Reinventing insurance with technologyFinTech
Elevating Innovation is a series where we explore market opportunities for technology disruption in Canada. At Harvest, we’re focused on co-building globally competitive companies from the Canadian Prairies in areas including FinTech, InsurTech and PropTech.
What you don’t see coming can pose the biggest risk. When your home gets flooded, your car gets totalled, or if you face an untimely loss of life, you can at least have the peace of mind that some of that loss can be remedied. Insurance takes a load off your shoulders and your family’s.
But as much as it can be a safety net, this antiquated industry that relies on decades’-old technology is known for its low customer satisfaction. Getting a hold of the right policy, understanding your coverage, and wrestling over whether to claim are all challenges we endure simply to get our backs covered.
From start to finish, the approval process for getting insurance can take as long as two months. Now, more than ever, consumers expect quick and self-directed coverage with companies using any device at any hour of the day.
When we demand digital-first solutions, we’re creating the opportunity for claims to be automated and personalized, to cut loss-adjustment costs, and as much as possible, eliminate manual elements to save time and money.
Imagine getting insured within seconds and paid within minutes. Technology can drive these frictionless experiences, so we no longer have to dread filing a claim or approaching the process with apprehension. There is an enormous market for insurance in Canada, and it’s ripe for disruption.
InsurTech–or the digitization of the insurance industry–is full of clear opportunities for Canadian entrepreneurs, founders, and VCs to take advantage of uncharted waters. Founders with domain expertise are particularly well-suited in activating this potential.
With a deep understanding of the industry’s pitfalls and the desire to break from the norm with innovation, entrepreneurs willing to disrupt the establishment can revitalize insurance in the 21st century.
Bottomless market for insurance
With all insurance, the rule of thumb is to buy it before you need it. The most common types are home, health, life, and auto insurance. Generally, all kinds are split up into life and non-life insurance.
Manulife Financial was the largest Canadian insurance company in 2019, with total assets reaching $809.13 billion. Their massive portfolio caters to all clientele types, from groups and companies to individuals and various sectors.
Now, factor in the rest of Canada’s top insurers such as Power Financial, Sun Life, and Desjardins, who each have a total asset holding of more than $270 billion in life and non-life insurance. Undoubtedly, there is an enormous market for insurance, but it doesn’t come without its fair share of problems.
Not a perfect system
The reality is getting insurance is not a smooth and quick process. The big insurance players in Canada have been in business for decades–some of them even for centuries–so their backend software and underwriting processes are tied to outdated legacy systems.
These are the same systems that service their products and pose major integration challenges. When insurance companies struggle to adapt to the digital age, they create inefficiencies in their process, which leads to poor customer experiences when Canadians need it the most.
Here are the major problems and opportunities within Canada’s insurance market today.
Problem #1: Products are one-size-fits-all
Insurance policies are intended to meet its holders’ specific needs, but by default, many of the features are often standardized across all cases. They rely on obsolete group data, rather than individualized information to assess specific risks.
While this standardization is supposed to make the insurance process move faster, it achieves the opposite. Insurance platforms are built on old technologies that incumbents spend millions on maintaining. But these outdated tools cause delays and let many factors slip through the cracks, ultimately doubling the insured and the insurer’s efforts.
Boilerplate language is recycled across various policies, making it difficult for customers to differentiate between products, and coverage comes at the cost of high deductibles.
Customers often wrestle with whether they want to claim, out of fear of seeing their premiums go up. They’ll sometimes choose not to claim at all when they need it the most, just to avoid higher costs, which causes immense financial burdens and loss.
Opportunity: Insurance products can be customized to policyholders using personalization software and machine learning. The combination of rich customer data, smartphone telematics, and enhanced computing power open the door to usage and behaviour-based pricing.
These types of models allow insurers to offer more competitive premiums and lower claims and program costs. Behaviour-based insurance also paints a more accurate picture of a policyholder’s risk.
Problem #2: Relationships with customers are fragmented
Not knowing who to talk to worsens customer experience. There are insurance companies that you can buy from directly, agents who sell plans on the insurer’s behalf, brokers that find and compare coverage for you, and the lesser-known MGAs (managing general agents), who are brokers with special underwriting authority.
While there are pros and cons to each route, positive customer experiences rely on transparent relationships. But interactions between these representatives and customers are few and far between. When insurance agencies, brokers, or MGAs do get in touch with customers, their relationships are superficial. No further conversations occur between them and their customers once a policy is signed.
Opportunity: Integrating technology into formal operations allows insurance organizations to meet customers’ preferences better and keep them nurtured in every necessary stage.
By forming interdisciplinary teams with new types of expertise, like data scientists and design thinkers, insurance companies can better understand when and how to reach their customers and contribute to higher brand loyalty and retention, including clearer understandings in their policy agreements.
Problem #3: Long underwriting process
After getting a quote, which is the simplest part of the insurance process, customers need to fill out an application, which can take anywhere from a few minutes to a few hours, depending on how detailed it is. Many insurers require applications to be completed by hand and faxed or mailed, archaic methods by today’s standards.
Insurance underwriters then evaluate the risks involved when insuring the customer and their assets. They establish pricing for accepted insurable risks based on medical, health and lifestyle risk factors.
But due to their limited data, historical regression analysis, and lack of transparent communication between them and their customers, it can take four to six weeks to get a fully underwritten policy.
Coupled with long search times and a steep learning curve, many customers end up not knowing what they signed up for. In many cases, the insured only finds out about exclusions in their policy when it’s too late–when they’ve suffered a loss and begin to file a claim.
Opportunity: Big data, machine learning, and predictive analysis can get in front of exclusions at the policy selection stage, speed up the time it takes to assess risk and formulate pricing, and ultimately allow customers to serve themselves during the underwriting and servicing processes.
According to a McKinsey report on property and casualty insurance, digital-first companies shrink expense ratios to almost 40 percent lower than those of traditional insurers. Technology collects accurate data and creates transparency between the insurer and their customers from the get-go.
Problem #4: Outdated distribution models and administration hurdles
Not unlike the banking industry, insurance companies rely heavily on in-person interactions. From appointments with agents to call centres, and only minimal online functionality, the distribution of information to customers is severely delayed.
Paper documents move manually from person-to-person or desk-by-desk, and it’s one of the few remaining industries exclusive to on-premise processing.
Opportunity: Mobile-first interactions eliminate the need for customers to set foot into a physical insurance branch. By moving the distribution of information online, customers can get insured anywhere and anytime, not needing to be restricted by a small window of operating hours, or carving out dedicated time for the task.
This is successfully done by Toronto’s Zensurance, a fully digital platform that demystifies insurance for startups. Customers can get quotes, shop for insurance, and manage their claims without ever calling or emailing a person. By automating processes and leveraging AI, insurance services can be instantaneous.
Problem #5: Back and forth claims management
When it comes to filing a claim, customers face their fear of not getting a fair payout and/or their premium going up. Insurers are more interested in cutting operating costs before adjusting claim ratios and are mostly after protecting the company’s profits.
This often leaves customers with the short end of the stick. What draws this process out even longer is the administrative burden taken on by the claims department, which hurts customers more as they wait for a resolution.
Once filed, claims go through the manual, on-premise process of getting investigated by an adjuster to determine the amount of damages or loss covered by your insurance policy. Then payment is either arranged or disputed by the customer, which, more often than not, results in an even lengthier back-and-forth match between the customer and the insurer.
Opportunity: Telematics and cloud-based platforms can easily cut time and work in half in the claims management department. Retrieving and scaling analytics, submitting a claim on any device, and getting instantaneous billing are innovations that refresh the customers’ insurance experience. AI can also help reduce the insurer’s costs by finding the most precise claim settlements.
Also, mobile health-tracking and machine learning techniques can work with existing data to get information to customers and the insurance company faster. Where we see this successful tech integration is in LOGiQ3, a Canadian insurtech company that leverages technology to improve the quality of data transmission between carriers and consumers, using outsourced services.
Founders to disrupt insurance
Big data, artificial intelligence, and telematics are just a few of the many technologies that can disrupt today’s insurance space. But beyond these channels, it takes daring founders with a keen performance history in insurance to spearhead innovation and actively break away from the status quo.
At Harvest, we’re looking for founders with a competitive edge and raw experience in the insurance industry, who know its inefficiencies and opportunities, and are not afraid to challenge the status quo.
Founders with tech DNA can shift the focus back to where it belongs–with Canadians–and adjust the way people buy insurance, making data visible and easily understandable to anyone looking for coverage.
In our mission to build globally competitive companies, founders have the potential to overhaul decades’ old business models completely and revamp insurance to perform like it never has before, with the seamless integration within our everyday lives we all expect today.
Rewriting the insurance narrative
After suffering a loss or incident, people want to move on and go back to their routine as soon as possible. But getting approved for a policy and claiming insurance is easier said than done.
Thankfully, customer preferences will transform the traditional claims processes, enabling insurers to improve customer satisfaction by cutting loss-adjustment costs and eliminating many manual responsibilities standing in the way of customers getting back on their feet.
Investing in tech innovation, like modular IT architecture, user-centric experience design, and digital operations, we can restructure the formal organization of insurance to encourage collaboration between functions, which reflect digital importance.
Insurance on-demand gives people the personalized solutions they’re after, and it takes founders who have seen how poorly the system has worked, including those excited to leap into the 21st century, to spearhead the movement of giving Canadians the risk protection they deserve.
To learn more about the InsurTech leaders Harvest is looking for, check out our current founder positions.