Last week, we explored how likely it is for insurance to be disrupted in 2018. It sounded rather unlikely.
This week, let’s take a look at the other side of the coin: the reasons insurance is unlikely to be disrupted anytime soon. Here’s an essay by David Wright that describes why disrupting insurance is harder than it looks. It is a long piece, very much worth reading. Towards the end is a simple test for ideas that could potentially disrupt insurance. To be disruptive, an idea must be a better answer than the existing answer:
- “How do you know you’ve got the best deal?”
- Test the market with a broker
- “Who gets the tail risk?”
- Insurance shareholders and guarantee funds
- “How do I protect customers from each other?”
- Underwriting and claims management
- “If disruption, why now?”
Timing is the key, according to David, and it can’t be planned. In order to create waves in insurance, to actually do something that redefines insurance itself, the timing needs to be right. Wouldn’t it be nice if the right time was right now?
Well, maybe it is. And maybe flood is the driver that disruptors are awaiting. The first hint might be the amount of writing in national publications (WSJ, NYT) about flood risk. The NY Times published another long piece last weekend on the redrawing of the FEMA FIRMs in New York – an excellent essay that is making the rounds of social media. All these in-depth articles from the national media are describing the many reasons that the current American flood insurance market is completely inadequate and ill-suited for the country. The timing could not be better! In Asia, too, the currently available flood products are completely inadequate. The protection gap makes it plain to see.
So, it sounds like the case for massive disruption is actually overselling the possibility of disruption, while the case for no disruption leaves an opening for some serious innovation based on fortuitous timing. Maybe 2018 is the year insurance is really disrupted – even if a little bit. Flood insurance is poised for big changes – it’s an opportunity to grow premium intelligently (tens of billions await), and to help society.