The insurance industry started out as a safety net among peers. Over time the help has become organized, leading first to mutual insurance companies and later to stock insurance companies. As much as this development has led to a greater degree of professionalism, it has also led to a kind of alienation. Furthermore, there is a problem with the basic structure of the insurance products, since the interests of the insurer and the insureds are not aligned. Broadly speaking, the insurer will be better off if premium levels are maximized and claims costs are minimized, whereas the opposite will be true for the insureds.

Basically this has led to a situation of mutual mistrust between the involved parties. The lack of trust inspires the insureds to act with caution when notifying a claim or even to fraudulent behaviour, and the insurer to apply strict underwriting rules, complicated insurance terms, and costly claims processes. The consequences are high cost levels leading to high premium levels and low customer satisfaction.

The great news is that all this is about to change.

A number of mega-trends today are influencing the insurance industry in ways that many consider will bring back trust (see Figure 1). Paradoxically enough, the old-fashioned trust mechanisms are recreated by the application of modern technology and modern ways of coexisting in the sharing economy, bringing the industry “back to the future”.

Mega-trend 1: From Reactive to Proactive

The main focus of insurance is reimbursing the costs after the occurrence of an incident. Despite experimenting with claims prevention initiatives mostly motivated by a wish to reduce claims cost, no traditional insurer has yet come up with game changing initiatives.

From a customer perspective, however, claims prevention is preferable to claims coverage, and with the perspectives of the Internet of Things (IoT), we see the rise of the proactive insurance policy that aligns the interests of the insurer and the insured. We see startups taking this trend seriously, replacing traditional insurance with claims prevention services using smart wireless sensors to detect fires, water damages, and break-ins. An example is the British InsurTech startup Neos teaming up with international specialist insurer Hiscox to offer a new type of home insurance that combines protection and insurance in new and forward-thinking ways. California-based Omada Health is another great example. They provide clients with a box of gadgets to monitor health, weight, activity level, etc., thereby focusing on reducing the risk of various chronic diseases before focusing on reimbursements. And we see car insurers such as Swedish insurer Moderna and global insurer Discovery using telematics to help drivers improve their driving style and avoid risks. You could say that these intelligent products are a two-edged sword. They open up new types of risks while at the same time providing us with new ways to monitor and prevent risks.

This mega-trend offers possibilities that can help traditional insurers transform their business models to better meet customer needs. But it also creates entry points for a new type of competitor coming from industries producing or selling these intelligent products. We are used to thinking of insurance as a stand-alone product, but, in the future, claims prevention coverage is likely to be just another built-in property from many offered by the product.

Mega-trend 2: From “Customership” to Membership

The increasing professionalism and customer orientation in the insurance industry has led to a greater distance between insurer and insured, because a customer only buys a product or a service from a vendor and is not obliged to offer any more than a payment for the product or service.

A membership, on the other hand, is empowering and engaging. A member brings more than money into the relationship. Often you cannot become a member of a club or union unless you qualify for it or perhaps even go through prescribed rituals. Being a member commits you, makes you obliged to the rest of the club or union, and demands of you that you follow the agreed set of rules.

Peer-to-peer initiatives have become increasingly popular among startups across the world, industrializing this trend by offering tech platforms where groups of peers can find each other and share their risk. The peer factor tends to increase trust, which hopefully results in less safeguarding and a lesser degree of fraud, which in turn allows the insurance provider to reduce costly internal control structures. The Berlin-based Friendsurance and the French Inspeer were among the pioneers of peer-to-peer insurance, but on a global scale we now see more than 30 InsurTech startups offering different peer-to-peer models. In the purest form we see examples such as the British Cycle Syndicate. However, in most cases, the business model involves some kind of reinsurance and premium payback model. Among the startups to follow are the Chinese TongJuBao, focusing on social risks such as marriage safety insurance, and Teambrella, a Russian bitcoin-based peer-to-peer insurance platform.

Mega-trend 3: From Transactional to Social

Transactional systems lead to a highly structured customer interaction that can be perceived as rigid. The system is not really created to fit individual purposes, making the insured feel small and trapped.

In the future we will see customers choosing insurance by recommendations from trusted connections, because people in general trust family, friends, and connections, but distrust an unknown sales person. The selling process is in fact going to be outsourced to your existing customer or third parties delivering a meaningful interface to the customers. The consequence is that an insurer’s only way to influence the selling process is by interacting with customers and “customers-to-be” in the social realm.

The change towards engagement and social networks is prominent in many areas of our lives today. Engaging in social networks is a conversation, not a one-way communication. We see new players creating platforms for social interactions and supporting their clients by sharing valuable tips and knowledge, responding to concerns and questions raised in a peer group, thereby showing themselves as a relevant and trusted partner that helps with so much more than just the insurance they offer. UK-based Bought by Many is a great example. They have introduced a platform that helps people with special insurance needs to connect and seek better insurance conditions. Bought by Many uses social media to get in contact with customers and facilitates dialogues with customers about the design of insurance products

Social also means being close to the customer, knowing their needs, and involving them in developing both the products and the digital solutions used for the social interaction.

Mega-trend 4: From Approximate to Individual

Most models used for product development and price setting are based on historical and anonymized data about different groups of customers defined by a number of criteria (e.g. age, address, claims history, size of house, type of car). As a result, the product and price offered to customers is at best an approximation of their needs and risk. In a way it is just like selling clothes by offering one size only. Sometimes it fits, sometimes it doesn’t. And the likelihood is that everyone at some point experiences a lack of fit, which is annoying and also creates uncertainty. In fact this is how most insureds perceive their policy today.

With the huge amount of data available from the things we own, the roads we travel, the people we know, and the activities we engage in, this situation is changing. We have already seen startups offering the first examples of what we can call on-demand or pay-per-use insurance, a flexible type of insurance that offers coverage based on the actual needs and actual conduct of the insured. One example is motor insurance, where the premium is calculated based on mileage, position, and driving style. Metromile is an American InsurTech startup that has launched a pay-per-mile car insurance. Octo Telematics from Italy is also worth keeping an eye on. They offer their analytical technology to insurers, allowing them to relate to risk in new ways.

Other examples could be travel insurance and personal accident insurance that are linked to the GPS positions of the insured and turn on/off insurance such as the American startup Trov for personal belongings where the insured can add and remove belongings on the list of items covered based on here-and-now needs.

The main advantage is clearly that the insured only pays for the relevant insurance during the relevant time needed, yet feels certain of having the right protection.

Mega-trend 5: From Analogue to Digital

This is probably the most obvious mega-trend. Everything is going digital and the interesting point is that it can enable trust. Given the opportunity to self-service, customers tend to feel more in control due to a higher level of transparency and less dependency on the insurer’s internal and (often bureaucratic) procedures.

Most established insurance companies still have a long way to go to get there due to old and inflexible legacy systems and complicated product structures. We haven’t seen true self-servicing platforms, handling the entire customer life cycle from the acquisition of the insurance to filing a claim digitally, offered by incumbents in the insurance industry. In reality, human beings are still needed to handle larger parts of the primary customer processes.

New competitors, however, start with the vision of a truly digital self-servicing platform aided by augmented intelligence and very little human interaction. We can expect to see a rise in the number of new insurance providers offering digital self-service platforms. In the beginning, their focus will be on narrow products, but gradually we will experience them expanding their businesses. American Lemonade is one of the startups that has put a lot of effort into creating a digital platform using AI, chatbots, and a lean app.

An important point is that being digital is not just about operational efficiency within the insurance company. This mega-trend is first and foremost about the customer’s experience and about offering customer solutions that guarantee speed, transparency, and trust.

Mega-trend 6: From Local to Global

Today’s insurance is still local, with local demands and regulations leading to local products and processes. It can be difficult to imagine that this will change, but don’t be fooled. Startups think global and will go for elements in the value chain that are ripe for new business models and new technological solutions, just like we have seen in a number of other businesses.

Many people probably instinctively limit themselves to thinking that the solutions arising from the other five mega-trends will be limited to local initiatives, but look what has happened to payments, house rental, telephony, and the rest. On the horizon, we see new competitors targeting parts of the value chain in the insurance industry, offering global platforms for brokers, peer-to-peer insurance, on-demand insurance, telematics solutions, and smart products to aid claims prevention. They offer transparency, speed, and trust. Key values that seem to have been neglected over the last couple of decades in the industry-wide hunt for big scale and professionalism. Luckily enough, the shift in technology and the promise of the sharing economy now make it possible to revive these important values thus bringing us safely back to the future.