Apr 26, 2023 6 min read

The Insurance Complex: A Bleak Future?

Insurance is becoming a performance market. For insurers to compete, consumers must perform, at first for a competitive premium, progressively for enough cover and eventually for access to the market. What emerges then is ‘an insurance complex’ that defines relations with consumers and society.

insurance complex
Is insurance creating a bleak landscape for itself?

This ‘insurance complex’ has been emerging for a while, but it is now growing, and hardening, in ways that tell us something about how we as a sector will be seen and judged by society. It is an ‘insurance complex’ that is emerging out of how we see and judge society. It is thus something done by us, which turns into something done to us.

Are we prepared for all that will come with this? Are we prepared as a sector for the economic and political consequences? Do we want that for ourselves, both personally and professionally, individually and collectively? Drifting into it unawares would be a tragedy.

Two Performances

Let’s start with that notion of ‘customers must perform’. There’s two ways to read this. Perform can be as in a concert or dance. And perform can also be as in to achieve or deliver. The digital transformation of insurance encompasses both.

That expressive form of performance is about how we live and function in our day to day lives. In other words, how we live, drive, eat, sleep and many other things. This is what insurers are beginning to track through the internet of things, such as in telematics and driving, or a smart watch and our health. Our performances are interpreted as aspects of what insurers think of as our character.

I say ‘think of’ because despite an apparent sophistication, they amount to no more than a string of data points measuring a welter of micro-proxies for who we as characters really are. Let’s put that aspect aside for the moment though (although more here).

The achievement form of performance begins with how we are then rated by underwriters. The more comparability those digital systems provide underwriters, the more that rating then evolves into performance. How good was my driving? How did it compare with others? In what quartile did my exercise place me? Was my sleep good enough?

We see signs now of anxieties around such performing. Did my gym activity today earn me the correct amount of points? Should I go out for a walk now in order not to lose a ‘ten thousands steps’ day? I must tell the insurer that I was only braking suddenly to avoid hitting a dog that ran across the road in front of me. I've just got to get in another eight hour sleep before the month end.

Ranking Next

It's not long before this orientation around performance evolves into a ranking of our performance. Am I in the top 100 drivers list this week, and if I am, what is it worth for me? Where am I on the ‘ten thousand steps a day’ league table?

‘Isn’t this all so motivational, so life affirming’, purveyors of such systems often remark. And it can be in some ways, for some people, especially amongst early adopters who value such feedback. They feel so much more in control of their lives from all this.

Yet beyond those early adopters, the ‘datified lives’ enthusiasts, there is a large chunk of the population starting to take part in this performance engagement, initially because it’s new and in vogue, eventually because everyone thinks ‘it’s the way things are going nowadays’.

So how much control do consumers have in such insurance arrangements at the moment? They have some control, for insurers often introduce such arrangements on the basis that you can stay with the new if you prefer, or switch back to the old way if you don’t.

Such a choice will not last forever though. As insurers become more confident in manipulating those digital flows within underwriting frameworks to deliver revenue and profit targets, the choice will diminish, before disappearing altogether. Control is flipped over to the insurer and while some motivation to participate remains, it’s not the same as it used to be.

Bottom of the Table Too

Performance is not just about the top of the table. The bottom of the table has to be addressed too. Two thousand years ago, the Roman army killed the bottom ten percent performing soldiers in each legion (hence decimation), as a motivational method for greater success in the next battle. Investment banks today do something similar, fortunately with only jobs, not lives, being lost.

The equivalent that will emerge in modern digital insurance is competition for cover. Only those who are above a certain point in the ‘risk character’ performance table will have access to full cover. Those less favourably scored will find elements of cover dropping away, perhaps even facing demotion to a basic policy league. Something like this is already happening in energy markets.

What we then have is competition for cover. And this won’t be annual. It will be continuous, as real time underwriting keeps us on our performance toes, feeding on our streams of live data. It has to be this way, insurers say: everyone else is doing it. If we didn’t, we would be bound to lose revenue, market share, the best talent. Competition amongst insurers, to grow market share, to lower COR, to be in those top three quotes, drives the market on.

I’ve written before about how the sector’s use of data is signalling a move towards pre-vetting consumers for risk performance, for moral character, for profitability. If you pass the period within the parameters of permitted behaviour, then insurance cover options are introduced, subject of course to lots of data being made available. No or little data means little or not cover. Remember that reinsurance manager’s article from several years ago : “No Wearable ; No Insurance”. He was being serious.

A Risk Assessment Business

Insurance is evolving from being a risk transfer business, into a risk assessment business. Why bother covering the riskier people, when they can do that for themselves. Even better, they can buy the tools to do so from us. That’s an established innovation narrative within the market, both UK and abroad. After all, providing risk cover can sometimes have its financial ups and downs. Better to reduce the cover and have consumers compete for access to the market, access to the cover they need, that they can afford. It’s a private market after all.

Finally, let’s not forget that trend towards predictive underwriting. If science can help us predict people who are likely to produce more claims, then why not fund more such research? This will help such people understand their predicament much earlier. And insurers too.

All of what I’ve set out above features in some way or other in current sector thinking. Insurance has moved from rating, into performance and is engaging with ranking and competition, amongst insureds. The person is no longer of particular interest. The digital system deals with them, even on the phone. Their performance is accumulated into the firm’s performance, on time scales ever smaller, ever more ahead.

This creates a world of its own, a reality of insurance that is performance driven, with the insurer and the system they design firmly in the driving seat. Consumers progressively conform, in order to unlock that risk transfer and enjoy more of life as a result. Outlying behaviours, activities, even statements become too expensive. Irony, even humour, comes at a cost.

The Insurance Complex

And from this evolves ‘an insurance complex’, in which what we get up to in our lives become a constant wrestle over the premium and cover implications that might result. Say the word caving in a social media post and your life premium jumps in response. Drive home too late and your cover could end – well, that was removed as a feature of telematics policies as a result of the publicity following some unfortunately deaths.

The ‘insurance complex’ introduces a form of permanent performance anxiety. It is supported by three things. Firstly, the embeddedness of insurance across society – we need it much more than we often think. Secondly, the move towards real time and near-future time underwriting, supported by clever analytics and lots and lots of data. And thirdly, the core insurance principle of merit, which boils down to something along the lines of ‘you get what you deserve’.

Turn that ‘insurance complex’ around a bit and what it can also look like to observers, feel like to consumers, is at best a form of surveillance technology, at worse a form of financial and social policing. The overall outcome is not the healthy, encompassing type of relationship that the sector talks about wanting to have with the public. Pretty much the opposite in fact.

And therein lies the challenge for the sector. How to digitally transform and not be damned in the process. We have not yet found the form of insurance future that I feel the public wants to share with us. At the moment, what we have is something that we think the public deserves. The problem is that I don’t think the public will accept a ‘take it or leave it’ position. And so, for insurers, then what?

This article was inspired by the introductory chapter of "The Performance Complex: Competition and Competitors in Social Life", edited by David Stark, Oxford University Press (2020).

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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