The concept of micro-insurance has been around for a long time, and the activity in that area is now increasing rapidly, especially due to the InsurTech movement.
Pervasive mobile and digital capabilities along with cloud computing have made it much easier to insure a wide range of individual events, activities, or things for a short period of time.
On the other end of the spectrum, the idea of a unified, all-risks coverage for an individual has long been theorized, but underwriting a person for auto, home, liability, life, disability, and other risks in one bundle has not yet been practical.
I’m going to call this one-policy-covers-all-risk approach macro-insurance. Now that technology is advancing so rapidly, and customer expectations for innovative solutions are high, could macro-insurance become a reality? Will we face a time in the future when customers must choose between the micro or macro approaches for insurance coverage?
|Single underwriting process
This might seem like an academic question, but there is at least one new entity that plans to offer a type of macro-insurance. An InsurTech called Sherpa promises to provide customers coverage across all insurance sectors using a single underwriting process and capitalizing on a direct business model (no agents or commissions). The company claims to have a process that uses new data sources, artificial intelligence, and deep analytics. This could be dismissed as another hare-brained idea from people that do not really understand insurance. However, Sherpa is collaborating with Gen Re and Guy Carpenter, which adds instant credibility to the venture.
Whether Sherpa will be successful remains to be seen, but it might be worthwhile to explore the opportunities and challenges related to macro-insurance to get a glimpse into how these developments might affect the insurance industry from different perspectives.
Customer: From a customer perspective, the idea of an all-risks policy with no agent commission seems quite appealing. Who wouldn’t want to go through an underwriting process once and have coverage for all the typical risks a person (or business) is likely to face? However, some people might have an issue with “putting all of one’s eggs in the same basket.” That could be a deterrent to the macro approach for some customers.
Agent: At least in the Sherpa example, there are no agents. So this is a non-starter for distribution partners. However, other models may arise that offer macro-coverage and rely on the advice and council from either a fee-based or commissioned agent.
Actuary: Yikes, where to start! The macro approach is an actuary’s nightmare. There are two possible approaches. First, it may be that a team of actuaries works together to contribute in their areas of expertise to design new products. The second possibility is that actuarial is completely revolutionized, with AI and advanced analytics playing a key role, using a blend of traditional and new data elements. In either case, pricing precision will likely take some time to evolve.
Underwriter: Underwriting the person is a different approach and will require some blend of human expertise in different fields with new data and advanced technologies. Any way you look at it, underwriting becomes a completely new game in the macro-insurance world.
|Macro-insurance is in its infancy
We could continue to explore other roles and other implications of these approaches, especially the complex regulation angle. But these initial discussions provide a preview into the kinds of issues that the industry needs to tackle. At this stage, micro-insurance is off and running, with companies like Trov, Slice, and LenderBot making strides. Macro-insurance is in its infancy and may take a long time to develop, but the concept is intriguing, and it appears that the industry is willing to begin to explore the potential.
So, what’s gonna happen? The most likely scenario is that traditional insurance lines of business will remain for a long time, supplemented by rapid growth in micro-insurance that often extends into new coverage areas, while macro-insurance begins a period of discovery and slow evolution.
Mark Breading is a partner at Boston-based SMA. Email him at [email protected]. This article first appeared on StrategyMeetsAction.com and is reprinted here with their permission. Opinions expressed in this article are the author's own.
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