How 21st Century Technology Will Disrupt the Insurance Industry

September 16, 2015 – If you think of industries that are insulated from technological progress you might say insurance. And yet there are a number of technological innovations that are altering even this staid group of companies. Some of these technologies are industry bred. But the real disruptions are those that are unforeseen.

Automobile Insurance

Today your vehicle insurance company can offer you a sensor that when installed in your car tracks driving behavior and rewards you with lower rates if you are good, and warns you if you are bad.  Allstate calls their system Drivewise. Each time you get behind the wheel it collects data on speed and braking. The company says it will never raise your rates based on Drivewise data and hopes that the feedback helps to improve your driving behavior.

But what will happen to insurance when autonomous vehicles take to the road?

The driverless car is already legal in a number of American states and is in pilot mode in a number of European countries. Companies like Google, Tesla and Mercedes have announced prototypes that inevitably will become mass consumer market products.

In a recent column appearing in The Telegraph, author Sophie Jamieson describes the arrival of driverless vehicles within the decade. She writes “if the idea of traveling at 70 miles per hour (113 kilometers) in a vehicle controlled by a computer, rather than a person, scares you, it shouldn’t. An estimated 90 percent of road accidents are the result of driver error. Eliminate the driver, and you eliminate the error…”

The industry is already being disrupted by safety features that are dramatically reducing low speed accidents. Autonomous emergency braking has reduced these types of collisions in the United Kingdom by 20%. Lower accident rates means lower premiums. Lower premiums means less profit. Does that mean the end of car insurance?

With the upcoming crop of autonomous vehicles there will still be a driver sitting behind a steering wheel. But that driver will no longer be piloting the car. Liability will remain with him or her. But what happens when the next generation of self-driving vehicles arrive with no steering wheel. Then who is liable in the event of an accident involving two or more autonomous vehicles? Will the insurance be for the driver or the car? Will liability lie with the manufacturer?

If an owner doesn’t accept the latest software download and the vehicle gets into an accident who will be to blame? Will it be the owner or the software provider? And if vehicles largely operate using software updated and downloaded regularly through a service provider, if hacked, will liability for any ensuing accident rest with them or the manufacturer?

Anyway you look at it the insurance industry will need to adapt.

Health and Life Insurance

DNA sequencing is getting dirt cheap. Today for less than $1,000 you can get a picture of your entire DNA. Known as Personal Genetic Sequencing or PGS, anyone can complete map their genome identify both the bad and the good sequences and as a result provide themselves with a life map. What does this mean for health and life insurance companies? Disruptive change.

Insurers today in Canada, in many European Community countries and even in the United States under Obamacare cannot deny coverage to anyone for identified prior conditions. The Genetic Information Nondiscrimination Act (GINA) passed in 2008 by the U.S. Congress ensures that no employer or insurer can practice genetic discrimination. The existence of PGS information that indicates potential future diseases therefore cannot lead to denial of claims or to loss of employment. Prior knowledge in fact could lead to early intervention and prevention and inevitably better medical outcomes.

But there is another side to PGS. What if your DNA profile shows that you are low risk? Shouldn’t you get a price break on health and life coverage? And in fact if you show low risk why do you need to go to a company to buy coverage? Why can’t you create an online profile and invite other folks with healthy DNA to create a social pool of the self-insured? Friendsurance and Guevara are two examples of social-media pooled insurance services that bypass traditional insurers. Although currently not offering health coverage it is only a matter time before PGS makes self-insured online communities possible.

Of course PGS could be a Pandora’s Box with insurers paying for frequent and unnecessary tests based on genetic analysis that is ambiguous. In a Time article that appeared in an October 2012 issue, author Bonnie Rochman described the results of a doctor survey in which 1 in 5 physicians thought PGS would lower health costs but more than half predicted the technology would lead to inevitable cost increases.

For the insurance industry technology disruption will lead to a flurry of new products and offerings, greater personalization, and a changing bottom line. It will be interesting to see which companies survive the shakeout.