The story of modern insurance is a fascinating history of disruption
It all started one balmy fall evening in 1666, when Thomas Farriner, a baker who often supplied bread to the Royal Household closed up his Pudding Lane bakery for the day.
He raked up the coals in the bakery hearth (as was his evening ritual), and went up to bed.
By all accounts, it was a typical evening.
Only this time, things were a bit different.
A stray coal probably fell off the hearth and ignited a small flame that quickly spread through the tinder-dry house. Farriner’s assistant, who woke soon after, found the bakery completely filled with smoke. Panicking, he crawled upstairs and roused the sleepy baker, his daughter Hanna and their maid.
Meanwhile, the fire had spread throughout the entire ground floor, blocking their exit. They were trapped.
Fortunately, they managed to climb out of a bedroom window and into their neighbour’s bedroom. Farriner’s daughter was badly burnt, but was saved.
In the end, their maid was left behind, too petrified of heights to scramble over the window ledge.
She died, the first casualty of the Great London Fire.
London had just suffered through an incredibly dry summer, with most of the city being built out of tinder-dry wood and straw. The Fire spread almost instantly, resisting local citizen’s efforts to put it out with buckets of water.
For the next 4 days, London burned constantly. Although few people died, the property damage was immense. At final tally, the material destruction was computed to be 13,500 houses, 87 parish churches, 44 Company Halls, the Royal Exchange, the Custom House, St Paul’s Cathedral, the Bridewell Palace and other City prisons, the General Letter Office, and the three western city gates — Ludgate, Newgate, and Aldersgate. The monetary value of the loss, first estimated at £100,000,000 in the currency of the time, was later reduced to an uncertain £10,000,000 (over £1 billion in 2005 pounds).
In the dying embers of the Great Fire, a new concept was born — the idea of modern property insurance. The devastating effects of the fire converted the development of insurance “from a matter of convenience into one of urgency, a change of opinion reflected in Sir Christopher Wren’s inclusion of a site for ‘the Insurance Office’ in his new plan for London in 1667”.
While, a number of attempted fire insurance schemes came up and went bust, it was in 1681, that the economist Nicholas Barbon and eleven associates established the first fire insurance company, the “Insurance Office for Houses”, at the back of the Royal Exchange to insure brick and frame homes.
Initially, 5,000 homes were insured by Barbon’s Insurance Office. It was a smashing success and led to many more insurance companies offering various products.
In the United States, Benjamin Franklin became one of the first to introduce modern property insurance with his company, the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire — which introduced much of the foundations of the modern insurance industry, with concepts like inspection of properties to be insured, and setting rates based on a risk assessment, as well as setting aside a financial reserve to pay out claims.
While a lot has changed in the insurance industry since, we are once again in the midst of a disruption, a game changer.
Welcome to the world of On-demand Property Insurance.
The new disruptors
The insurance industry is getting new players. Trov. Lemonade. Sure .Slice.
All four are newly emerging startups, have raised a collective total of $155.2 million and are poised to become insurance giants themselves. Investors are betting big on a couple of massive generational movements in the market.
Firstly, as millennials start entering the workforce and have their disposable income rise, they’re much more likely to purchase expensive (or big ticket) items like smartphones, and household appliances, among others. One of the big opportunities here is to upsell cheap personal effects insurance on-demand.
But, millennials also eschew traditional channels of engaging with insurance providers, preferring new, cheaper, or on-demand methods of buying it.
So basically, insurance providers need to re-imagine the way they engage with millennials.
Enter Silicon Valley.
Why is this a thing now?
Well, a couple of things have changed in the past 4 years. Firstly, a lot more people are purchasing on their mobile phones — the so-called “mobile wallet”. You now have a entire section of the population who are completely comfortable buying stuff on their phones — from ordering a Lyft ride to having your groceries delivered via Instacart.
Mobile phones have something unique to them that wasn’t previously available for traditional insurance providers: Cameras
In order to be able to adequately assess an item for insurance, the underwriters would need to know a) the item they’re insuring, and its condition, and b) the replacement cost of the item
Smartphones are completely capable of delivering both to the insurance company. Within the Trov app, for example you can scan the barcode of the item you’re looking for (or search by keyword) to fetch the full product specs:
Once you have the full product specs, the user has the ability to generate insurance quotes and have them protected:
Additionally, because everything is stored on the app, users can also easily file claims using the app’s chat bot
The heady all-in-one package of being able to register your product, get a piecemeal insurance quote for that particular item, purchase the insurance on-demand and file claims is targeted squarely at millennials.
Kind of like a unicorn rainbow butterfly cat.
This is precisely why on-demand insurance is going to be big. The mobile commerce revolution is making purchasing insurance easy and pleasant — even to the extent of insuring your stuff not only in perpetuity, but in shorter periods of time (say when you go on vacation).
The key is innovation
In the end, the ultimate gamechanger is going to be how to pitch what is typically a very boring, staid product — insurance in a way that is exciting, and actually useful to users.
Lemonade, for example has a chatbot interface, underwrites its own insurance, and is registered as a Public Benefit (“B”) Corp.
Sure, on the other hand, targets air travellers with time-limited insurance that is cheap, and uses mobile micro payments to cover the specific time periods when they are actually exposed to the underlying risks — so-called “Episodic Insurance”
And finally Slice Insurance which also offers episodic insurance for Uber and Lyft drivers that only kicks in when the driver starts a ride.
TL;DR: The mix of on-demand, episodic insurance products that only kick in when you need them to, with the ability to purchase coverage with micro mobile payments via your smartphone is creating an entire insurance industry where the possible permutations and combinations of insurance products to serve every possible scenario and user is endless.
Insurance companies are excited about this too
Insurance companies are incredibly excited about this too — because they get to be the underlying underwriters for many of these innovations (with the exception of Lemonade).
Not to mention the amount of investment capital flowing into this space — $1.7 billion in 173 deals in 2016 alone
So how can we help?
We work with Trov as their primary source of product data for generating insurance quotes.
If you’re interested in integrating our APIs into your application to pull product and pricing data via UPC, keyword or purchase URL lookups, check us out!
We also work with insurance companies on related property and personal effects insurance products that use our pricing and product data to generate quotes.
PS: Since you read all the way to the bottom, here’s puppies for you!
Like what you read? Subscribe to our newsletter today!Check out Semantics3 with a free trial.