I recently read Who can you trust by Rachel Bostman and currently reading Blockchain Revolution by Don Tapscott. Don in his book defines “Trust in the business is the expectation that the other party will behave according to the four principles of honesty, consideration, accountability, and transparency”. 

Rachel Botsman in her book defines “Trust is the confident relationship with unknown”. There are known stuff and unknown stuff to us. The gap between known and unknown is what we refer to as risk. When there are no unknowns, when we can guarantee an outcome, there is no risk. Trust and risks are like brothers and sisters.

Insurance, of course, is just one in a long line of sectors and industries plagued by lack of trust. The problem is two-fold; First insurers do not trust customers. Insurance fraud costs billions of dollars of money for insurers. Second customers do not trust insurers. This is partly because of information asymmetry between carriers, intermediaries and customers. Interpreting insurance contract and clauses differs between stakeholders. Contract classes are not in layman language. Agents, brokers not always explain what is included and excluded in contract and clauses. There is no mapping of contract to claim. There is one big claim and one big contract. There is no traceability exists between insurer and the money paid by customer. 

The product complexity and readability of insurance policies further complicates the problem. Insurance policies are complex documents that require knowledge and experience to understand what is written in the document. Every word in the document can be subjected to more than one possible interpretation. And people do not have time to read through all pages of policies. Customers do no have voice in establishing the terms of the policy. He/she simply adheres to the policy terms as drawn by the insurer. 

Customers need to depend on the services of insurance agents and brokers to overcome skill related constraints. Agents take commission from the insurer, hence their interests are aligned to the company they represent. Customers do not know whether the agent has genuine interest on their needs or he will be inclined towards commission. Brokers on the other hand represent customers but they charge a fee for providing the services. The more complex service, the more the fee.

In the last 5 years we are seeing a new breed of entrants often labeled as “Insurtech” that shows signs of building trust in new ways to win customers. We don’t know yet if their promise of trust will last for long, yet there are interesting examples worth calling out.

1. Mobile Operators and Human Agents as Trust influencers

In many under-developed markets like Africa, Latin America there is a huge potential for new entrants because large incumbent carriers do not serve these markets. Their existing cost structure limit their ability to serve markets that fetch low premiums from low income segments. Exactly in these markets, new entrants such as BIMA, for example has introduced insurance products by partnering with mobile operators to distribute insurance. 54% of BIMA customers live for less than $2.50 per day and 93% live for less than $10 per day. 75% of BIMA customers are buying insurance for the first time. BIMA has partnered with mobile operators to simplify the customer engagement part of insurance. The process of signing up for insurance is automated without any paperwork. Customers can signup for insurance by paying via airtime credit (mobile call minutes). Moreover many customers do not understand why they need insurance. Hence BIMA also deploys 3,500 human agents hired from local communities who can help to educate customers around the concept of insurance and products. The mobile operators and human agents act as trust influencers. 

2. Ecosystem partners as Trust influencers

Rachel Botsman talk about China in the context of Alibaba in her book. 

“China is a society based on the concept of guanxi, loosely translated as ‘relationship’. Trust, in business as well as private life, exists between people in the same guanxi: family, friends and people in the same village. People they know well over time, in other words, not strangers on a far-flung planet called the internet. In fact, it is common to distrust people outside your own personal network. This can create a cultural impediment and business obstacle as people are more prone to avoid building new relationships where there is no close connection”. 

In this context, Alibaba and Tencent has built trust over the years with Chinese consumers. ZhongAn insurance is a new entrant who IPO’ed last year is unique because they have built alternative risk models by partnering with 200+ ecosystem partners piggybacking on trust through Alibaba and Tencent supply chain. 

3. Trust through brand promise

Lemonade insurance is a new entrant in US focusing on home owners and renters insurance. The core promise of lemonade is trust and transparency. For insurance carriers, building a brand is important. Lemonade is trying with a different way of building trust with customers through their brand. Keep paying claims, It’s not our money, charity giveback, transparency chronicles for insights into their financials are all examples of building trust with customers. It remains to be seen if they can hold-on their promise of trust during hard markets. 

4. Distributed trust via social media groups

Ever since internet and social media penetrated into our lives, we started to trust “word of mouth”, peer groups in our purchasing decisions. This trend is slowly entering into the world of insurance where online platforms are taking advantages of affinity groups.
Would you believe if an insurance distributor help you in finding cheap insurance for high risk customer segments like travel insurance for people who have pre-existing medical conditions like diabetes and cancer survivors, pet insurance for pug owners? 

Bought by Many is a UK based entrant focusing on niche markets that are not well-served by large incumbent carriers. By analyzing millions of google search terms and tapping into the social media groups, the distributor is able to identify unmet demands or frustrations with insurance. It is a win-win for customers and carriers. Customers see advertisement on social media or google, they click and become members of bought by many and join relevant groups. When the group is large enough, the platform helps in identifying tailored insurance products working with carriers or help in designing themselves. For carriers, it is a new way of tapping into Nonconsumption growth opportunities. 

5. Decentralized Distributed trust via blockchain

While there are many incremental innovations happening in blockchain world for insurance, the real transformational change will happen when we start to see risk as "risk markets". Imagine a Decentralized Autonomous Organization (DAO) that can intelligently subscribe to globally available risk pools and translate them into risk markets that can be subscribed by someone sitting in different geography. Risk markets can act as alternative investment for ordinary people to invest and get returns. AI agents can subscribe to risk markets and alter the pricing in real time. Insureds can get peace of mind and investment options. The intelligence can automatically create trust through smart contracts taking care of bad faith and moral hazard. 

We don’t know yet which way of trust will win in the longer run, that can help companies to build loyalty and retain more customers. One thing for sure is the fact that trust plays a vital role in insurance and if insurance wants to gets its mojo back of being a catalyst for new market creation, continuous engagement with customers to build and sustain trust is very critical.

This article was originally published on https://openminds.swissre.com