In March 2017 I was awarded funding from the Swissnex exchange program, and visited the San Francisco Bay Area to investigate emerging trends in the insurance industry triggered by technology adoption. Here are the highlights of what I learned.
Insurance stands at the threshold of fundamental change. Like many industries before it, the adoption of new technology is altering customer behavior and offering new possibilities in the fundamentals of the industry: from customer relationships and distribution, to underwriting, to processing. InsurTech companies have been increasingly well-funded and are testing new models at a very rapid pace. I traveled to the San Francisco Bay Area to meet with as many companies and accelerators as I could. Swissnex was critical in securing a free invitation to join one of the premier conferences on this topic.
Three fundamental shifts in the industry were particularly highlighted in the conference:
Behavioral Underwriting – in this approach, the premium charged for insurance is not driven by socio-demographic data (age, location, etc.) but by the individual behavior of each customer in a variety of environments, supported by any available data, from any source, on this customer.
From Protection to Prevention – insurance products traditionally offer financial compensation after a loss. With better behavioral data, information from the Internet of Things and automated learning, insurance companies have been developing predictive models to alert them and their customers of deteriorating or dangerous conditions and take corrective action.
Value-in-Use vs. Value-in-Exchange – rather than paying for a loss in a once-per-contract interaction, new models aim at generating continuous value through ongoing interactions with customers. For example a homeowner will receive information about preventive maintenance, have access to privileged pricing and service from a network of contractors.
The insights gained during this visit have already impacted the material I use in teaching at ZHAW, as well as talks and project pitches with our insurance partners in Switzerland. On a different topic, during my visit I also opened the opportunity for a collaboration between ZHAW and the University of California at Davis to teach an MBA course in Risk Management.
Contact: Carlo Pugnetti, Center for Risk & Insurance