The insurance industry is changing – one start up at a time.

11. juni 2013

Open Research: Industry focus: Insurance

The insurance industry has been largely undisrupted for almost forever, it seems – we have a pretty fixed image of what the business is. While other major industries like music and tv have undergone heavy disruption and development in the wake of the digital revolution, it has had much less impact in the insurance business. This is mainly due to the market being relatively stabil and it has grown with a ecomony in which people and companies owns and earns and spends more and more. However the recent financial crisis has spawned a new area where ownership and material matters are changing. We are seeing several new initiatives and challengers in the market that indicates the digital potential of the insurance industry are starting to be uncovered. This article tries to contextualize this change and gives some concrete action points for industry leaders.

Access trumps ownership

From a digital outset of course you can’t really download an insurance or anything else to threaten the market directly. As there was nothing to fix, it has been allowed to run its old well tested course.  However, as we see the technology transform our culture and the way we live and interact as humans, we find better and simpler ways to solve “the jobs to be done”. One could argue that the insurance industry has large similarities to the financial industry – that is currently challenged because of it’s lack of innovation and transparency leading to newcomers being able to challenge the industry.  Overall the insurance industry is like many other “immaterial” business changing and challenged due to the changes brought about by digitalization and an increasing networked economy.

Insurance is fundamentally social, now digital is social so…

Before we go to the beef it is well worth to ponder a little about what insurance is. Insurance is really a fundamentally social way of dealing with accidents or unfortunate events by distributing the risk on as many as possible. Before formal insurance corporations was in place in the late 17th, insurance was fundamentally a community business – where small communities would collectively save funds for emergencies that would harm the community. In example, Greeks and Romans introduced the origins of health and life insurance c. 600 BCE when they created guilds called “benevolent societies” which cared for the families of deceased members, as well as paying funeral expenses of members. Guilds in the Middle Ages served a similar purpose. “Friendly societies” existed in England, in which people donated amounts of money to a general sum that could be used for emergencies. (reference In a sense the insurance industry we have today has really just commercialized these social systems and with the emergence of digital platforms we are seeing a return of social “business models”.

We see new ways of buying, engaging and collaborating. is a site gathering the sharing economy driven startups in one place. Currently almost 9.000 companies are listed there with a combined funding of 21 billion dollars. The  different start ups seeks to affect the way live, eat, travel and work through the sharing economy. lets people loan their cars to others, is changing the way the building industry is communicating and interacting, ensures that the food you buy, helps feed children in need. The more you buy, the more they can send for free to others. The sharing economy and social collaboration is a movement not easily ignored.

The paradigm shift of the marketspace – insurance as platform.

Airbnb is a marketspace for unique places to live, more precisely, peoples homes that are rented to tourists through the platform. The successful business empower people in new ways that works around the traditional channels of finding a place to stay. Interestingly, this kind of interaction also opens up for a new need for insurance. There is of course a concern for the proprietors in letting strangers live in their homes. Airbnb works as the intermediary and provides peace of mind with their host guarantee, covering accidents for up to 5.000.000 DKK. They are working with insurance company Lloyds of London, using their strong reputation when they state “you are a part of the Airbnb family and we take care of our family” (kilde This shows how insurance can adapt to new ways of doing business, and how the need for security is still there on the new markets.

In its core, insurance is a social construction that makes people feel secure and safe should something unfortunate occur. Now we see new ways of owning things and new mechanisms on how to deal with the changing marketspace.

The Airbnb example let people collaborate socially but they would probably be much more hesitant if the host guarantee wasn’t there. The trend with sharing cars between several people also let people collaborate socially and presents new needs for insurance types.

Another one not affraid to challenge and change the industry is Being an online peer to peer insurance company, they offer social network collaboration in order to save money for the customers. The marketplace effect here is reaching people in your own network and doing something together that lets you get a better premium price. There is a social responsibility in sharing your insurance with your peers, as they will be economically “punished” too if you drive recklessly for instance. It also let companies learn more about customers. If their old customer A is a trusted client with a good record, the friends A will recommend to invest in social insurance is likely to be sharing the same idea of responsibility, as A would loose money if his peers were likely to be involved in insurance cases. This is the companys insurance so to speak, that the ethos an individual carries transfers to the peers they chose their insurance with and the social collaboration works for all parties.

With the internet there are disruptive business models emerging like which is per mile car insurance, designed for people that drives less than the average does in a year. Its makes completely sense that there is a market for people who feel that they have to pay the same amount of money for their car insurance, than the car salesman who drives thousands and thousands of miles more than themselves.

A new UK based initaitive, is jFloat. While their business model is still not fully disclosed, they describes itself as a “collaborative consumption self-insurance platform.” Essentially, jFloat is very reminiscent of german Friendsurance – the company lets user pay into “pots” that then covers accidents by the pots collected value If the cost of the accident supersedes the pot, Friendsurance covers the rest. In jFlaots case, they are called “floats” instead, where users come together and pay the majority of their premiums into collective pools of 100 people called which consist of extended family members and like-minded people who fill out a survey on the company’s website. This group of people can then approve or deny people membership to their specific float.

The hope is that this model will  bring more transparency to insurance matters, and increase the feeling of responsibility to the group, as well as encourage people to only make reasonable claims.

The grey zone

Changes to a market rarely comes without resistance and this is no exception. Two major obstacles are in the way of the new accessibility over ownership movent; the goverments and the insurance companies. Airbnb are being questioned on the legality of their business in New York and San Francisco. Tenant groups are pressureing legislators for a cap on how often you can legally list a short-term rental on a rental site. Furthermore, aforementioned Relayrides had an incident with a customer getting killed in a loaned car and injuring several others in the process. The accident happened in the US, and the medical bills went through the roof. It is still being processed to determine who has to pay for what and why. If the owner of the car who loaned it to the deceased ends up being held responsible, it can cause severe damage to the whole car pooling concept. Both potential clients and companies in the sharing economy business is likely to wait this one out and see how the story unfolds.

The majority of insurance companies seems to be awaiting and making assessments of the sharing economy impact and extend. Without the backup of the insurance industry, there is great challenge for companies that are less adept than Airbnb was in their partnership with Lloyds of London. If customers can’t feel secure when loaning their flat, car or other goods to strangers then very few will be prepared to take the risk. It is therefore within the insurance companies power to slow the evolution of the sharing economy market. The problem seems to be that the traditional way of insuring cars for instance, is based on a fixed set of parameters like age, income, history and so forth. If one insurance covers a 49 year old elite driver, and he then loans his car through Relayrides to a 18 year old with a brand new license, the picture is something entirely else. There seems to be too risky for the insurance companies, with too many unknowns in the equation.

Breaking the clouds

If theres a business that loves risks, like really really dig it, its the insurance industry. With that in mind, its likely there just needs to be more data in the area before they start making their move. We already see startups like MetroMile emerging on the scene, with new approaches and new ideas. There will be more in the near future, and if there is anywhere a small startup can challenge mastodons it is on the traditional way of doing business, delivering something new. Once more of these insurance startups begin to catch on they are likely to work as a catalyst for the large ones buying into them or making new products themselves to stay ahead of competition.

Drivers for change

But what are driving this disruption on the market? The answer is several factors come into play and affects the way we do business. I will list some of them here.

  • The new movement
    The future of technology is evidently driving the way we interact and consume in new directions. Mentioning the influence of social media would be obsolete at this point. Technology always opens up for new ways of doing things, and with that arise a new type of market. Googles has self driving cars being allowed in traffic in three states (see From the way that experiment is running, driverless cars are far from futuristic. If that becomes the norm at some point, traffic accidents will be very limited compared to now. That would challenge insurance companies on the their nature of their business. No accidents = no reason to be insured.
  • 3D printing
    What happens when we are able to replace lost goods by just reprinting them? Its a far fetched thought right now granted, but how would you have reacted if I told you ten years ago that we would be able to print a working gun today? (see
  • Sharing economy
    Social platforms enables shifting ownership and inspires collaborative comsumption. A lot of the things we own are idle for large amounts of time. Many see reason in sharing with others if they save money, and often help the environment by doing so. Sharing cars and subletting your home makes sense if you can save while doing something good.
  • Internet of things
    Object becomes smart and data driven enabling new forms of business models. MetroMile taps into cars onboard diagnostic switch and tracks the movement of the car. They customers are essentially being charged by behaviour. Googles self driving cars are coded to work with Google maps, and can stop at shops listed on maps, which then again can be tracked which stores you are visiting.  
  • Big data
    Data drives innovation and data becomes the new oil. Big companies need to harness data, and pay gladly for it. To be able to collect data equals being able to offer better products. Smarter insurance for example. If insurances companies collaborates with startups like Friendsurance and jFloat they can access the driver profiles and reviews of the pot/floater and take it into account when calculating the risk. Its one of the ways to decrease the unknowns, and identifying the opportunity.
  • Quantified self
    Increasinlgy we see the “personal data” tracking becoming popular. Everything we do can be tracked. From and covering our exercise, to telling what our favorite places are, we have changed behaviour into letting people know where we are at all the time. The quantified self is a strong driver of the big data which then again can be turned into businesses. The potential seems immense.

Opening of new markets

Speaking of vast opportunities, its not only chai drinking citygirls and “watch my running track” hipsters that benefits and engages in the social collaboration.The worlds third largest insurance company Allianz is venturing into micro insurance in developing countries. Which is insurance for the poor families in countries like China, India and Indonesia. Its people who earn from 1.25 to 4$ a day that is targeted, an estimate of 2.6 billion people. The families can insure themselves together for between 1-10 euro per year which again inspires the social collaboration between peers for securing the family. (see: )While it is seemingly a much smaller market than the traditional way of doing insurance, its worth noticing that these countries has rapid wealth increase and the middle class are expanding fast. Getting into the market now in asia or latin america in a way that generates only a little revenue but a lot of customers, could be a very profitable investment in the future. This market will then be build on the idea of the social collaboration insurance, and the forecast on how a market like that will look like is difficult to predict, but very interesting nevertheless. Especially that we see the same innovative concept of insurance being offered to both the poor population and the middle class of developed countries, just in different forms.

Adapting to the changes

It looks like the industry is soon ripe for disruption, or maybe in midst of that process, just at a steadier pace than others. Last month, Avanade conducted a global research study, surveying 1,000 business and IT leaders and 4,000 employees about the impact of social technologies on enterprise collaboration. 82% of the businesses wants to use more of the social collaboration technologies in the future, and it seems a thing many business are aware of is changing. While the innovation in the danish insurance field has been limited, the great abroad is presenting several new initiatives. Its is probably just a matter of time before the domestic insurance companies realize the digital potential that lies in social insurance.

So what should insurance companies do? Adapting to the changes in any industry takes time and contemplation, but here is a few pointers at what you should consider:

  • Understand what the digitalization is doing for the business.
    Analysing how the changes is affection the market and your business in particular, is crucial to position yourself in the best possible way for using the changes to your advantage. Knowing the mechanics and trends gives you a headstart.
  • Start looking for the next business model.
    They are already here. Mentioned above we witness several new players doing stuff in a new way on the traditional market. But this is by all means a blue ocean, so instead of bloodying the waters too early, look what you can do with your own business in these waters.
  • Know the challengers
    A bit aligned with the previous advice, you can’t ignore startups are getting in on the game. They have ideas and passion to build crazy new concept. Pick and chose from the best, and be inspired by what they do and the way they work.
  • Start innovating by incubating
    If you are in a company with resources, consider peeking over Deutche Telekoms shoulder. With a revenue of almost 60 billion euros, they have a huge part to play in several markets. One thing that they do very well is realizing what they can can’t do. They know that innovation is best left in other hands where middle management aren’t squeezing all the creativity, and the limit is only what you can imagine. So they chose to support the incubator environment, giving startups a great chance to propel to succes, with Deutche Telekom getting a slice of that innovation. is their initiative, with promising startups in the making. They foster the creativity and disruption yet has deep insight in what happening on the various markets.

Who says you can’t innovate and adapt just because you are big? What do you think? 

Some further reading:

This article is written in collaboration between Martin Sønderlev Christensen and Jonas Woodrow Hansen.

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