May 12, 2022
From the Research Team
Adaptable Insurance is Here and Growing
Adaptable insurance is an insurance product that has the capacity to adjust premium to reflect account-specific risk exposures. It is designed to protect both insurers and their customers from the ever-growing number of risks in the modern world.
Insurers are creating adaptable coverages in a variety of ways: on-demand coverage and usage-based insurance are two primary ways insurers are offering adaptable insurance products to their customers.
On-demand coverage is insurance that allows the policyholder to dynamically change their coverage to meet their specific needs at any time. A good example is travel insurance, which is purchased on an as-needed basis and changeable by the customer.
Usage-based insurance varies rates based on insured behaviors. A good example is telematics for auto coverage, which provides a discount based on driving behavior, driving location, and time of day.
Adaptable insurance products are growing in popularity as insurers and customers alike become more aware of these products’ benefits. However, many insurer legacy systems are unable to adapt to the product complexity.
Warren Buffett on Auto Insurance and Telematics
What: At this year’s annual Berkshire Hathaway meeting, Warren Buffett discussed auto insurance and pointed to telematics as being key to the future of matching rate and risk.
Quote: “There’s no question that more recently, Progressive has done a much better job than GEICO…in terms of margin and in terms of growth rate. There are a number of causes for that, but I think the biggest culprit as far as GEICO is concerned is telematics… Hopefully in the next year or two, GEICO will be in a position to catch up with Progressive in terms of telematics, and hopefully that will then translate into both growth rate and margin.”
Why it matters: Telematics are used by most auto insurers as a tool for giving discounts – essentially making auto coverages variable. The matching of rate and risk leads to the most equity for society: those who drive more pay more.
Seven Noteworthy On-Demand Insurtechs
What: Insurtechs are often the testing ground for new insurance models, making them worth watching. Ranging from drone coverage to employer liability, these startups are exploring what is possible in the insurance sector.
New Flexible Coverage for Delivery Fleets Takes Personal Lines Innovation to Commercial Insurance
What they’re saying: The first new product tailored towards both electric and traditional moped fleets is usage-based, meaning businesses only pay for insurance when they actually need it.
Niche growth: Insurance companies are growing increasingly specialized. Zego is an example of this new niche focus. For insurers with the capability to dominate niches, this is an incredible way to drive growth and is a trend we expect to continue.
Chubb’s Clever use of Data to Create new Pay-as-You-Roam Travel Insurance
What: Chubb is developing a new form of travel insurance. By using cell phone roaming data to track a customer leaving their home country, Chubb can offer “always-on” travel insurance, where the customer pays only when traveling.
Why it matters: We estimate that the world is at least one-third underinsured, and simple products like this are examples of how to fix that problem. The clever use of data makes this a simple and customer-friendly product that will likely result in more travel insurance policies for Chubb.
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