Insurance products are common financial arrangements in which an insurance provider states its guarantee to pay on covered claims. In return, the buyer agrees to pay a monthly premium cost.
A customer buys insurance to protect against property loss or financial risk. The actual insurance product takes the form of a policy binder which states all the terms and conditions, including an overview of what events would lead to a claim payout.
Insurance products include a wide range of solutions. Common insurance products include home, auto, life, health, dental, mortgage and asset protection. Products can also be customized for various purposes, including to protect professional athletes from lost income due to injury.
The costs associated with the purchase of an insurance product are often called premiums or insurance rates. Paid in periodic increments, rates are determined based on a variety of risk factors that affect the likelihood the insurer would have to payout, as well as the coverage amount.
Before we dive in, let’s define a few things. We consider an “insurance product” the entire financial protection experience. From a whole product perspective, this definition includes processes inherent in the creation and use of such products, including methods of underwriting and activities like claims and policy administration.
We’re watching two product trends in particular — behavioral disaggregation and the unbundling of policy time and coverages.
As the world becomes increasingly connected through mobile devices, sensors, networks, and information sharing, new context becomes available for managing risk. Dynamic insurance products that react to comprehensive information on behavior will be a direct result of these increases in contextual information.
The concept of contextual insurance is not new. In fact, the purpose of insurance underwriting is to segment and accurately price insurance using information about the applicant. Even behavior-based pricing is not a new concept. Insurers have used access to DMV records to adjust rates in the event of speeding tickets or other traffic violations since the 1950s. However, the innovation we’re seeking goes a few steps further.
An insurance provider that accurately understands the discrete behaviors influencing the safety of an asset and its users could also offer novel and effective ways to protect both. Behavioral data could be generated through connected devices, transparency into upkeep, more robust asset histories and inventory tracking, collaboration with the owner on risk mitigating activities, and the like. Using enhanced access to relevant behavioral information, new products would offer increased customization, accessibility, frictionless coverage acquisition, and live reconfiguration. Perhaps someday we’ll see dynamic, multi-factor insurance policies that continuously and automatically adjust to choices the policyholder makes.