Mark Dreux is Head of Strategy at Digital Matrix Systems and a business development leader with 20 years of financial services experience. He specialises in business strategy, credit analytics and risk management, helping clients in financial services, insurance and brokerage services improve the way they look at business.
‘Disruption’ – hype or reality?
Katy: As someone who works with insurers on a daily basis, how do you think the insurance landscape has changed in the past 10 years (if at all)?
Mark: Unfortunately, it has not changed as much as we would like. Innovations are there (like Telematics and IoT devices), but cost has been prohibitive, and adoption has been largely ‘self-selection’ which is not a representative sample.
K: That makes sense. How much substance is there behind the term insurtech? What does the term mean to you right now?
M: Well the cynic in me says it means ‘valuation’ but the eternal optimist sees all these great products and solutions and gets me excited for the real breakthrough ideas.
K: Everyone knows Amazon, AirBnb, and Uber have revolutionised the retail, hospitality and transport industries on a fundamental level, by thinking in terms of needs rather than products. Customers aren’t excited by buying insurance products, it’s just a necessity. What are some realistic ways insurance can be disrupted in the next few years?
M: That’s a great question, because most people aren’t excited about ordering a cab. What each of these transformative products did, was change the dynamic of control and power. So yes, most people aren’t excited about buying insurance (because it is a necessity). What really has the potential to change that, as we’ve seen in other industries, is to shift the customer experience. Seamless interactions in policy issuance, claims, improving self-service options and customisable offerings can make great strides in changing the consumers view of their insurance carrier as a trusted advisor versus a “necessary evil” they’d rather not deal with.
Most people aren’t excited about buying insurance, but customer experience has the potential to change that.
K: Is there a segment of insurance that you think can’t be disrupted?
M: The easy answer is large commercial. So, let’s just skip right past that. I think the preferred multi-line consumer will be very hard to ‘disrupt.’ The home, two cars and umbrella policy that sits on top – there are a lot of components there. But there are a lot of preferred carriers trying to go after the mono-line shoppers. It is those preferred carriers that will have to ‘disrupt’ inside of themselves. It was very impressive when Allstate bought eSurance but hasn’t really tried to merge them into one company.
Markets & Industries
K: You frequently travel between the US and Europe for work, what are the most significant differences between the insurance and insurtech markets? Are there learnings from one market that could be adopted in the other?
M: In the States we have fifty different governing insurance bodies, which makes it difficult for national carriers to create uniform guidelines or adjust rates on the fly. The UK enables more flexibility, which means the consumer should be able to get significant innovations quicker.
K: In our last conversation, you mentioned that the analogy of disruption in banking/financial services doesn’t hold for insurance, because insurance is not a commodity, it sits mid-market. Can you expand on this?
M: There are certainly insurance products that are a commodity, like mono-line auto insurers. If the rate and claims are ‘constant’ then it doesn’t matter which one the consumer selects. But insurance requires a level of explanation (that banking does not), as the consumer is buying in the hopes they never need it, but if they do, it better meet their needs.
K: With that in mind, what are the analogies from fintech/the disruption of financial services, that could apply to insurance?
M: This is almost too broad a question. At almost every turn in the insurance process there are micro disruptions that can and have happened, as with financial services. But the big FI disruptions—the Lendtrees, the Prospers or even the Credit Karmas—have not conceptually worked on the insurance side. These disruptive FIs all changed the dynamic of control that I mentioned before.
At almost every turn in the insurance process there are micro disruptions that can and have happened.
Currently most insurance ‘disruptors’ have changed a step in the process. Better pre-fill, better claims, etc. But these are not changing the dynamic of insurance sales. Just think about all the IoT solutions that are out there. They are making it easier for the carrier to quote and rate me, and maybe a sensor stops a full-blown flood (saving them money and me heartache). But they are not changing the buying dynamic or truly disrupting.
Adoption of new technology in insurance
K: IOT devices (for home technology) is a notable example of new tech being adopted in insurance, how far do you think this can go?
M: This is a very interesting challenge. Just how many devices, and at what cost, will I need to make my home secure. We are already seeing the water shut off sensor market have a tough time, because the sheer cost of the solution vs. the likelihood of stopping total loss makes it hard for the consumer to take on the additional premium. But I do see this as the place—longterm—that really has the highest likelihood for disruption.
I do see IoT as the place longterm that really has the highest likelihood for disruption in insurance.
As more things talk to Amazon / Google, and as we get more comfortable with others knowing about our lives, the more likely it is that someone will create the true insurance disruption that we are all looking for. Undoubtedly that disruption will be both consumer-centric and data-driven.
K: You mentioned that the introduction of normalised telematics in the States has the potential to replace consumer credit. Can you expand on this?
M: Of course, credit is used to predict loss, which in turn is driving behavior. So, we would no longer be using the proxy, we would be using the real thing. There are many challenges inherent in trying to bring this to market. My firm, Digital Matrix Systems, has been normalising consumer credit for almost forty years, and we want to be the true pioneers in normalisation of telematics as well.
K: You’ve probably heard of apps like Lemonade that use AI chatbots and big data to evaluate claims. How far do you think this can go, if underwriting can be replaced in some cases by technology, what are other services AI can replace/improve?
M: Claims technology is where you will see the largest adopters of AI / ML. Which is a fantastic place to start. But, unfortunately you are working on a limited / fixed market. Once (at least Stateside) carriers are able to use these techniques during marketing and quoting, I believe we will see the broader effects which should include better and less discriminatory pricing.
Claims technology is where you will see the largest adopters of AI / ML, which is a fantastic place to start, but you’re working on a limited/fixed market.
K: What is an example of another digital product in the insurance landscape that has impressed you, in terms of its potential effects?
M: Certainly, drone / aerial imagery and extrapolation of information that is starting to come from it. I can think of two partners in this space, Princeton Climate Analytics (advanced climate data to determine flood risk) and another that takes the information and summarizes it down to actionable underwriting variables. In a sense, they have started to normalize roof information, property information, surrounding fire hazards — even if your backyard pool is full of water.
Image Credit: Siddhant Kumar – Unsplash