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HOME INSURANCE WILL CHANGE FOREVER POST-COVID

Matt Poll, CEO and co-founder of Neos

 

During the coronavirus crisis, insurers have seen varying claim levels, with those involved in business interruption, travel insurance, wedding policies and school trip cancellations being expected to pay over £1.5 billion in claims. Conversely, on the home insurance side, claims have plummeted as crime reduces and people are on hand to quickly react to any at-home disasters. Neos alone has seen loss ratios drop by around 40% which anecdotally seems to be the case across the board.

But how will this impact the long-term? Life as we know it will never be the same again, and as insurance is all about protecting “business as usual”, it will have to flex to suit the ‘new normal’. It will have to innovate and this innovation will no doubt come from the global insurtech market, worth $5.48 billion.

Narrowing in on home insurance, a drop in loss ratios may at first seem positive for insurers, but in the mid to long-term, this will mean we see claimants abandoning old-school home insurance. This is because:

  1. with more people at home and domestic incidents going down people may start to feel that basic insurance doesn’t provide the value it used to and will be looking for insurers that offer additional benefits
  2. pricing models are too rigid to reflect a post-COVID way of life that will likely see more WFH

In this article I’ll discuss how home insurance may evolve post COVID. Specifically I predict that insurers will work to satisfy consumer demand for insurance “beyond the basic” which brings them added value, both in the forms of new benefits and fairer, data-driven pricing models. This way of working also applies to small business insurance, as owners will be looking for new ways to protect their work space and livelihood.

 

Matt Poll

Fairer data-driven pricing

Recent insight showcases that pricing rating questions like “Occupied During Night” are not a true reflection of policy holders’ actual occupancy habits and lifestyle. For example 31% of people who were actually always at home had pricing ratings marked “occupied overnight” and 66% of people who were out at night were marked as “occupied day and night”. This was ahead of lockdown.

During lockdown, people were of course at home more often than not (unless they were key workers) so may have felt that their home insurance didn’t reflect their way of living. Post-lockdown, this sentiment will likely continue as people find they are living more flexible lives – half of workers expect to work more remotely post lockdown.

Consumers will be looking for insurers that can provide a bespoke model and smart home technology can help to facilitate this. Using geo-fencing technology, insurers can non-invasively measure when people are home, utilising user occupancy insights to offer more personalised pricings based on individual risk assessments and occupancy levels.

Cost as a differentiator is valued highly in insurance and will enable certain insurers to stand out from others post-COVID. The next section goes into more depth about the value that tech and services can bring to consumers on top of traditional insurance and these solutions are highly valuable to insurers as well, as an ancillary revenue stream.

 

Benefits beyond the expected

Insurtech’s purpose is to add new value through the use of technology to traditional insurance and while the sector remains relatively old fashioned, certain large insurers have already shifted their propositions to embrace innovations from the insurtech space. Post-COVID, we expect to see this happening on a much larger scale.

Smart home insurance is a great example of this as it promotes a new form of proactive insurance, which empowers the consumer to feel more in control of protecting their home rather than just being reactively reimbursed when an incident occurs. We surveyed the UK public and found 58% of people who have smart technology in the home value it highly because it enables them to proactively monitor for potential disasters like flooding or fire, and 80% love the peace of mind it gives them with the ability to monitor their home.

 

What does this mean in practice?

As lockdown starts to lift we are seeing law enforcement warn that opportunistic burglaries will increase, so having measures in place, like smart security cameras or motion sensors, is a smart move to make as we start shifting back to normalcy. As well, internal damage such as leaks could be occurring as people use their plumbing more frequently. However, with the right tech in place (such as leak sensors) people at home should be able to react more proactively than ever to quickly remedy any problems, preventing large insurance claims.

The “prevention rather than cure” objective of smart home insurance was poignant ahead of the pandemic. But now that many people are preparing for a life where they are home more, it is more relevant than ever as people are able to take a more hands on approach to protecting their homes.

Additionally, aside from protecting the home, the same research revealed 35% of people with a smart security camera use it to also keep an eye on their pets, 28% on their kids and 11% on their elderly parents when out or in a different room or property. It also creates daily user interactions, offering insurers a platform to engage with them as well as a superior experience for customers, resulting in longer-lasting relationships and a 7 to 9% higher retention rate.

Home insurance providers are also introducing benefits including 24/7 monitoring, home protection plans and on-demand emergency repair. What this means is that smart insurers are moving away from just giving money away when something goes wrong, to playing an active role in preventing incidents and helping to rebuild if anything does go wrong. This evolution of the insurance model is meaning insurers can achieve real incremental growth through this extended service-based model, which is a very important value generator.

In sum, insurance is going to have to adapt to remain relevant. Innovation takes time and money, but the insurance industry is lucky to have a rich ecosystem of insurtechs to join forces with – this is the fastest and most efficient way to stay relevant now as the industry continues to evolve into a future which may be more different than any of us can predict.

 

Business

BACK TO SCHOOL – CEOS NEED TO LEARN A NEW LANGUAGE, FAST!

By Simon Axon, Financial Services Industry Consulting practice lead in EMEA, Teradata

 

Chief Executive Officers of banks know all about change. Leading responses to new challenges, new opportunities, new regulation and new markets is all in a day’s work. But the existential challenge posed by Big Tech requires a totally new set of skills. It is an entirely different beast that inhabits a totally new environment and speaks its own language. CEOs now need to learn the language of data to survive in the emerging digital world.

Learning a new language later in life is hard. CEOs need to fully commit to accomplish it. Becoming data literate means mastering the basics of vocabulary and grammar. Gartner defines data literacy as the ability to read, write and communicate data in context, including an understanding of data sources and constructs, analytical methods and techniques applied — and the ability to describe the use case, application and resulting value.” Extending the language analogy: the building blocks are an understanding of logical data models – the basic vocabulary; meta data providing rules and information about data is the grammar.  Learning needs to go beyond parroting a few key phrases and acronyms. To really communicate in this new language CEOs must not only be data literate – but data cognitive. Language shapes thinking, and to succeed, today’s CEOs need to think data like digital natives.

Simon Axon

As anyone who has learned a language will recognise – practise makes perfect. This means rolling up your sleeves and getting into the data ‘lab’. Run some queries, experiment with data to test theories and learn how data can, and should, inform all aspects of business management. It is daunting, and different functions are fiercely protective of their data. But that’s one of the big cultural shifts the CEO needs to lead. Data is more valuable when it is used across the business. Developing safe and secure ways to combine, refine and analyse data at an enterprise level is fundamental to competing with Big Tech. The Chief Data Officer can help. Spend time with them and use them as a teaching-resource to get more familiar with what can and cannot be done with your data.

As you practise you will build confidence and move from school-level conversations to business-class data fluency. Spending more time looking at and working with data and you will begin to recognise ‘quality’ data, identify attributes and flag anomalies. This will build confidence and essential trust in data. Last year KPMG found just 35% of CEOs trusted the data in their organisations. This shocking stat undoubtedly stems from a data skills deficit among CEOs themselves. If they don’t know what to ask for, and can’t recognise what they get, they won’t trust it. To stretch our linguistic analogy, if you are not confident in the language then you’ll be anxious ordering food in a restaurant!

Ultimately, no one expects the CEO to personally implement data-analytics programmes across the business. But unless they have the confidence and the skills to accurately communicate what’s needed, to sit at the head of the table and ask the right questions about the menu, then the organisation is unlikely to put the right emphasis on the data strategy.

In How Google Works, former Google Chairman Eric Schmidt outlines how every meeting revolved around data – it is simply how Big Tech works. Banks need to adopt the same approach. Exploiting data in all scenarios must become second-nature. By modelling the use of data across the business – dissolving silos rather than sticking to narrow data sets that reinforce them, the CEO can define a powerful data culture. Operationalizing data strategy will, just like using language skills, stop data literacy from becoming rusty.

Entering any new market requires investment in understanding the language, culture and business environment. In the Big Tech world, data is the lingua franca informing every decision. Bank CEOs need to learn from them and invest in building their knowledge to become data fluent. There are no short cuts. Throwing money, bodies and tech at the problem will not get you there.

 

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Business

REVITALISING THE TOKEN MARKET

By Gavin Smith, CEO at Panxora

 

With interest rates near zero and fears that whipsawing stock markets are set for further plunges, many investors are turning to alternative markets in the search for returns. Money flowing into cryptocurrency hedge funds and trusts like Grayscale is at all-time highs and the large cap coins seem to be entering a bull phase, but that capital is not trickling down into new token projects. Why are blockchain token projects struggling to attract funding?

 

Seed investor scepticism

Setting aside the reputational issues with mainstream investors, even those educated in blockchain tech are not signing on the dotted line. This is certainly due in part to the hangover from the early token market.

During the heady days of 2016/17, investors could buy tokens during the token sale, and if the project was legitimate – even if the business case wasn’t particularly strong – prices would soar based on market enthusiasm. Early investors purchased at a discount and cashed out almost immediately for a handsome profit – and then repeated the process again. The token sale allowed founders to amass a war chest large enough to finance the entire token project – without having to give up a large chunk of company equity. Everyone got what they needed out of the deal.

Running a token sale is far more expensive today than it was during the boom. Getting the attention of the token buying public in a market where advertorial has replaced editorial is expensive. This coupled with a regulatory framework that requires the advice of accountants, solicitors and information gathering of KYC details for investors all comes with an escalating price tag.

To accommodate the change in cost structure, tokens now need to acquire funding in two rounds. Frequently there is a first round where capital is raised from a few, large investors. This cash is then used to finance setup and marketing the main token sale. The token sale, in turn, provides the capital needed to run the entire business project.

 

Bridging the gap between token projects’ needs and early stage investors

To successfully get a token through the capital raising process, founders must acknowledge the risk assumed by those very early investors and reward them appropriately. And given that tokens may stagnate or fall in price post token sale means that a deep discount in token price is not necessarily attractive enough to get investors to commit.

Many tokens have turned to offering equity in the business in the effort to raise that first tranche of capital. If you look at the number of successfully concluded token sales, the downward trend has continued since Q2 2018, so offering equity is not sufficiently stimulating the market.

 

Two sides of the coin

So, what is the answer? It’s a complex question but one thing is certain. Any solution must be rooted in a deep understanding of what both parties need to successfully conclude the deal.

On the one hand, token founders’ needs are clear: they need enough capital to get the token ready for and through a successful liquidity event that will provide sufficient funds to build the project. The challenge lies in striking the right balance between accruing that capital and making sure not to offer so much project equity that give up either the control or the incentive founders need to drive the project forward.

On the other hand, while the needs of the seed capital investors are more complex, there are two areas of key concern: transparency and profit incentives.

 

Transparency can mean many things, but almost always includes providing more informative cost and profit projections, as well as answers to a whole range of questions, not least the following:

  • What happens to investor capital if the token sale event fails? Token founders must be transparent from the outset. The token market is highly speculative and early investors run the risk of losing their money should the project fail. Therefore, investors require a well-established fund governance process in place throughout the fundraising so they can make informed decisions on whether the project is worthwhile. 
  • How are the assets for the entire project managed? Investors need to know that their money is in good hands and that proper treasury management techniques are being used to manage cryptocurrency volatility risk. Ideally, an independent custodian will be used to hold the funds and limit founders’ ability to draw down the capital – releasing funds to an agreed-upon schedule of milestones.
  • How are the rights of investors protected, for instance in the case of a trade sale? Investors need to know what happens if the company they are investing in is sold. What impact could this have on the value of their stake? Would a separate governance framework need to be established? These are critical questions and investors aren’t likely to settle for any ambiguity in the answers.

Profit incentives are important when it comes to encouraging early participation in a project. Investors need convincing that the proposition will keep risks to a minimum and focus on providing a strong probability of a return. This means that founders need to be able to defend the case for the increase in the value of their token.

But this isn’t the only incentive that matters. Investors can also be incentivised by preferential offerings such as early access to projects and services that might help their own business.

Let’s not forget that investors don’t support just any project. What really matters is that there is something special and unique about the business being underwritten by the token. Preferably something that could be shared upfront and directly benefit the investor – proof that the investment is really worth it.

And that’s what it all comes down to. Ultimately, while token projects are having a hard time finding funds at the moment, if they can prove their worth and provide full transparency and clear profit incentives to ease investors’ concerns, the money is out there. And deals can be done.

 

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