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How Spotify’s business model describes the future of insurance

August 29, 2019   by Jason Contant

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Forget everything you know about insurance. That’s what the insurance product of the future will look like, says Tim Attia, CEO and co-founder of New York City-based Slice Labs.

“Insurance will have to be like Spotify,” Attia said, referring to the audio streaming service. “You just register and you’re protected. You can’t come to the table with standard insurance products.”

Attia spoke at the Executive Forum in Toronto Wednesday. He was asked a question from the audience: What does an insurance product that doesn’t exist today, but will have to exist in five years, look like?

More and more, insurance is going to be embedded into another value proposition or service, suggested Attia. “I think it’s going to be hard to recognize the traditional products we see today,” he said during the session A Peek into the Future of Insurance. “They’re going to completely depart from how we see traditional insurance products and processes.

“On-demand, the way Uber is on-demand,” he predicted of the form that future insurance products will take. “[For Uber,] you tap on a button and a car shows up. [For insurance,] we don’t think it can be tap on a button, fill out 10 pages, call a call centre, and wait two weeks. It doesn’t fit the customer experience.”

Attia used the example of an Airbnb product in the United States that is on-demand with only two transactions: register and buy. The product is underwritten at registration, “another important differentiating factor,” he said.

“In the insurance industry, you’re only a customer when you have a policy. We have to break that connection; we have to break that mold. You’re not only an Amazon customer when something’s being shipped.”

Another important distinction is that there will be no premiums, coverages, or even policies in the standard sense, Attia said. Using the Airbnb example, he said the “policy” has 18 “coverages” specifically created for the Airbnb host. Added in is protection for “overages and utilities,” after some hosts said that people came in and used up all of their utilities.

How will claims be handled? Possibly in a parametric fashion. Parametric insurance solutions generally do not cover a pure loss after it happens; instead, they involve an agreement between parties in advance of a loss about what types of occurrences will trigger a payment. The payment will be triggered once the agreed-upon values are reached.  For example, a payment for a hurricane loss might be triggered once wind speed or water levels reach a certain point.

Looking at the customer experience, and not the insurance experience is crucial. “Nobody is going to care about submission, quote, bind, issue, endorse, cancel, rewrite – nobody cares about our transactions,” Attia said. “They care about the events that are going to happen within the environment.”

Not even saying the word “insurance” – rather, calling it “protection” – might make matters less complicated for customers, Attia said. Of course, regulatory issues are a whole other topic of discussion.

Tim Attia, CEO and co-founder of Slice Labs, speaking at the Executive Forum.

On-demand subscription policies are dynamic, Attia observed. The coverage is granted as the consumer requires it. Think, for example, about a ride-sharing policy that actually changes as the vehicle moves. “If the policy is moving, and somebody is risk-rated [for] every metre of the road [he or she uses], the policy can react dynamically,” he said. “There can’t be annual renewal policies that are static for a year, or for any period of time.”

As insurance is embedded into other services or platforms – whether that’s an OEM, Amazon or Microsoft, for example – it will be able to react to real-time events. “You can’t take our standard auto policy – or our great-grandfather’s homeowners’ policy – and magically move it into the new world,” Attia said. “It requires rebuilding policies and dealing with a lot of issues around rebuilding policies. You are starting with no actuarial history, so you’re doing things like trying to get more and more real-time events so that you can underwrite it.”

Attia asked conference attendees how many people thought it was a good idea to give away free insurance to every auto insured regardless of who they are?

“[Lyft] offered free insurance, which I thought was a really bad idea on a good day, and a terrible idea on a bad day, and they’re worth $25 billion,” he said. “Is giving away free insurance really a bad idea?”

One big part of insurance of the future involves taking the expenses out of it from the consumer’s point of view. So, for example, the cost of insurance might be hidden. To the user, it may appear like free insurance, but in fact, the product will be embedded into another value proposition.

“The CEO of BlackBerry famously said when he held an iPhone, ‘That’s not a phone,’” Attia said. “I think that’s the challenge we have right now. “We’re looking at some of these things saying, ‘That’s not insurance.’ But that’s the point.”

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4 Comments » for How Spotify’s business model describes the future of insurance
  1. BB says:

    I am an individual who has invested time & energy becoming a licensed insurance professional in the property & casualty sector of the industry, only to learn that this field is becoming obsolete is a scary notion. In your professional opinion, what kind of timeline do I/we licensed professionals have before our career path in this industry disappears & assigned to AI?

  2. Reeder says:

    I am not Tim Attia but I believe you can relax in the notion that this industry will disappear. Slice labs and platforms of this nature are simply digital distribution platforms for traditional risk sharing with a spin to attract investors. These insurtech startups are finding niches spawned by the sharing economy and exploiting them for profit.
    An intelligent and friendly licensed insurance professional will always have gainful employment for the foreseeable future. Where the erosion of some of these traditional insurance lines will occur is in products utilizing artificial intelligence, autonomous operating systems and the shared economy. The inherent risk & liabilities should be funded partly in the purchase price of these products coupled with traditional risk dispersion methods.
    Lastly remember that home and auto insurances are only a small part of the insurance ecosystem. As traditional lines blur new ones will come into focus. IMO you made a sound career choice.

  3. Rick Dresher says:

    I believe this article only applies to a small slice of the insurance market overall. If you own a home, you need protection all year long, as anything could happen at any time. Customers are not interested in a variable premium that increases you premium in the spring, when storms are more prevalent and lowers them in the fall, when claims are less likely. They prefer to budget based on a steady, monthly premium. Same for the bulk of car owners. Would a teacher prefer to pay more during the winter when they are commuting and less in the summer when they are off, if the overall premium comes to the same amount? No, because they already equalize their annual salary over 12 months, even though they earn it over 10 months, so they have a predictable cash flow. Do people want to buy a couch with the protection built into the cost, if it burns in a fire. A refrigerator, a stereo, your clothes? What a nightmare if you had a fire, making claims to all those providers. Insurance is not like purchasing a TV on Amazon. If you buy a TV that doesn’t fit you needs, what has it cost you? Maybe $1,000. What can it cost you if you buy a $1,000 insurance policy that doesn’t meet your needs. It could cost you thousands, tens of thousands or potentially everything you own. Insurance is a complex product and no consumer wants to become an insurance expert. As long as people own stuff they would hurt financially to lose, they will need expert advisers to get them the proper coverage. AI might help automate the process somewhat, but traditional insurance won’t be going anywhere soon.

  4. jonathan says:

    Good article when one takes into account sociology changes re surveillance/security trade offs the public already accept. Good to read something other than the usual echo chamber back slapping consultants black box BS.
    “value proposition” will be inclusive of greater financial / tax implications and soooo much more …

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