The dangers of being overly familiar
However, insurers must be wary of becoming too integrated into the day-to-day lives of their policyholders.
If, for example, a health insurer has access to ongoing health data through the sensors in a smartwatch and identifies that a customer is going through a period of intense stress, could it charge more for its monthly premium to offset the increase in the customer’s risk profile? Of course, any insurer that did this, while making perfect business sense, would be acting extremely unethically and could do untold reputational damage to their brand.
Instead, a responsible insurer could use this information to provide their policyholders with advice for managing their stress and help them to improve their health and, as a result, reduce the risk faced by the insurer. This could even be delivered automatically on that same smart device via an app.
Countering the rise of the uninsurable
Another emerging challenge for the insurance industry is the rise of uninsurable sections of society as individual pricing and more tailored underwriting practices become the norm, and new challenges such as climate change dramatically increase the potential impact of certain types of risk. Recently I heard a story on the radio about a French farmer who had his entire crop destroyed following an unexpected ice storm. The man lost absolutely everything, but he was not insured – he had canceled his insurance as it had become too expensive.
He was almost in tears, and I remember thinking to myself that – if insurers are not careful – the increasing granularity of data and better understanding of risks could lead to vast swathes of customers being side-lined by the insurance industry as they become unable to afford basic cover.
This would greatly damage those individuals’ financial well-being – but it would also cause irreparable reputational damage to the industry. Trust in the ability of insurance to provide the kind of last-resort support the industry was set up to deliver would be lost, perhaps permanently.
We are already talking to clients about what we are calling responsible insurance, and how insurers can develop simpler and more affordable policies as part of a more inclusive suite of products. This could do wonders for the industry’s reputation, but it could also help individuals – and even society and the wider economy – to become more financially resilient. This would be beneficial for everyone.
Technology and data analytics will again certainly play a part here as providers seek new ways to make insurance work, even for riskier customers. Risk mitigation and incident management should also be key areas of investigation for insurers keen to lower their own exposure while still helping provide higher risk customers with a greater sense of financial security.