The insurance industry is changing and experts predict — nearly one-third of existing insurance models will disappear within this decade. The fierce competition, new opportunities with technologies like AI, and on top of that millennials’ changing preferences sum up to the call for more flexible and consumer-facing business models. Here are four new business models to set the insurance archetype.

Source: The Deloitte Global Millennial Survey 2019

Social Good & Transparency as a Business Model

Currently, AI is being used to strengthen the capabilities and knowledge of insurers and not consumers, creating information asymmetry. But, the question is — for how long will the consumers accept being a victim of ignorance.

A possible solution to this situation is bringing information transparency. It’s not like traditional insurers don’t share policy information with their customers. They do. However, lengthy policy documents and customers’ reliance on agents for information shadows the actual coverage, terms, etc. In a way, the information that customers receive becomes dependent on the agents’ knowledge and intentions.

Translating policy, terms and conditions documents into consumable bits of information with a clear distinction between what’s covered and what’s not will help in achieving transparency between insurers and customers.

For instance, Lemonade — the American Insurtech for renters and home insurance, disrupted the industry lately with their instant and transparent end-to-end insurance process. Their consumers are better aware of coverage and claims thanks to simplicity in the user experience.

Moreover, Lemonade donates the unclaimed premiums to social causes their consumers care about. From its inception in 2015 to date, Lemonade has sold over 1.2 million policies, in complete transparency and all through their AI bot — Maya!

Nearly 46% of millennials are willing to make a positive impact on the society/community. Lemonade has partnered with 92 charities and has donated $8,46,849 from unclaimed premiums. Hence, the answer.

Similarly, Swedish InsurTech Hedvig has successfully deployed it’s “nice insurance” services, giving back 80% of the unclaimed premiums to charities chosen by the customers.

More insights on — millennials and their expectations from insurance ‘beyond’ convenience.

Join our Webinar — AI for Data-driven Insurers: Challenges, Opportunities & the Way Forward hosted by our CEO, Parag Sharma as he addresses Insurance business leaders and decision-makers on April 14, 2020.

B2B2C or API-based Model

When user acquisition is the top priority, B2B2C or API-based model comes into action. Also known as an open-source platform solution, this business model connects people and processes with technology infrastructure and assets to manage user interactions.

In the API-based model, apart from traditional distribution channels, 3rd party apps also become a medium for customers to buy/access insurance policies. Automation plays a key role in this insurance model. Here, any other customer-centric digital application can install the API without manual/human intervention.

API-based Insurance Model Affinity Distribution Channel

For example, in January 2018, Allianz announced that it will offer parts of its Allianz Business System (ABS) to other insurance companies for free. Interested organizations can simply install the API (Application Programming Interface, which is nothing but a chunk of software that connects two different apps) and start selling Allianz policies to their customers.

Lemonade — after disrupting the insurance space through transparency, has now stepped into this model. In October 2017, the company launched its public API, allowing anyone to distribute Lemonade’s policies through their websites or apps.

“It takes years to pull together the licenses, capital, and technology needed to offer insurance instantly through an app, which is why it’s almost nonexistent. Today’s API launch changes that. Anyone with a slight familiarity with coding can now include these capabilities in their app, in a matter of hours.”
Shai Wininger, Co-founder, President & COO, Lemonade

P2P Insurance

Unclaimed premiums also contribute to conflicts between insurers and policyholders. What if a customer is not interested in donating to charity, unlike mentioned in the above case?

Peer-to-Peer (P2P) insurance is perhaps an answer to eliminate premium settlement conflicts. It is also an emerging business model to access insurance coverage at lower costs than most of the traditional insurances.

This insurance model pools the individuals who share at least one relation — friends, family, or interest (community/clubs) and it serves two-fold benefits-

Every member knows other members, funds available, and claims initiated/processed. Therefore, irrespective of the information shared by the insurer, there’s a transparent collaboration among peers.
Since the members know each other socially, there’s a negligible chance of fraudulent claims. For instance, in the US alone, insurance frauds amount to nearly $80 billion/year.

Also read – how behavioral psychology is fixing modern insurance claims

The notion of financial protection for the community has been prevalent in our societies since the 1600s. In the middle ages, the tradesmen followed the guild system (an association of craftsmen and merchants), where participants paid fees as a kind of insurance safety net. Though, the successful conceptualization of P2P insurance in the modern business models dates back to 2010 with German InsurTech — Friensurance. However, the P2P insurance model has credited the success to many more InsurTechs like Guevara, Axieme, TongJuBao (P2Pprotect), and PeerCover.

Microinsurance

The greatest limiting factor for the success of microinsurance is distribution. For example, in the US, 18% of the premium represents the distribution cost, set aside marketing and advertising costs. Availability isn’t the issue for microinsurance.

The new business model for microinsurance focuses on outreaching and distributing policies at scale. Workflow automation solutions like document processing, automated customer query resolution, etc. make microinsurance models more effective.

Aggregator model: Instead of traditional agents, retailers, utility or mobile network operators, etc. can be intermediaries for the distribution of microinsurance policies. They provide access to a very large consumer base and even more with free and freemium coverages. For example, Check24, a European aggregator together with HDI insurance developed AurumPROTECT that is available exclusively through aggregators channels.
Harnessing proxy insurance sales force: Banks have been the ideal partners to distribute microinsurance policies at scale for ages. But, for short-term policies, this is a good time to utilize the agents of other products to offer insurance as an ancillary product. For example, Ola — an Indian cab aggregator provides a number of travel-related microinsurance underwritten by Acko General Insurance.

The Bottom Line

The effectiveness of each of these models drills down to the smart use of technology in their implementations. Moreover, most of these business models are automated, thus, eliminating additional human resources for implementations. For instance, in India, an agent can charge up to 20% of the premium amount as fees, which can reduce significantly if the distribution is automated. Investment in technology for automating operations is also worth it because it makes customer outreach simpler and faster.

Also, read – 5 Front-office operations in Insurance you can automate with AI.

This article is for enthusiasts who strive to write clean, scalable, and more importantly refactorable code. It will give an idea about how Nest.JS can help us write clean code and what underlying architecture it uses.

Implementing a clean architecture with Nest.JS will require us to first comprehend what this framework is and how it works.

What is Nest.JS?

Nest or Nest.JS is a framework for building efficient, scalable Node.js applications (server-side) built with TypeScript. It uses Express or Fastify and allows a level of abstraction to enable developers to use an ample amount of modules (third-party) within their code.

Let’s dig deeper into what is this clean architecture all about.

Well, you all might have used or at least heard of MVC architecture. MVC stands for Model, View, Controller. The idea behind this is to separate our project structure into 3 different sections.

1. Model: It will contain the Object file which maps with Relation/Documents in the DB.

2. Controller: It is the request handler and is responsible for the business logic implementation and all the data manipulation.

3. View: This part will contain files that are concerned with the displaying of the data, either HTML files or some templating engine files.

To create a model, we need some kind of ORM/ODM tool/module/library to build it with. For instance, if you directly use the module, let’s say ‘sequelize’, and then use the same to implement login in your controller and make your core business logic dependent upon the ‘sequelize’. Now, down the line, let’s say after 10 years, there is a better tool in the market that you want to use, but as soon as you replace sequelize with it, you will have to change lots of lines of code to prevent it from breaking. Also, you’ll have to test all the features once again to check if it’s deployed successfully or not which may waste valuable time and resource as well. To overcome this challenge, we can use the last principle of SOLID which is the Dependency Inversion Principle, and a technique called dependency injection to avoid such a mess.

Still confused? Let me explain in detail.

So, what Dependency Inversion Principle says in simple words is, you create your core business logic and then build dependency around it. In other words, free your core logic and business rules from any kind of dependency and modify the outer layers in such a way that they are dependent on your core logic instead of your logic dependent on this. That’s what clean architecture is. It takes out the dependency from your core business logic and builds the system around it in such a way that they seem to be dependent on it rather than it being dependent on them.

Let’s try to understand this with the below diagram.

Source: Clean Architecture Cone

You can see that we have divided our architecture into 4 layers:

1. Entities: At its core, entities are the models(Enterprise rules) that define your enterprise rules and tell what the application is about. This layer will hardly change over time and is usually abstract and not accessible directly. For eg., every application has a ‘user’. What all fields the user should store, their types, and relations with other entities will comprise an Entity.

2. Use cases: It tells us how can we implement the enterprise rules. Let’s take the example of the user again. Now we know what data to be operated upon, the use case tells us how to operate upon this data, like the user will have a password that needs to be encrypted, the user needs to be created, and the password can be changed at any given point of time, etc.

3. Controllers/Gateways: These are channels that help us to implement the use cases using external tools and libraries using dependency injection.

4. External Tools: All the tools and libraries we use to build our logic will come under this layer eg. ORM, Emailer, Encryption, etc.

The tools we use will be depending upon how we channel them to use cases and in turn, use cases will depend upon the entities which is the core of our business. This way we have inverted the dependency from outwards to inwards. That’s what the Dependency Inversion Principal of SOLID implies.

Okay, by now, you got the gist of Nest.JS and understood how clean architecture works. Now the question arises, how these two are related?

Let’s try to understand what are the 3 building blocks of Nest.JS and what each of them does.

Modules: Nest.JS is structured in such a way that we can treat each feature as a module. For eg., anything which is linked with the User such as models, controllers, DTOs, interfaces, etc., can be separated as a module. A module has a controller and a bunch of providers which are injectible functionalities like services, orm, emailer, etc.

Controllers: Controllers in Nest.JS are interfaces between the network and your logic. They are used to handle requests and return responses to the client side of the application (for example, call to the API).

Providers (Services): Providers are injectable services/functionalities which we can inject into controllers and other providers to provide flexibility and extra functionality. They abstract any form of complexity and logic.

To summarize,

We have controllers that act as interfaces (3rd layer of clean architecture)
We have providers which can be injected to provide functionality (4th layer of clean architecture: DB, Devices, etc.)
We can also create services and repositories to define our use case (2nd Layer)
We can define our entities using DB providers (1st Layer)

Conclusion:

Nest.JS is a powerful Node.JS framework and the most well-known typescript available today. Now that you’ve got the lowdown on this framework, you must be wondering if we can use it to build a project structure with a clean architecture. Well, the answer is -Yes! Absolutely. How? I’ll explain in the next series of this article.

Till then, Stay tuned!

About the Author:

Junaid Bhat is currently working as a Tech Lead in Mantra Labs. He is a tech enthusiast striving to become a better engineer every day by following industry standards and aligned towards a more structured approach to problem-solving.

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