In the past few years, the banking industry has been transformed almost beyond recognition. After remaining virtually unchanged for years, many customers are no longer reliant on physical branches, able to bank and budget from a smartphone and computer, with banks under pressure to keep pace with the digital offerings of challenger or digital-only banks.

With that in mind, it is surprising that another key element of the industry, the insurance sector, has not followed suit.

According to global management consulting firm Accenture, insurers are now under pressure to “evolve and reinvent themselves before disruption, caused by emerging technology and insurance startups, overtakes them”.

However, a study by PWC has found that only 28% of the insurance industry has explored partnerships with fintech companies and less than 14% actively pursue insurtech programmes.

One company trying to change this is By Miles. The company is the first in the UK to offer pay-as-you drive insurance, and with its simple model of only charging customers for what they use (plus an upfront cost to cover the vehicle when it is parked), it is hoping to be one of the driving forces in giving insurance a much-needed update.

By Miles co-founder James Blackham told Verdict that due to a lack of innovation, insurance is now playing catch-up. With the likes of Monzo and Starling shaking up the banking sector, challenger insurance may be next:

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 “We were thinking about the insurance industry and if you think about the overall space of fintech, in banking you’ve got people like Monzo coming up and challenging established banks. We felt that nothing had really changed in the world of insurance and particularly car insurance.

“Direct line came around in the 1980s and meant that you could buy the products over the phone instead of going to a high street broker to buy it, and that was an innovation, and then comparison sites came along and you can buy it online, and that was an innovation but you’re still buying the same thing. Nothing’s really changed and you ask customers their perception of the products and its pretty awful. So it’s similar to banking in that the circumstances are right for new banks to come in and offer stuff.”

The insurtech revolution

One way to ensure it keeps up with the demands of modern consumers is through insurtech. A subset of fintech, insurtech utilises automation, apps, and wearable devices to  analyse and interpret insurance data to provide a service based on customer wants and needs, updating an area that until now has lacked personalisation.

It may be difficult to transform insurance into a product that appeals to consumers, but Blackham believes that through embracing insurtech, insurance can go from a necessary expense to an innovative product that consumers are more eager to interact with, in the same way that many consumers have taken control of their personal finances through fintech services:

“If you buy car insurance, you buy the same product that our parents’ generation would’ve bought. It’s seen almost universally as something that is disliked, and that’s unfair so we set out to apply a similar principle [as digital banking] to create products that customers love and trust and are fairer in the insurance industry as there hasn’t been any innovation or disruption so far.

“The opportunity is there to take an unloved consumer product that touches just about everyone in the UK…that really hasn’t changed in 40-odd years.”

By Miles is re-thinking how car insurance operates by enabling drivers to pay for what they use rather than a flat rate. It also utilises insurtech to offer a range of features, empowering customers to make insurance work for them:

“The mobile app allows you to see all the journeys that you’re doing in real time and see how much you’re spending. There’s a whole load of other features that we have made available. The miles tracker can turn your own car into a connected car. With features like find my car for example…we’ve got a function called car medic which will be able to tell you what a problem is and this is how serious it is. There’s a whole bunch of value-added things.”

As with banking, it may soon be necessary for insurance providers to offer a wider range of digital options such as this, or risk becoming irrelevant for younger consumers. With startups rethinking how insurance is done, traditional insurance brokers are under pressure to up their customer service offerings, tailoring products to match a variety of needs and make them immediately and easily accessible. Consequently, a report by Accenture reveals that investment in insurtech has doubled over the past year.

Blackham believes that the rise of disruptive technology such as driverless cars and car sharing will make a shift toward a different model of insurance necessary:

 “If you listen to what car manufacturers are saying, they are putting billions into connected, autonomous, electric and shared, and specifically around autonomous and shared cars…in that world insurance naturally has to become more use-based because if I’m on a journey and the whole journey the car is driving itself, or 90% of the journey, you don’t want to be paying insurance for that.

“That’s not on me – the only time I want to pay for insurance is when I’m behind the wheel. So that’s usage-based. And in a sharing economy, I own a car but I never drive it myself as there are other people driving it under their own insurance then I don’t want to be paying for driving risk, I only want to be paying for parked car risk. In general, to realise the vision of car manufacturers, insurance has to change as well.”