The changing face of insurance

By Jennifer Fitzgerald for,

It’s only 2016, but the real world is quickly moving into the realm of science fiction. Drones, driverless cars and not-really-hoverboards are (or soon will be) commonplace.

We’ve also seen technology change industries not normally associated with the term “cutting edge” — Uber has all but replaced taxis for many people, and Airbnb made finding lodging as easy as opening an app.

But with these new toys and technologies come questions. Whether it’s about which regulations apply to disruptive players, what new tech means for existing jobs or why hoverboards keep exploding, there’s a learning curve with integrating new technology into our lives.

Here’s the one question everyone should be asking: What does this mean for my insurance?

There’s a reason so many people think insurance — what it covers, how it’s sold and more — needs an overhaul. The industry is slow to react, and when finances, security and safety are on the line, you don’t want to be playing catch-up. Do I need insurance for my drone? What does a driverless car mean for auto liability? When the lines of coverage are blurred, it leaves a grey area of confusion at best and a complete gap in protection at worst.

The good news is that change is coming (and in some cases is already here). And the opportunity is too big to be ignored for long. Beginning in 2016, we’ll start seeing established companies and newcomers alike move to fill insurance coverage gaps being created by new technology and industries.

Current evolution

We’ve already seen changes come, slowly, to the sharing economy — the phrase for the industry that allows everyday folks to use what they already own (like their cars or homes) to provide goods and services to other people.

Take Airbnb, for instance. Many people don’t have liability coverage through their homeowner’s or renter’s insurance. If your insurer found out you were using your house as a makeshift bed and breakfast, your policy was likely to be canceled.

Now, though, there are more options for protection. Umbrella policies help cover a wider range of issues. Smaller insurers such as Peers are providing adequate insurance coverage. And even if Airbnb’s Host Protection Coverage and Host Guarantee only provide secondary coverage and don’t completely fill the gap in protection, they show that these companies recognize the need for such products. Leaving your customers out to dry isn’t the best way to build a business.

Technology isn’t slowing down and waiting for insurance to catch up.

Or look at Uber. There used to be a gap in insurance coverage where an Uber driver would be covered by their own auto insurance when they were off the clock, covered by Uber’s insurance when driving a passenger but covered by neither when they were looking for a customer. Just like with Airbnb, Uber drivers could get theircoverage canceled if they tried to file a claim when they were using their car for commercial purposes. Your best solution was hoping you picked up a whole lot of passengers to cover the cost.

But in the last few months, we’ve seen rideshare coverage expanding. First it was small companies like Metromile, but major insurers like USAA, GEICO, Farmers and MetLife are all stepping up to provide some form of rideshare insurance.

Room for growth

The sharing economy has begun to evolve, but there are new professional sectors around the corner that soon will go through the same growing pains.

Drones are going to take off in 2016. Even if we don’t get the long-hypothesized utopian drone delivery services we’ve been promised, they’re already in use in some industries; insurance companies, for example, areusing them to survey damaged properties. Some specialized companies provide commercial drone insurance, and earlier this year AIG was the first major player to offer their own insurance.

But personal drone use is still underinsured, even with the FAA predicting one million drones sold during the 2015 holiday season. As with ridesharing, there are use cases for which insurers simply aren’t offering coverage. Does your homeowner insurance cover drones? The answer is a case-by-case “it depends,” which is hardly helpful. The companies that provide comprehensive coverage for all facets of drone ownership, ranging from personal injury liability to hull and body protection, will find a lot of paying customers.

Rethinking auto

Even a sector that has a long history — auto insurance — could be due for a shake-up. Self-driving cars are taking a huge part of the insurance equation out of play by removing drivers, and a whole host of questions pops up with that: Who’s liable for damages? What will an auto insurance policy actually cover?

Some analysts think that car insurance premiums could drop as much as 60 percent in the next 15 years as computerized drivers take over and the number of accidents plummet (and we’re shown just how bad at driving we’ve been this whole time).

And that’s only for personal use. What about the additional insurance needs for, say, driverless delivery startups? Or the even more complicated scenario of two new industries merging as ridesharing companies come equipped with a driverless fleet? We’ll fundamentally be changing the way we interact with cars, and insurance will have to change along with it.

Will driverless cars hit the road en masse in 2016? Probably not. Ford is predicting 2020 at the earliest. But we’re already seeing the beginnings, and insurers should begin looking into their options now or they’ll find themselves on the outside looking in — again.

The Insurance of Things

A seemingly persistent problem for people across the globe are data breaches that put our sensitive personal data into the wrong hands. Corporations use data breach insurance to protect themselves from the costs associated with breaches, but it’s time for data breach insurance to spread to the masses.

As more and more devices connect online, the so-called Internet of Things, we find ourselves giving to cloud platforms more and more private data ripe for the taking. That’s why data breach insurance will be crucial for both manufacturers and consumers. As we’ve seen with, for example, the Target data breach, it can be costly for the companies who have been hacked to make corrections and satisfy customers’ need for restitution.

Data breach insurance will (and does) protect companies from liability costs, but only an estimated one in three companies has data breach insurance.That number is going to have to grow as the number of online devices do, or companies are going to find themselves in for a rude awakening in the form of lawsuits, fines and bad publicity.

And it’ll be just as important for consumer-facing insurance to come into play if and when personal or financial information is stolen and used against customers. With more and more points of failure introduced, from devices to kids’ toys to appliances and more, it will be important for this protection when the inevitable data breaches do occur.

But this additional insurance cost could be offset by the lowering of other insurances. With devices constantly online and talking, sending status reports to different parties, the risk of fire, flood, burglary and more are reduced. Car insurance prices will drop as vehicles become safer, and home protection costs will go down, too, as houses become somewhat unsettlingly self-sufficient.

So where do we go from here? Technology isn’t slowing down and waiting for insurance to catch up. But that just means there will already be markets ready to buy protection once insurers join the game.

And if they don’t? Well, there will always be newcomers who see a great opportunity. And that’s more dangerous to existing insurers than any exploding hoverboard.

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