How the rise of insurtech is changing the way the insurance industry does business (and other things event organizers should know)
You might be asking yourself, why should I care about insurtech? What does this have to do with my job? The short answer, everything. Now, more than ever, event insurance is the key to putting on a successful event. In the absence of availability through the usual channels, governments around the world are being pressured to develop insurance schemes that will enable the live industry to return. One of the last remaining barriers for the event industry is the assurance that if everything goes wrong, the thousands, hundreds of thousands, potentially millions of dollars you’ve invested won’t be entirely lost.
Before COVID, purchasing a cancellation policy was often an afterthought, nothing more than a necessary evil for a worst case scenario. Since 2020’s mass cancellation of events, it has been brought to the forefront of the conversation. Even the best laid plans can encounter obstacles and the unimaginable can become reality (case in point). Buying cover is a painful process during the best of times and, quite frankly, we don’t blame you for putting it off as long as possible.
In many ways, the pandemic has forced us to embrace technology on a whole new level; using FaceTime to chat with your (at first, mystified) grandparents, sorting legal contracts with digital signatures and live streaming concerts to keep us entertained. The silver lining? Industries that have been historically resistant to change and digitalization (namely insurance and to a certain extent, live entertainment) have also been forced to adapt and implement tools not only previously ignored, but seen as detrimental to their culture of doing business. As tech is becoming increasingly embedded into our lives, many leaders in both industries are recognizing the importance and value of incorporating a more modern approach to doing business.
First things first
What exactly is an insurtech? Simply put, it’s a company that uses technology to make one (or more) insurance related processes better. Insuretechs may focus on streamlining operations, reducing costs and/or improving the customer experience.
We’ve seen so much tech innovation in just about every other industry but, until recently, insurance has remained largely based on old systems, clunky processes and a sub-par customer experience. Insurance is late to the party and has a lot of catching up to do.
Still with us? Great. So why are insurtechs so important right now?
In the insurance industry, there is a gap between the amount of potential losses (i.e. money spent and lost revenue) and insured losses (i.e. the maximum paid out for a claim), aptly called the “protection gap”. In other words, many items are not insured that really should be, either because no one has insured them or the insured amount is too low.
How come it’s there? Much of this gap stems from the evolving world in which we live. New risks emerge every day, and it’s tricky for insurance companies to keep up with the cover that customers need. One such hot topic is cyber insurance, which is still relatively new (in insurance terms) and not all the traditional insurers feel they have enough information to offer this protection. A lot of customers (particularly small businesses, like many event promoters) still don’t know what it is, or realize they need it, until it’s too late.
But a large chunk of this gap exists because companies and individuals underestimate how much is at risk when buying cover. This is a huge problem. Let’s consider a real world example. You have a festival planned for later this year. You’ve begun securing contractors to build the stages, take care of the lighting and even hired security to man the event. You expected total expenses to be around $600,000 when all is said and done, and took out cancellation cover for this amount. Tickets have sold out and you stand to make bank. Unfortunately, at the last minute you have to cancel because mother nature can be cruel. You are compiling the necessary information to submit your claim and you come to the heartbreaking conclusion that your policy will only cover 75% of your total expenditure ($800,000) putting your entire business in jeopardy. (For you visual learners out there, see “Underinsured Stuff” below.) It has become impossible for you to make payments to suppliers and contractors for work already completed resulting in legal proceedings and the collapse of your company. See? Huge problem.
In a perfect world (well for many economists anyway) the protection gap would be zero, meaning everything that could be insured, is. Currently, the market estimates the protection gap to be a jaw-dropping c. $1.2 trillion. So, there’s A LOT of stuff that isn’t covered by an insurance policy right now.
How can this discrepancy be so common? Well, there’s another type of gap, the information and trust gap. It’s the disconnect between what insurance companies currently offer customers, what their customers really want, what they really need and the lack of transparency amongst it all.
Largely, insurance is something purchased (or renewed) once a year, with little interaction and opportunity for customers to learn about what they’re actually buying. Even though cancellation insurance is purchased more frequently, having the specialist skills required to fully understand and accurately estimate the cover required for an event is rare. It’s common practice to rely on the advice of brokers, who aren’t necessarily risk experts either. And when things do go wrong, consumers aren’t always convinced they’ll be made whole. The recent Business Interruption court case in the UK is a prime example.
So, what do these gaps mean for the insurance industry? More innovation! Smart insurance products for new and evolving threats, plus solutions to help customers better understand and manage their existing risks, will result in the narrowing of the protection gap. Where will this likely come from? Competition from insurtechs. And what does competition mean for event professionals? PRIZES!!!??! Probably not, but it could mean:
- More transparent policies
- Tailored and flexible coverage
- Competitive pricing
- Innovative (and proactive) risk solutions
- Simplified processes and more digitalization
Tech has revolutionised our expectations for service - from buying a book, to how we socialize, to hailing a cab (remember them?!). Insurance products still don’t quite fit the bill for the customer, and the protection gap means there’s a huge opportunity there for investors, but don’t take our word for it. 👇
A look at the $$
Bear with us for a minute while we talk numbers (it’ll be quick, we promise). Amid the pandemic, investments have continued to flood into insurtechs and reached a record high in 2020.
Big investments are a good sign, especially during such a crucial year. Why are we telling you this? Investors showing extreme confidence in insurtechs is likely to have positive implications for the insurance sector that services events, like having an embedded insurance solution in your event planning tool (more on this in the coming weeks!).
See that wasn’t so bad, was it?
So, what’s next?
The insurance industry is (finally) embracing tech and evolving because of it. The next few years will see further change to the experience of purchasing, using and claiming on a policy, all of which should benefit you, the customer.
You might know a little (or a lot) about how insurtechs have driven auto (see what we did there) and healthcare products forward with smart activity tracking, for example. Next up we’re going to explore the most important upcoming changes to the industry and how insurtechs are looking to disrupt insurance for event organizers.