What the new world of insurance could look like

by Ido Segev and Amy Vickers

From a customer’s standpoint, few industries are as ripe for disruption as insurance. Most consumers’ experience with their insurance company consists of buying a complicated policy in a vaguely unpleasant underwriting process, paying their annual premiums, and when something bad happens, filing a claim and hoping it gets paid. For customers with expectations increasingly formed by interactions with companies such as Amazon, Uber, and Facebook, this doesn’t quite cut it.

But what would a transformation of insurance customers’ experience along the lines of such disrupters look like? While it’s hard to say for sure, of course, new technologies, consumer preferences, and business models are emerging that allow us to consider some radical ideas—and if the digital revolution has taught us anything, it’s that what one day seems radical can soon be the new normal.

Consider, for example, the customer experience designed by Lemonade, a start-up with $60 million in seed funding from major Silicon Valley VCs, that sells renters’ and homeowners’ insurance in New York. (Its slogan: “Insurance that doesn’t suck.”) Using Lemonade’s AI-powered app, which feels like texting with an agent, customers can get a quote for a personalized policy, sign up, and be insured in just 90 seconds. They can file claims the same way, with simple claims processed and payment issued in as little as three minutes. And Lemonade’s policies cost a fraction of their competitors’ due to lower costs and—over time, perhaps—lower loss ratios.

From our perspective, companies like Lemonade, as well as other new entrants including Hippo and PolicyGenius for individual insurance and CoverWallet, Embroker, and Insureon for business insurance, are not just introducing new efficiencies and improving customer service. They are part of a wave of digitally enabled innovation that is fundamentally transforming the relationship between insurance companies and the insured.

We see a few possibilities for where such innovation might ultimately lead:

  • ‘Omnibus’ coverage. Imagine traditional, stand-alone lines of business such as auto, homeowners, and life insurance fused into a single, personalized, protection “product.” Whatever the channel—customers buying directly from a single carrier for all their insurance needs, or purchasing policies from multiple carriers through a front-end aggregator—the customer experience is radically simplified, while systems on the back end optimize and tailor coverage options across every kind of insurance policy.
  • Always-in-beta insurance. New “releases” of insurance (what have traditionally been called “products”) are issued constantly. They either represent updates/upgrades to the policy or reflect changes in customer needs—e.g., to insure various lifestyle products or against cybertheft. These changes would be approved by the customer, of course, and provide a more fluid and relevant approach to updating products.
  • Insurance on demand. Products and services are metered, personalized, dynamically priced, and delivered on an as-needed basis, either automatically or as requested by a customer. Insurers can already do many of these things by partnering with new companies. One example of such a company is FitSense, which offers data integration, data interpretation, and personalized product-development capabilities based on customers’ app and device data.
  • Wellness support. In this world, customer-centric insurance carriers are not just claims processors. They also enable customers to reduce their premiums and minimize the need for claims by proactively helping them make better decisions about their health. Consumers benefit from having healthier, safer lives with greater peace of mind, while businesses reduce costs, deepen relationships with their customers, and create new revenue streams. This shift from “repair and replace” to “detect and prevent” will be enabled by new technology. One example is Digitteria’s Quantifyle, a wearable “quantified living app” that facilitates customers’ controlled sharing of personal information with insurers in exchange for incentives and rewards.

Incumbent carriers in the US are also offering glimpses of a radically new model for insurance. John Hancock, for example, has begun moving from insurance as a product to insurance as a service with its Vitality Program, which helps customers develop a tailored health plan, tracks their progress toward their goals, and rewards policyholders for living a healthy life. Liberty Mutual, through its corporate venture-capital arm, is investing in companies such as Notion, a provider of home monitoring and sensing systems, and August Home, a maker of smart locks—products through which it can help actively prevent harm and enhance customers’ well-being.

What the software industry has done to hardware manufacturers, digitization is about to do to traditional insurance carriers. This is creating a whole new form of risk and opportunity for insurers. As we’ve seen time and again, the companies that cause disruptions or that benefit from them are consistently the ones with the imagination to see and prepare for how a marketplace might evolve.

Ido Segev is a partner in our Boston office. Amy Vickers is a digital VP in our New York office.