Rethinking re-insurance: Life belts or shock absorbers?

Insurance and reinsurance needs re-imagining.

For too long the industry has been focused on products that often only provide a limited financial injection when the absolute worst happens.

Of course that’s based on often confusing terms & conditions, only after proof of loss is provided, lengthy loss assessment, and negotiation over how much value was destroyed.

It’s not always clear-cut, or a quick and smooth experience for insurance and risk transfer customers.

For customers, so people, corporations and other end-users, traditional insurance (and reinsurance) operates like a life-belt.

The worst happens, disaster strikes, and the industry throws you a life-belt, to save you from drowning

But you still have to work out how to use it in the most efficient and effective manner, as well as make your own way back to the shore.

Given the way our lives and businesses work, in this fast-paced and rapidly changing environment, we need something new and more responsive than this.

Something more responsive to our needs, that dovetails into the cycle of our lives, businesses and communities.

What we need are shock-absorbers: financial and risk protection products that smooth out the bumps in the road that might otherwise have knocked our life or business off course.

Products that respond right when we need it, providing just enough in terms of recovery to push us back on track, helping us to help ourselves right at the point it’s most needed.

Insurance can become this shock-absorber for our lives.

Think of life or business like a wave-length.

wave-length

It has its ups and downs, which within tolerances is absolutely fine and expected.

But outside of those tolerances is when we really need help, something to soften the blows of peaks and troughs. Or to put us back on course.

In real-time and in a responsive manner, we need protection and services that kick in not on-demand but automatically (automagically), responding to the changes & challenges that our life or business cycles experience.

A more responsive and real-time, demand driven insurance ecosystem.

Living off the data we all create in our lives and businesses, this can not just better protect us against the bumps in the road, it can provide new product classes we don’t even know we need yet.

It’s about financial protection that offers true risk management, transfer, hedging and real-time protection. Responding to our needs, lives and the way we consume.

Not just a life belt, or ring, that is thrown to us in the hope we can save ourselves.

Financial products suited to our evolving lives, that can work for millennials and octogenarians, small businesses and the largest corporations.

A complete rethink of the insurance and reinsurance market structure could help, as for too long the industry has relied on policy limits and towers of protection, which may not be best suited to delivery of a more responsive set of re/insurance products.

It’s about rethinking the delivery and responsiveness of risk transfer (and insurance generally) to make it fit for the 21st Century and beyond.

This responsive approach to risk transfer and insurance should run through the layers, or tiers, of the market, with reinsurance protection designed to neatly match the exposures and wave-lengths of the real-time risk curves of the future.

It’s a vision of a better kind of financial product.

One that cushions you against the bumps in the road, rather than throwing everything it has at you in one go and then leaving you to work out your own recovery.

Of course the claims process needs to be entirely automated.

Today, the life-belt of insurance is only thrown out to save you after a lengthy and often frustrating interaction with the provider, called making a claim.

That’s got to go away.

It’s not in the slightest bit a user friendly, intuitive experience, and so often ends in a result that was never expected or wanted in the first place.

Insurance is among the only products we buy into based on our understanding of it at the time, but then when we actually need it, the experience often turns out to be something very different.

Ambiguity is rife in most people and businesses experience of interaction with their insurance provider.

Shock absorbers don’t come loaded with such ambiguity.

Yes, there will need to be tolerances set around what makes them respond (triggers), and these should to be as closely calibrated to our lives and businesses as possible, to offer the best protection and cushioning.

As well as being automated, in real-time, responding to the ever growing range of data outputs that our lives and businesses produce.

This will increasingly be augmented through new data sources as well, from sensors to remote sensing, and everything else in between.

Protection should be both “always there” and “always-on”, ready and waiting to respond and smooth out the bumps in our life/business/community cycles.

Backed by capital that represents whatever is most efficient, cheapest & secure.

An efficient and responsive risk pool, that pays its backers not just for bearing the risks but also for their responsiveness in paying out, as well as their willingness to top-up again.

In order to shift to this more responsive risk ecosystem, where risk transfer neatly fits into our lives and business cycles, responding to their needs in real-time, product design is so important.

As too is a focus on the customers needs and the user experience of insurance, reinsurance, risk transfer and hedging products.

Not enough focus has been put on designing risk transfer products that meet client and customer needs, resulting in a poor experience and negative opinions of providers as a result.

The usability of what we have today is, to be frank, shockingly bad in a majority of cases.

It is improving though.

Some are moving into rapid innovation and iteration to drive change in the insurance and reinsurance product.

But many are also overdoing the kool-aid, slurping down too much of the which has been liberally shared around the industry right now, resulting in questionable investments being made and super-expensive programs of work and change, that in too many cases are resulting in write-offs.

At the same time the insurtech world is adding incremental layers of lipstick to the insurance pig.

Not always in ways that will be ultimately successful, as this incremental beauty is often only skin deep, and the write-downs will be significant. But it is making the whole industry rethink itself, which is extremely positive.

There are some really fantastic insurtech start-ups coming through with innovative products and some of the incumbent giants in insurance and reinsurance are truly moving towards transformational change in the way they design and sell their risk product offerings.

Change is coming fast + only a few are truly embracing it in the right way = many incumbents are scared.

But unless the end-result is a radical departure from the insurance and reinsurance marketplace and product-set we see today, we’ll be selling the customer short and purely throwing them a shiny, modified life-belt for some year’s to come.