October 9, 2017

5 Reasons we need a Granular Insurance Agenda

Sameer Datye

Head of Business Development Insurance and Wealth management, Tieto

The term ‘micro insurance’ is very common in developing countries and as the name suggests, covers very small risks. Its value proposition is simple and identifiable. Insurance companies find it interesting because despite the lack of any regulatory support, it still has strong consumer pull. Since it is driven by real needs, it results in deep market penetration. The consumers understand the value proposition which is very relatable to very specific risks. The small value of the isolated risks makes the insurance very affordable. The insurance company runs a "small-ticket & high-volume” business, often rather profitably! It’s a win-win situation for everyone.

In the Nordic context, affordability is not a primary driver and yet the concept of micro insurance stays relevant because of its other characteristics. There is a need to address it with a different name and paradigm. I have been talking about Granular Insurance which is better aligned with the more mature and developed markets out here.

Technology and distribution innovations have pushed insurers to look at ways of becoming more customer centric, and this has surprisingly resulted in the confluence in the insurance requirements of the richest and poorest societies of the world.  

Here are five reasons why insurance companies in the Nordics should look at a Granular Insurance offering:

Reason 1: Customer centricity

Granular Insurance like micro insurance is about extreme customization and granularity. Without bundling, the insurance becomes very customer-need-centric and affordable. In developed markets like the Nordics, a similar approach will help insurance companies connect with their customers beyond the mandate of legislation and even discover completely new market segments. For example, niche covers offered to very young people for elements in their life that they consider valuable (like mobile phones, wearables, data recovery, etc.) could be potentially sold as Granular Insurance offerings.

Reason 2: The invulnerability syndrome

The Nordic socio-political system and institutional structure have created a sense of assuredness or invulnerability where the perception of risk is diminished from what it actually is. The very concept of what is ‘valuable’ (and hence needs insurance) is changing. A granular approach will help insurers address the vulnerabilities emerging from changing societal needs in an agile way. Every generation joining the workforce has slightly different priorities and insecurities. Insurance companies will be able to fine-tune their offerings to address the invulnerability syndrome also with a positive message.

Reason 3: Disproportionate allocation of risk

Sharing/consumption/usage-based ownership has altered the total cost of ‘ownership’ of insurable objects. Do I really need a house insurance bundle when my five most valuable possessions are my phone, my bicycle, my headphones, my tablet and my data? Taking a page out of the micro insurance concept, products designed to allocate the relevant value to the visible and obvious risk can be achieved with a Granular Insurance agenda. 

Reason 4: Individualism

The ‘one size fit all’ approach to designing insurance products is now moving towards insurance products for a specific person addressing the specific risks for specific timelines. Granular insurance combined with technology and distribution accelerators will help insurers expose risks that suit individuals needs while hedging the risk of a group. This increases the ability of the insurer to become and stay relevant to the consumer. An individualistic approach will allow consumers to create their own bundles instead of a prepackaged product designed by somebody who has no clue what my specific needs are.

Reason 5: Digital Society

Finally, it is the very digitization of our society itself that has led to the need of a Granular Insurance approach. The consumer’s need and willingness to complete transactions over mobile devices lead to smaller transaction values. The awareness and perception of privacy needs and yet the willingness to share data leads to deep consumer insights. The growing sharing economy leads to the dilution of the concept of ownership and thus the concept of risk. Price sensitivity, extreme customization and distribution of risks are the same fundamentals that micro insurance is based on. The Granular Insurance agenda will help the insurers have the flexibility and agility to address the needs of the dynamic digital societies.

To sum it up, who would have imagined that there would be a similarity of interests between the insurance needs of say Bangladesh and Sweden? Leveraging the micro insurance concept in the markets of developed countries in form of Granular Insurance is an obvious low risk – high return proposal.

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Explore further

My previous blogs also spoke about the Granular Insurance concept:

The Four Horsemen of the Nordic Insurance Market

Insurance: Selling Fear! Selling Hope!

Tieto has created offerings to address the digital insurance startup phase in relation to Granular Insurance needs:

Insurance-in-a-Box digital startup solution

Tieto general and life insurance 

If you have any question, please feel free to reach out to me.

 

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