Guest blog written by Chris Skinner, Chair, the Financial Services Club
I began life in finance in insurance, taking the insurance exams and gaining a professional qualification and there are a few truths that everyone believes in insurance, namely that:
1. Risk analytics is key;
2. The industry works in predictable cycles of premium growth offset by claims growth on a seven year or thereabouts roundabout; and
3. Innovation isn't that important as you have a customer for life (pensions and endowments) or you work on a rate churn (home and auto insurance).
Over the years, this has been reaffirmed by developments such as comparison sites like moneysupermarket.com, and the gradual shrinkage of the advisory sector.
So I was intrigued to debate this at a conference and the debate rapidly started to discuss innovations in insurance like:
- Why do insurers renew policies annually, when they could offer two, three or even five year policies. Annual renewals just beg the question: why don't you leave? every year.
- Whatever happened to the idea of an insurance policy on a pay-as-you-go or pay-as-you-use basis? That would be far more flexible than these bulk standard products that cover you regardless of usage and need.
- What about the idea that if you don't use the policy in a given year, you can get a rollover effect or a reimbursement? Sure, we talk about no-claims bonuses, but it's not really a loyalty or demonstrable return to the customer. There should be something better.
I then mentioned two innovative insurance case studies from Aegon and Friendsurance.
Aegon has launched Kroodle, a Facebook-based insurance service that requires no form fillling.
The insurance service, for example, will provide you with home insurance and will prefill as much of the form by scraping your name, address and date of birth from you Facebook profile and, for example, offering you home insurance by using your zipcode from your profile to calculate the replacement cost of your home by feeding that into a house valuation website.
Kroodle only recently launched in the Netherlands, and is described by Aegon as: "The world's first Facebook insurance products. Kroodle offers innovative, online products allowing customers in the Netherlands to purchase insurance and manage their accounts through their Facebook profile."
Cool! A Facebook insurance company with no form filling or application forms.
Then there's Friendsurance in Germany, a peer-to-peer insurance company.
Not this one get's really interesting, in that I always remember insurance being described as: the sharing of risk amongst the many to cover the uncertainties of losses amongst the few, or something to that effect.
It's all about creating a pool of shared coverage, so that when an issue hits one, they can get it sorted out and not face financial ruin.
So when talking about sharing risk and creating a common pool, it immediately lends itself to the concepts of social media and peer-to-peer networking. That is the basis of how Friendsurance was created, with German founder Tim Kunde taking the view that insurance is just a social network to share risk.
So insurance doesn't have to be boring and it doesn't have to be offered in the herd mentality of the industry's traditions.
It will be interesting to see how these themes develop in the future.