs of previous crimes committed (blood diamonds). Digital crypto currency using Blockchain can create an online record for both insurers and purchasers to access.
- A ‘crash for cash’ case is suspected: insurers collaborate by sharing policy and claims data via Blockchain to detect and manage fraud.
It’s already happening. Lloyds of London is already investigating the use of Blockchain and other technologies to improve data access/efficiency and reduce paperwork as part of the plan to modernise its operating model.
The potential of such disruptive technologies and product innovations is inspiring; perfectly timed for an era where consumer expectations of convenient, fully transparent technologies have never been more mainstream.
Now is definitely the time to embrace ‘the new, new’. Don’t miss the final upcoming part of this our “The role of digital platforms and ecosystems in insurance” series. Our conclusion analyses the bravery required in partnerships and the true transformative power that APIs offer insurers.
Trov is an American company that offers on-demand insurance that can be toggled on and off using an app in partnership with insurance companies who underwrite the risk.
Iansiti, Marco; Lakhani, Karim R. (January 2017). "The Truth About Blockchain". Harvard Business Review. Harvard University.
Clayton Christensen is a professor at Harvard Business School author of the book, ‘Competing Against Luck’, introduced the “Jobs to Be Done” theory as a framework for companies to look differently at products and services.