I recently had the opportunity to talk to Christophe Bourguignat about insurance in the context of natural disasters and the climate crisis. We all rely on insurance to some extent.
Here’s what we discussed
Anthony: Today we’re talking about insurance and my guest is Christophe Bourguignat, co-founder and CEO of Zelros. Christophe welcome to the Sustainable Futures Report.
Christophe: Anthony thanks for having me.
Anthony: We live in an age where natural disasters seem to hit the headlines almost every day. And at the time of this recording, the true horror of the earthquake in Turkey and Syria is becoming apparent with thousands of people dead, hundreds of thousands homeless, infrastructure, homes, businesses, all destroyed. Let's not forget the enormous devastation which natural events can cause. As I say, we’re hearing more and more about extreme weather, about events linked to climate change. Christophe, is that really an upward trend or are we just hearing more reports?
Christophe: Yeah, if we look at the figures for example in the year 2021 alone, the losses due to natural disasters were represented at 280 billion dollars. It’s not recorded, because it’s the third largest year in terms of losses in the past decade but still we see a growing number of more important, to analyse these losses which part is covered by your insurance, which part is not covered. Currently, roughly only 40% is insured, so it's not the majority but what is striking and what should also make us react is that the proportion of what we call the protection gap. So the proportion of uninsured events on the losses is actually growing according to Swiss institute it doubled in the past 20 years. So this protection gap is really a trend, that is another thing where insurance has to focus in the coming years.
Anthony: So why are people uninsured? Is it just that they can't afford the premiums or is it that the insurance industry is seeing that certain risks are uninsurable. So are they raising the premiums? Are they actually excluding certain classes of risk?
Christophe: So, I believe it is a multi-factor reason, so that's true. And that there are some risks that today are not at all insurable, any longer, by the way, it started in the, in the US. Maybe some of you have heard that in some geographies, some insurance companies definitely stopped insuring some houses that are too close to flooding areas. So, here we as tech insurers have to be transparent to explain that insurance can only work if the risk is split among different subscribers. But if the risk is certain, it's very difficult to insure on. We are speaking here about natural disasters, but there is also on another topic, another type of risk, which is a cyber risk, cyber security, cyber attacks. Which is a brand new type of offer that really makes insurance sit and think about it.
So, that's for the insurance part. Now, regarding consumers, like you and myself, and all of us. I think we have to progress in terms of literacy, in terms of understanding what are my personal risks? We know that we tend to underestimate, for example, the outcome of a risk that is very rare and also being aware of this and also having a bit of an interest and understanding of the covers behind the insurance products, is something very important. By the way, in the financial industry. You know, about savings, about preparing your retirement, and putting a lot of efforts in the past year to raise your bar, in terms of literacy, to empower the population into taking more meaningful decisions. I think in insurance, we are only at the beginning of this object.
Anthony: So you’re suggesting that insurance companies are informing consumers, domestic clients or are they informing businesses and commercial clients about how to minimise and manage risk?
Christophe: It’s both lines of business, both lines of business exist and must be protected, but it is also the duty of the role of the insurer to better prevent risk, to better educate the policy holders and to better explain the benefits of an insurance product.
Because if you think about it, as a consumer, you don't buy insurance, like, you know, shoes or any consumer goods. It's something complex to understand how you consume it. You don't use it right now, you use it for a hypothetical reason in the future. So all this type of, you know, conception has to be developed on the rule that insurance is very important on this topic.
Anthony: Now, you talk about the protection gap, is that partly due to the fact that people are underinsured, or that they are, they have the wrong sort of insurance policies or what's behind it?
Christophe: Yeah, I think, you know, as the, of course population is richer on the richer mechanically or the same insurance event like take for example, thunderstorm or wildfire, or floods, the goods that are damaged by themself between 10 years ago and now, even with the same occurrence of risk, mechanically the losses are higher even if the protection is the same.
If you, on top of that, add a frequency of events that accelerated on probably also, you know, a part in monthly spendings of individuals, insurance probably has not in the past years been something that has increased because probably consumer spent more money on leisure on, maybe some media or some consumers this proportion has been reduced on.
We need in the future to make it again, a larger part of spending and fortunately because this protection gap has to be closed.
Artificial Intelligence AI
Anthony: Alright now let's move on to talk about Zelros, now as I understand it, you’re using artificial intelligence to help determine the best insurance products for individual consumers. So, how does Zelros help the consumer?
Christophe: If we step back, we see a need for protection that is growing. We see and offer protections that is larger and larger. You have a PNC, casualty type of insurance, health, insurance life insurance. You have legal insurance, and that's for the personal lines on. If you also are an individual worker, and you also need professional insurance. So more and more the type of insurance is within, one specific insurance.
Let's say life accident. You also have generally a lot of different covers, a lot of different options and depending on your lifestyle are you more rural type of policy holder or are you more urban? Do you have children? Yes or no. If yes, what age are they? If you look at the picture it's very complex to match your individual need with one specific cover. And it's complex for the policyholder and It's also complex for the agent of the advisor. Even if the agent is very specialised and very professional of course he cannot be proficient in all types of insurance.
Also to complexify, even more the situation, you also have more and more insurance that are distributed through digital channels or not only analog but digital. And so, that's where we enter the game. Based on data about the policy holder, data about risks, data about specific information, localised information or climate information our algorithms are able to match the cover and more than that, explain the benefits to the policyholder on why this or this cover should be meaningful in its specific context.
Anthony: So does that mean I can go on to the Zelros website and put in all my details and it will come back with the recommendations of the sort of insurance that I ought to have? Or is that something that the agent does?
Christophe: Yes, it’s more of the agent and you will be exposed to the rules of recommendation as a policyholder when you connect to your selfcare portal of your insurer, for example, to get information about the progress of a claim or to get a certificate. Then during this touchpoint, you will be informed: it can be a prevention message, it can be an additional coverage message specifically for your case. So as a policyholder, it's more comfortable because you have messages that are more meaningful in your context. As an insurer, you manage to better match the risk with the cover on the price, so at the end of the day it's also better pricing for everyone. So that's how it works.
Anthony: So there a number of stages then, the first of all is the selection of the advice of the type of insurance, and then when you decide to take up the policy, it manages the policy and maintains the record and assists with claims if there should be claims. So you've got a living file as long as you are a policyholder if I understand?
Christophe: Yes, definitely all along the policyholder life cycle from the research of coverage with subscription, down to the claim, that's where our algorithm, actually algorithms are working. So we are in the category of what we call tech for insurance. So our customers are legacy incumbents on the insurance that need to become more efficient, or more proactive, or more specific with their customers. And so are embedded algorithms in their distribution channels.
Anthony: The system will identify the type of insurance products that an individual consumer will need. Does it also recommend specific providers?
Christophe: So yes, the technology is able to not only provide, you know, the insurance product. But also services for example, we know that there is a bigger thing that is at stake for the coming decade which is the population ageing for example.
So of course insurance are also a good providers to propose additional services to help this kind of population.
Anthony: Right, so if I go in and I look for a policy and Zelros recommends, a policy for me and also recommends a particular company and I decided to buy that, is Zerlos getting a commission for that?
Christophe: No, that is not what business model is really. We’re a software provider business model, with what we call “software as a service” or so the more agents who are using the solution, the more we earn money or the more recommendations are made, the more money…
Anthony: The agents pay a subscription to use it, is that right?
Christophe: Correct, correct.
Anthony: I see, so that’s how it works. So, therefore effectively, it is a whole of market solution. It's not a tied solution by any means.
Christophe: Yeah and then you know this insurance distribution is as also values favours So, there are independent agents that work with several carriers. But some of them are tied to a given carrier. Also there are salary networks but also we adapt to all types of situations.
Anthony: Well looking at the wider context, as we’ve seen this week. Natural disasters cause tremendous damage and hopefully people are protected by insurance. But as you said, an awful lot of people are not protected by insurance. Is there any way in which cover can be extended, improved? Or is it going to be too expensive for people particularly in the developing world to protect themselves against these sorts of situations?
Christophe: Definitely that’s a big challenge, we see some initiatives from insurance, for example recently, AXA global insurer launched a dedicated inclusive insurance branch. So it’s a line of business that they create from zero. Specifically dedicated to a population that is underinsured and don’t have access to insurance. The goal of this new branch is to create new insurance products that are more suitable for this population. That’s where the protection gap will need to be reached, also the millions and billions all around the world that need protection. To make an analogy, you know micro-finance, where small loans didn't exist a few years ago and now exist. Probably, micro insurance will be something that will develop in the future.
Anthony: Well that’s a very interesting idea. I think the truth is we live in challenging times, we live in challenging times in all directions and it's interesting that there are signs that the insurance industry is adapting. Every organisation has to adapt and I won't start by talking about fossil fuels, but it's interesting that insurance is making steps to deal with the situations for a wider range of people.
So Christophe, thank you very much for talking to the Sustainable Futures Report. It’s been a very interesting conversation.
Christophe: Thank you, Anthony.
And you can find out more about Zelros at zelros.com
That's it for this special edition of the Sustainable Futures Report.
I am Anthony Day and there will be a regular edition of the Sustainable Futures Report next Wednesday as usual. Next week I shall be talking about micro mobility, 15 minute communities and the Svalbard Seed Vault, among other things.
Thanks for listening this time and I hope you'll join me next week.
Bye for now
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