How The Disruptors See Insurance

Mostly as a data aggregation exercise,  saying something like: “If we get enough of the right data we can price any uncertain process.” see for example this a16z.

This is only one half of insurance,  however, and ignores underwriting,  or the detection of moral hazard.

In gambling terms, insurance is a bet that people are making at a table where they are the dealer. For most circumstances interests are aligned,  which is why insurance works most of the time. But underwriting exists for a reason.

Now I’d be dismissing the Disruptors too easily if I left this argument here. They make their living proving insiders who lean back in their chair sounding smart wrong.

Some consumer lines are very data driven, like auto and homeowners. But these are stifled with regulation and incredibly competitive anyway. My understanding is that at least one venture backed startup in online distribution has fallen down on regulatory concerns. A tough industry to disrupt.

2 thoughts on “How The Disruptors See Insurance

  1. and don’t forget adverse selection. You may think that you have a competitive pricing advantage, but in this day and age customers are very savvy (with price research being “one click away”) and they will find value. High risk insureds will desperately find the sucker who will take on their risk at the lowest price.

    In my business (Nat Cat), you can be right in pricing and get no business OR get all the business and be in trouble either way. Portfolio and risk management goes hand in hand with underwriting.

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