This opinion from Peter Hubbard appears in the February 11 edition of Post Magazine
“Look out, he’s behind you!” I enjoy the Christmas Pantomime as much as anyone, but this classic panto line could well be applied to a host of new entrants creeping into the UK personal lines market.
Unlike panto villains, threatening Prince Charming, many of these new entrants are avowedly audience (consumer) friendly, using technology and new methods of distribution to extend insurance into the sharing economy and peer to peer market. In the meantime, our industry remains resolutely focused on its own navel. Balance sheet management, regulatory and margin pressure, or M&A, are top of the executive agenda, while consumers continue to be sold insurance products that fundamentally haven’t changed for decades.
Take peer-to-peer car insurer Guevara, launched last year. It’s an insurer that gives you back your money. Insurance buyers are grouped together either by self-selection with friends and family or allocated by Guevara’s algorithms, which pool similar risks. Any unused cash at the end of the year goes towards lower renewals.
Or German company Friendsurance, backed by Hong Kong billionaire Li Ka Shing. Friendsurance customers connect online and create their own insurance pool. A percentage of each premium is set aside to cover claims, with smaller claims paid out of this pool, and bigger claims covered in the traditional manner. If the claims undercut the pool, customers get the savings. Customers never pay more than their original premium. The bigger the pool and the fewer the claims, the more money you save.
Smart thinking. Notwithstanding the cash benefit, customers also become more responsible for their insured possessions, knowing that, say, losing their smartphone will affect everyone else in the pool. Fraudulent claims are also very much reduced. Friends don’t rip their friends off, do they?
Peer to peer insurance and the digitised sharing economy are taking centre stage. The sharing economy is growing by 25% per annum in the UK, so this is not the time to dismiss these startups and assume their distribution models are unworkable. The dominance of aggregators and the emergence of direct-to-consumer in the 1980s illustrates that ignorance is not bliss.
At present, driverless cars and telematics are all the rage, but we ignore disruptive distribution at our peril. With apologies for overegging the panto analogy, we are worrying about the genie before getting our hands on the lamp.