Jul 18, 2018 3 min read

Why smart policy wordings need to be handled with care

The end of the off-the-shelf insurance policy is said to be nigh. Everyone will of course throw up their hands with joy at the thought of overblown wordings with strings of sometimes relevant endorsements being no more. Yet be careful what you wish for. The new smart policy wordings could present some uncomfortable surprises.

A well know insurtech firm called Trov recently announced the reinvention of the insurance policy. And in a LinkedIn article, their CEO highlighted the ease with which items could be added: at any time, in any place, with just a swipe on your phone.

And this type of smart policy then facilitates the automation of claims, with a swipe to report and a chat bot for the details.  It even allows your sums insured to automatically adjust to changes in value.

Smart Insurance has a lot going for it

The notion of smart insurance has a lot going for it. However, what emerges from this sort of innovation will be hugely influenced by how insurers decide to deploy it. And those decisions will undoubtedly have an ethical dimension.

Trov do a good job of presenting the benefits of their smart policy wording. Yet in doing so, they also expose a darker underside. By emphasising the speed and ease with which items can be added to cover, they also remind us of the speed and ease with which items could be removed from cover. And not just that: the cover itself could be removed as well.

As with many technologies, it’s just as easy for a smart policy to be used in the interests of the insurer, as it is for it to be used in the interests of the policyholder. Which of those two options gains most traction is the output of a largely ethical decision process.

Clever Language

Trov uses some clever language to make its case. It talks of their smart policy wording being delivered through “complex data and tech-pipes”. That reference to tech-pipes makes us think of a mechanical process engineered in a traditional way. Yet it also acts to mask the still very ethical decisions that their systems will be handling. This is not plumbing we’re dealing with here.

Smart policy wordings do of course cast Trov in a bright, innovative light. And why not, you might ask: it’s undoubtedly a clever piece of work. Yet commanding the narrative in this way is important to start-up firms for more strategic reasons. They need to maintain an image amongst customers of being innovative, convenient and clever, while at the same time securing a reputation amongst investors of delivering those much needed financial returns.

Smart policy wordings help with this considerably. They introduce a flexibility to cover that can underpin a manageable combined operating ratio. If losses go up, they introduce the option of reducing cover, so avoiding the reputationally less palatable option of increasing premiums. They can do this because movements in cover are less transparent, less headline, less immediate, than movements in premium.

Make Sure They Deliver Value

So smart policy wordings help sustain that narrative of success. And they do so even when not delivering very smart cover. Trov give examples in their article of cover that very much resembles old-for-old cover, which the market has almost entirely moved away from providing.

Consumers will grow to find smart insurance solutions like this attractive, so long as they deliver value. For insurance, that value is largely realised at the point of claim. Is the cover you expected actually there? Could the claim going to be turned down in seconds? And will there be anyone to explain to me how this decision has been reached?

Smart policy wordings sit alongside personalised premiums and micro periods of cover as focal points for the individualisation of insurance. And what insurers have to remember is that such developments do not sit in isolation from the social, economic and political contexts within which the insurance sector operates. They won’t succeed just because they are ‘tech smart’. They will succeed if people gain value from their use and trust the provider.

Smart is fine, but should not be automatically associated with best, or sometimes even good. Insurance firms can at times lack a critical eye on how developments are weighed up. Insurance executives need to be ever on the watch for their insurtech projects becoming overtaken by behavioural biases like group think or ethical fading.

Duncan Minty
Duncan Minty
Duncan has been researching and writing about ethics in insurance for over 20 years. As a Chartered Insurance Practitioner, he combines market knowledge with a strong and independent radar on ethics.
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