Insurance

Insurance is all about distributing risk. With dramatic advances in software and data, shouldn’t the way we buy and experience our insurance products change dramatically? Software will rewrite the entire way we buy and experience our insurance products — medical, home, auto, and life. Here’s how:

By changing the way insurance companies price risk

So many more signals are available for insurance companies to better price the premiums we should pay. Drivers that drive carefully in safe neighborhoods vs. recklessly through accident-prone intersections ought to pay different amounts to insure the same car — but all that data isn’t reflected in an annual odometer reading. Water damage is one of the top sources of claims for home insurance customers: Why don’t we charge customers with water sensors less, since if they know water is leaking, they can stop it before the damage gets expensive to repair.

New data sources, better data, ongoing data reporting — all are possible now with mobile phones and inexpensive Internet of Things devices.

By empowering an ongoing relationship between an insurer and insured

Today, our relationship with an insurer revolves mostly around a monthly billing statement sent to us from a mainframe application. You can tell because big chunks of the billing statement are printed in ALL CAPS IN A FIXED WIDTH FONT … the only fonts that existed at the time the applications were written.

How about an insurance company that empowers you to make smart lifestyle decisions? Examples: the car insurance company that routes you around dangerous intersections; the home insurance company that automatically summons a plumber when it detects water on the floor near the water heater; or the health insurance company that connects you with friends that are also trying to lose weight?

By encouraging us to keep safe, insurance companies can keep their payouts low. And we all bask in the glow of an insurance company that has our best interests at heart — because even though our interests are really aligned, it doesn’t always feel that way.

By changing the way insurance companies pool capital

Historically, we’ve seen mutual insurance companies (insurance companies owned by policyholders) and stock insurance companies (insurance companies owned by shareholders). We expect to see more crowdsourced insurance companies, just as we’ve seen in other parts of the financial system. Crowdsourcing works great for personal loans, student loans, small business loans — why not for insurance? From the investor’s point of view, it’s great to diversify by investing in an asset class that should move independently of the stock or bond markets. From the insurance company’s point of view, it should be a cheaper way to pool capital.

Yes, some of these will require changes to existing regulations. But some of the regulations were designed for a different era. The world has changed. Let’s help the stodgy insurance ecosystem change with it.

— Frank Chen