The Death of Moral Hazard
These technologies are also disrupting the insurance industry,
allowing businesses to deliver a new, connected insurance landscape. Many insurance and insurtech companies are introducing
new product and service offerings that continuously monitor
the condition of that which is being insured, its usage, ongoing
maintenance, and behavior of the customer. Insurers provide
preventive and care services along with various nudge elements
for achieving positive behavioral changes to reduce risk levels. All
of this is bringing about an epochal shift in insurance, where the
role of insurance is evolving from risk transfer to risk prevention.
Considering the benefits that connected insurance can deliver in personal lines (auto, home, life, and health), adoption has
been surprisingly slow and restricted to a few innovators and
geographies. This low conversion rate could be attributed to two
1. Privacy concerns—The infrastructure of connected insurance is
built on the seamless customer data that flows from the devices.
The data privacy and security concerns of the customers, and
the fear of surveillance or bad actors accessing customers’ data,
could be an important limiting factor.
2. Insurers are fringe players—IOT device companies are the hosts
of the connected ecosystem and hence its most important stakeholders. Today, insurance is just a financial link in the ecosystem
to incentivize customers—and hence insurers are mere peripheral
players. They are not at the moment in a position to influence the
course of the connected insurance in a meaningful way.
But I posit that these are mere teething problems that will
dissipate as technologies and the interconnected ecosystem mature. The customer fear to adopt is quite natural in the starting
stages of any new technology. For many, these apprehensions will
disappear as they realize that the benefits obtained by sharing
data are sizeable and there is transparency in the way data is
going to be used—with whom the data is likely to be shared and
why. Connected insurance is still in the initial stages of growth,
with various engagement models and offerings evolving. As
these models and products emerge, insurers may operate new
customer assistance activities and play an important role in the
There is little doubt that some large proportion of the insurance
of the future will be connected. A new order is bound to emerge in
which insurance will be related to more positive occurrences, such as
risk prevention and healthy living, rather than something negative.
Connected insurance can be structured to benefit customers and
insurers alike: While risk prevention, personalization of products
and services, and focus on well-being will benefit customers, insurers
will benefit from reduced claim losses and contextual intelligence
with respect to the usage and behavior of customers.
Moral Hazard as We Know It
The occurrence of an insured risk and the extent of loss depends
on perils and hazards. A peril is defined as the probable cause
that exposes an insured person or object to the risk of damage,
that which is
being insured, its
behavior of the