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Digital transformation of insurance enables ‘micro-insurance’

By Tim Sandle     Nov 13, 2017 in Business
One of the effects of the digital transformation of the insurance sector is the ability of insurance companies to offer ‘micro insurance’. This is an insurance policy taken out for a short duration – only when it is needed.
The marketing of ‘micro-insurance’ has been facilitated by the ability of insurance companies to leverage sophisticated data and insights about customers. This data gathering and analysis exercise has been made possible by moves online and the greater ease in collecting data for analysis.
By using this data, insurance many companies have now able to provide personalized products that better meet the expectations of consumers. Such niche products, are tailored to consumer expectations, usage and behavior patterns. An example of such products is ‘micro insurance’: insurance only when it is needed.
As an example, The Financial Brand talks about insurtech companies offering a new form of motor insurance. This product allows drivers to pay insurance only for the actual miles or the hours driven.
In a second example, airlines will be able to charge different insurance rates for different aircraft. A third case is with health insurance, such as packages that allow consumers to reduce their premiums on days they go running.
In terms of companies, an example is with Zhong An, which is the first online-only insurer in China. The company uses machine learning to customize pricing on products for online retailers. Some smaller insurance firms have entered into peer-to-peer relationships in order to pool groups of consumers for short term insurance cover.
Examples of peer-to-peer insurance companies include Friendsurance and So-Sure who leverage technologies that permit group structures to be formed. These groups enable transactions to become more transparent; they also improve payment security and provide innovative ways to connect to peers.
For some commentators the micro-insurance model is likely to grow and to continue to be the main area of insurtech innovation; something that will have greater potential through the wider use and availability of data and analytics tools.
Micro-insurance models are also useful for start-ups, who do not want to enter into a major insurance model with a big insurance company. The German insurance company Allianz operates a “macro to micro” scheme. In offering both types of insurance the company has expanded its client list from traditional players to new telecommunications companies, retailers, and consumer-goods companies.
For further digital transformation news relating to the insurance sector, see the Digital Journal article “New report signals faster digital transformation of insurance.”
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