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The days of insurance commercials with British-accented geckos and annoying jingles may soon, mercifully, be over. The next 10 years will see a radical transformation in the insurance industry. Traditional insurers such as Geico and Liberty Mutual will still exist, but consumers will barely interact with them.
Taking their place will be consumer brands we know and use. We’ll buy insurance directly from providers and have a broader menu of insurance options to choose from. We’ll no longer think of insurance as a product, but as a feature of the goods and services we’re already purchasing.
In this future state, you’ll buy your health insurance from your employer. You’ll buy identity- and cyber-protection from your mobile phone provider. You’ll buy car insurance from the car dealership. You’ll buy shipping insurance from your online retailer.
Furthermore, your options for buying insurance will expand considerably. If you’re purchasing a kayak online, you’ll be able to insure it directly with the store, without having to bring in a costly third party to mediate the transaction.
It might sound odd that insurance companies would no longer be the primary providers of insurance. But it stands to reason that insurers should devote most of their energy to what they’re actually good at, which is claims processing, fraud detection and other backend operations most people don’t want to think about, but trust their insurance companies to handle.
Most customers don’t realize they’re collectively paying billions of dollars a year, through their premiums, to support the silly advertising campaigns they’re inundated with. These do nothing to differentiate insurers’ services or help consumers. Both consumers and insurers benefit if firms can devote more energy and resources to actual insurance services.
How will this change come about? First, we have to understand how the insurance infrastructure came to be.
Our insurance system is predicated on insurance being sold as a standalone product. Traditional insurers today have little visibility into what their customers are doing, and therefore have poor data to use when underwriting policies — especially when they pertain to emerging risks or unfamiliar use cases.
Current insurance regulations were designed around companies like these. Unfortunately, they now stand in the way of innovation in the insurance space and restrict options for consumers. (Disclosure: Tint provides technical infrastructure for companies to offer insurance protection directly to their customers, and so would stand to benefit from this newly designed insurance ecosystem.)
To be clear: The principles of insurance regulation — centered around protecting customers and preventing fraud — are sacrosanct. But we can retain fidelity to these principles while changing specific rules, so that they are more adaptable to smaller-scale situations.
In some sense, the future is already here. Amazon is now offering telehealth services, while Microsoft
MSFT,
offers custom health insurance directly to its employees, shouldering the risk burden while reducing costs. Tesla
TSLA,
has its own insurance, with premiums based on how well you drive. General Motors
GM,
has filed to create its own insurance company.
But outside of these exceptions, most organizations aren’t maximizing the immense amount of customer data they have as a result of mass digitization in the private sector. This gives them the opportunity to offer more tailored and innovative insurance plans that better mitigate risks.
Legacy insurance companies as well shouldn’t shy away from innovation. Traditional insurers can also benefit in this new world, so long as they adjust their business models to better serve companies behind the scenes. They could be heralded as innovators who thrive in a new environment, in mutually beneficial partnership with consumer brands. Or they can stagnate in the old model. But like it or not, change is coming.
Matheus Riolfi is co-founder and CEO of insurtech firm Tint. The company has no relationship with any of the companies mentioned in this article.
Read: Auto insurers rush to raise rates to offset huge losses
More: Would you believe that health insurance is getting cheaper? That’s what the Labor Department says.
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