2017: Emerging Business Models in Personal Lines Insurance - Innovation-Based Disruption


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Innovation-based or technology-driven change has disrupted a number of industries. Whole segments of an industry value chain can be reorganized. Now a growing group of innovators are seeking to change the insurance industry, and personal lines appear to be receiving much of the early attention. This study examines the changes that are underway in personal lines and the potential impacts on the insurance business model.


1. Introduction  


2. Executive Summary 


3. Change at the Margin/Marginal Revolution 



  • Change Happens at the Margins

  • Value Chain Analytical Structure

  • The Money Is Coming from Different Sources

  • What Is Driving Change?

  • What Are the Innovations/Technologies?


4. Product Development  



  • Technology Creating the Need for New Products

  • Technology Enabling New Products

  • Data Aggregators Enabling New Products

  • Takeaways


5. Policyholder Acquisition 



  • The Function of the Intermediary

  • Comparison Sites

  • Matching Algorithms/Recommender Systems/Artificial Intelligence

  • Peer-to-Peer Connections

  • Takeaways


6. Risk Analysis and Underwriting  



  • Data Available for Risk Analysis

  • New Data Analysis Capabilities

  • Takeaways


7. Claims 



  • Data/Analytics/AI

  • Claimant as Part of the Process

  • Sensors

  • Drones

  • Takeaways


8. Implications 



  • More Flexible, Tailored Products

  • Commoditized Products

  • Further Encroachment into the Role of the Agent

  • Expanding the Risk Management Activities of the Insurer

  • Increasing Transparency and Speed in the Claims Function

  • New Models for Personal Lines Insurers


Appendix—Selected Insurance Technology Firms  


  


Introduction

Technology-focused investments are pushing business model changes across industries—music, television, automobile manufacturing—and insurance will not be immune to these pressures. The volume and value of insurance/technology deals accelerated in the past few quarters. According to data aggregator CB Insights, there were 117 property-casualty InsurTech deals in 2016, a nearly 50% increase over 2015.


Several trends are converging now to push the FinTech and InsurTech investments: 



  • an explosion of available, relevant data

  • a push for greater efficiency (as an industry, nearly 40% of premium payments go to non-loss cost expenses)

  • consumer acceptance of digital technology and the prevalence of mobile devices

  • a change in customer attitudes toward privacy (particular when in exchange for a benefit)

  • lower technology costs—storage and processing power


Innovation-based or technology-driven change can be quite disruptive. Whole segments of an industry value chain can be reorganized. Once Napster and Apple inserted themselves in the music industry, whole segments of the business model were eliminated, new ones were added, new competitors emerged, and old industry stakeholders were cast aside. Similar stories can be told for the news and print media, photography industry, travel, retail—the list is extensive and growing.


 A growing group of innovators are seeking to change the insurance industry, and personal lines appear to be receiving much of the early attention. This study examines the changes that are underway in personal lines and the potential impacts on the insurance business model. What emerges may be quite different from the traditional model.


This study is divided in three sections. Chapter 3 provides a look at the sources of the changes underway in personal lines and what is driving change. Chapter 3 also will outline the analytical structure to be followed for the rest of the study, laying out how we organize our analysis.

Chapters 4 through 7 discuss changes to individual links in the insurance industry value chain: product development, client acquisition, risk analysis, and claims.


The final chapter synthesizes observations regarding pressures on each of the core functions to suggest some possible changes to the personal lines insurance business model.