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How insurers throw their money away

Today the insurance industry is making the first moves in data-based and tech-driven approach to its operations. The insurtech market is witnessing new prospective projects as they enter the environment, providing cost-effective and value-adding offerings. Despite the evident advantage of embracing technologies, there are still conservative market players, whose nihilistic attitude towards innovations remains unaltered. Well, the conservatism or misoneism is sometimes stylish and useful. But in case of insurance industry the denial of tech has serious implications and they boil down to losing money.

Speaking of the overall expenses of running the insurance business, they are presented in the total of the management expenses plus the commission paid to the intermediaries. The latter is usually fixed percentage of the charged premium. For decades insurance sphere has been increasing their complexity as a result of merger and acquisitions as well as product proliferation. The complexity literally means higher costs. Going back to the overall expenses ration it is essential to trace the drivers of operating costs. Still many insurers are sure that certain costs are integral to their business model and they cannot be changed.

It may sound surprising but experienced insurers know what makes this industry so expensive: it is management. The insurers are constantly confronted by challenging economic climate along with the low-interest-rate environment, customer cost consciousness, greater price transparency and regulatory aspects. Thus, profitability of the traditional insurance entity is slightly above the equity cost, making cost a critical component in pursuit of competitiveness.

Insurers can provide different excuses of the cost gaps between them and their peers, such as fixed factors related to business model decisions: product mix, geography, sales channels etc. The researches undermine that excuse and reveal the following: usually it is the management that matters the most. There are four causes that explain the failure to optimize the immutable cost drivers: business complexity, operating model, IT landscape and performance management.

Insurance carriers with huge product portfolios, numerous brands and channels are those with the highest costs — this refers to business complexity which usually comes along with inadequately high price of the contracts. High-cost players are characterized by absence of consolidated setup of operational units. They usually have their functions scattered from here to there in different locations which imply different processes and governance structures. This aspect leads to workload backlogs, that are followed by low customer satisfaction which inevitably results in financial losses.

Fragmented legacy IT-landscape is the major cause of inability to leverage economies of scale. Insurance carries with complex legacy systems tend to high IT spending and low productivity at the same time (this is juxtaposed with streamlined IT). Performance management concerns all the levels and drives cost outcomes through all of them. This is attributed to the absence of the sustainable performance-management approach — readiness to make changes simultaneously whether it is mindsets, behaviors, process design and make them cascade through the entity.

Insurance fraud is another factor that makes the industry quite expensive.
There dozens of inquiries in Google with people asking the same question: why is car insurance that expensive? For years insurance has been fighting the detrimental losses from the fraudulent activity actually at the expense of law-abiding and conscientious drivers in the form of high premiums. In other words, the good drivers have been the sponsors for the bad ones and their creativity.

go2solution(Kasko2go) app is based on the distillation of the cutting edge technologies: telematics, military grade AI, photogrammetry just to name a few. The reconstruction of the insurance industry we are busy with is in making insurance digitalized and smart. Using blockchain as the spine of decentralization, we provide P2P insurance, eliminating the entire chains of intermediaries. As the pioneers of the smart insurance we think about the driver and we are truly interested in making his life better and driving safer. Kasko2go motivates an individual to rethink his habits and become better and these changes result in cost savings, because better drivers pay less.

I have to tell you that there is no going back to the old days. The complex and arcane legacy systems along with the outdated business models have not justified themselves. Technology has been redefining the growth of the industry: joining the digital movement is the key to positive customer experience, a tool for safe data storage, usage-based insurance lets us predict and expect rather than simply react, and AI algorithms detect fraudulent claims. All in all, conjunction of tech in go2solution(Kasko2go) app provides new insurance with no superfluous movements, no extra costs. Just ease, preciseness and credibility in one click.

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