Insurers:

Many have been dreading their "Uber moment"

Warm up:

How has insurance changed in recent years?

Has this change affected your local industry?

Do you believe that the insurance industrys Uber moment has arrived?

What will the consequences of that be?

Vocabulary:

Match the words below with the definitions on the right.

A tidal wave A financial instrument or an asset is held by a third party

Approach To frighten

To scare the wits out of To originate

Stem from A common fund

A local pool To narrow the causes of

In escrow A method

To whittle down A tsunami

Reading Comprension:

Read the text and answer the questions below.

How much investment was made into the insurtech industry last year?

Why does the industry need to change?

How does Lemonade work? What is so novel about its approach?

What will the main focus of insurance companies be in the future?

If you want to know what is happening in insurance, go to Bristol. That is where you will
find Tllt Ventures, a business which mixes data intelligence on more than five million
start-ups worldwide with industry analytics and consultancy for clients hoping to launch
tech services and companies.

Given its business model has barely changed over 200 years, insurance is ripe for
technological disruption, waiting for (and in many boardrooms, dreading) its Uber
moment.

Tllt reports that a tidal wave of money some $1.69 billion (1.3 billion) last year
poured into the industry to finance technological innovation, looking at how insurance is
sold, how it is marketed and how its back offices are run and claims handled and paid. So
even without anything as radical as Uber there is quite enough happening to scare the
wits out of the more traditional players.

Some are being talked about today at a conference in London organised by the
Association of British Insurers, others were discussed on Monday at another conference
for the Association of Financial Mutuals.

The message from both is that although insurance will surely survive, a lot of the sectors
companies will not.

Some people think the entire approach needs to change, on the basis that the electric
light did not stem from continuous improvement of the candle. Dan Ariely an American
behavioural economist who has featured in this column before for his suggestion that
paying management big bonuses is virtually guaranteed to destroy the business is now
part of a new insurance start-up.

Explaining at its launch why they were hoping to do things differently he said: If you tried
to create a system which brings out the worst in people, you would end up with one that
looks like the current insurance industry.

His new company Lemonade is in many ways what a mutual insurance company would
look like if it was invented today with the benefit of modern technology. It first uses data
to identify a group of like-minded people who have in common that they would like to
contribute to a good cause the local school, a charity or such like.

It then suggests this group self-insure. The premiums that would normally have been paid
to a company for their home or motor insurance instead go into a local pool, which is held
where no one can touch it in escrow, but still belongs to the group.

Any claims are paid out of the pool but what is left at the year-end goes to the charity of
their choice. The company, Lemonade, makes its profit from the small slice of each
premium it takes for arranging everything.
That is a simplified version of the process but the clever thing about this business model is
how it encourages better behaviour. Individuals do not inflate their claims because it
would mean less is available for their chosen charity; the company does not unjustly resist
or seek to whittle down claims because it is not its money. Indeed, at the opposite
extreme, Lemonade says it has set the record for the prompt settlement of a claim
three seconds!

Insurance mutuals in this country struggle to be recognised as a force for good because
from the outside they look too much like a conventional public company, and the rewards
in pricing and service are not easy to make apparent. Perhaps they need to rethink their
offer along Lemonades lines.

A second big shift picked up by Tllt is the move from insurance to prevention putting a
fence at the top of the cliff rather than providing an ambulance at the bottom or, more
prosaically, instead of paying up when something goes wrong, the business stops it going
wrong in the first place.

This is all to do with the internet of things, the system whereby even the most mundane
household device will have a computer chip allowing it to be connected to a network. At
present, insurers pay up for waste food after the freezer fails, redecoration after a burst
pipe, or the towing charge for a stranded car.

In future, by being able to monitor these machines, they will see when they are about to
break down and can fix the problem before it happens. Thus, they turn the negative
experience of cleaning up after a disaster to the positive experience of preventing the
disaster in the first place.

The third trend is for insurance on demand: at the moment, insurance companies provide
products such as home, motor, travel, health and other cover and then try to sell it to
customers whether they want it or not.

But thanks to technology, insurers will follow a person and provide cover on demand,
when it is needed and the customer is in a mood to buy. If he or she wants to drive a car, a
picture of the vehicle is sent and instant cover arranged. The driver doesnt pay when the
car is parked. If they want health cover they send a selfie (facial recognition analytics
already tell as much about health and lifestyle as a 10-page written questionnaire). In
China where personal data is less controlled than in Europe, insurance firms know when
someone with a mobile has entered an airport. So, they offer them cover against flight
delays. This is all done automatically.

In this vision of the not-too-distant future, insurance will be about protection and
prevention and companies will make their money from fees or consultancy rather than
from what is left after the claims are paid. Insurance will be led by demand, provided to
the customer when the customer needs it, but only for as long as its needed. And
everything will be digital, demanded, paid for and delivered by mobile.

What we do not know, however, is whether any of the existing companies will still be
around to provide it.

Some face a major challenge because, as Avivas Mark Wilson has been heard to remark,
insurance is stuck in the Stone Age while other businesses are circling Mars.