The insurance industry has been criticized for a long time for a basically “business as usual” response to consumer concerns about rising premiums and inflexibility which reflects the economics of the 1970s more than the current era. All areas of insurance have been under pressure to deliver more effective products, and it’s now happening, in car insurance and elsewhere.

This is more of a paradigm shift than a revolution. The world has moved on from the principles under which the insurance industry was created after World War 2.
The issues are indicative:

• Health costs
• Changes in car usage and traffic issues
• Changes in home ownership
• Rising costs of goods and liabilities

Nowhere is this more obvious than in the US, where “medical bankruptcies” are being experienced by people that have health care insurance.

The industry’s not entirely to blame for this situation. The bizarre cost structures and massive increases in the costs of treatment and pharmaceuticals would have thrown a lot of spanners into any form of insurance costing. The criticism is based on the fact that the industry is perceived as not reacting fast enough to the situation and not covering the real cost base.

The rest of the insurance industry has been criticized, with some reason, for not adapting to the realities of domestic insurance needs. Car insurance, in particular, has been under pressure because of a combination of the change in work practices and the very high on road costs of car ownership, to which insurance is seen as a major extra cost.

The result of this situation has been a new idea- Customized car insurance, with some major innovations in the business practices. This type of insurance allows drivers to select from a range of options and preferences tailored to their driving needs. If motorists drive less, they pay less for their insurance.

The business model, however, is what’s likely to shake the insurance industry to its foundations. The custom car insurance is operated by businesses which are paperless. They do everything online, and their customers can even manage their policies online.

The insurer provides support for clients by phone and online. Even the car insurance quote is done online. This means there’s none of the traditional administration and most importantly, none of the operating costs. That drastically improves the profit margins for the insurer, and reduces the overall operating costs enormously. Insurance claims can be outsourced to experts, and the insurer can afford to offer better deals than their competitors.

All of this is also done in a highly regulated industry environment. The custom insurance idea, in effect, is a complete makeover of the basic operations of an insurance company. This approach has been carving out a large market share, too, as irritated consumers look for cheaper and better options.

If the old style industry doesn’t pay attention, this extremely efficient, profitable and popular form of insurance is likely to take a lot of customers. It’s also clear that custom insurance in its current form is only starting. The future will definitely be interesting.