Tag Archives: connected cars

Is Insurtech a Game Changer? It Sure Is

Several years ago, property and casualty insurance executives were looking over their shoulders anxiously at a growing number of internet startups. Who were these scruffy people wearing black turtlenecks? Could they really “disintermediate” legacy providers that had been around for a century or more?

Since then, we’ve all evolved. By now, most brands know they have inherent strengths that are hard to dislodge. The startups have matured, too, and they clearly have something to offer the market. We’re now working with companies in both camps, helping them navigate this new normal, where collaboration, acquisition and competition are all plausible options.

Some insurers may think they’ve dodged a bullet. But insurtech’s threat is more stealthy, and no less powerful.

Insurtech: the new, new thing?

At this fall’s InsureTech Connect trade show, literally thousands of people descended on Las Vegas to show and examine the latest offerings, from core systems, predictive analytics tools and anything-as-a-service to pitches addressing distribution, pursuing unserved niche markets, offering comparative pricing and broker services and more.

In our recent report on the state of insurtech, we cautioned insurers to look beyond the many truly interesting offerings now coming to market. As impressive as these tools are, we urged decision makers to stay focused on the capabilities that make their companies unique.

See also: Has a New Insurtech Theme Emerged?  

What do insurers really do?

So, what are those capabilities? At holiday dinner tables, you may find yourself talking to a relative about what insurance is, and why it’s important. You may say something like, “We create products that help manage risk by sharing the possibility of individual loss with a larger pool of users.” This explanation held true for a long time, but,
with the rise of insurtech, it may not be the best way to look at your business.

That’s because many insurtech companies have emerged to manage the firehose of data that now shapes our world: the Internet of Things (IoT), wearable health devices, connected cars, artificial intelligence and more. Of course, there’s still a role for insurers when someone else captures and gets the insight from that data. But it’s a commodity role, driven by who is willing to write a policy to offset the risk at the lowest rate. There won’t be many winners, and the margins won’t be attractive.

Some insurers see their business as settling claims and handing out checks. But when someone else is using telematics to assess driving habits, or social media to understand lifestyle risks, who will be able to monetize this data? Increasingly, underwriting depends on getting deep into the data-driven weeds. If you’re not there, recognize that someone else will be.

The rise of outside money

There’s another factor shaping insurance today: the amount of private equity (PE) and venture capital (VC) money flooding into the industry. An industry as highly capitalized as insurance was bound to have external investors come knocking eventually. Now, they have.

To be blunt, many insurance systems are too costly and too slow. PE and VC firms have seen this, and they’ve said to themselves, “I don’t have to be perfect, and I know I can be more efficient than this. Even if I’m only a little bit better than the legacy players, I can make a very healthy profit.” It’s a form of arbitrage, and competition could soon get a lot tougher.

With the acceleration of insurtech and related technologies such as cloud and artificial intelligence, PE and VC firms have found a way in that doesn’t require them to show a century of stability. They can do very well developing an insurtech play for very specific aspects of the P&C value chain. Many traditional companies are finding themselves in a commoditized business, without the structure of a commodity manufacturer.

Finding your way to play

Some of the most exciting developments in technology are now reshaping the insurance industry. That spells new opportunities and new risks. With the rise of PE and VC funding, we now see competition emerging from companies with significant resources—and they’re privately held so they can be more patient investors.

See also: Advice for Aspiring Leaders in Insurtech  

Legacy insurance companies still have enormous advantages, and many opportunities to win. But most won’t be able to do it alone, and there are many examples of insurers that wasted time (and money) on the wrong insurtech acquisition or partnership. As the cycles of innovation and capital movement accelerate, you’ll need to be more focused than ever on the capabilities that make your company great. Insurtech is a game-changer.  Make sure you’re playing the right game.

Why AI IS All It’s Cracked Up to Be

A lot of people are talking about the promise of artificial intelligence (AI), and some say it’s too early to evaluate its long-term impact. I disagree. I believe we need to evaluate AI’s value now, because it’s already beginning to fundamentally change the way auto insurers do business.

A sweeping statement, perhaps, but there’s a lead-up to this discussion that is creating the perfect storm for P&C insurers.

First, insurer performance is challenging, and most every insurer I speak with is racing to identify ways to reduce expenses while continuing to offer desirable products to savvy consumers — consumers who expect insurance to be delivered and serviced just as seamlessly as their interactions with their favorite online retailer.

Next, vehicle complexity is making it extremely difficult to price risk, predict frequency (largely due to advanced driver assistance systems, or ADAS) and understand increasing repair costs, thanks to enhanced electronic content, such as the sensors in newer vehicles.

In this environment, AI can play a critical role, helping insurers bring expenses back in line while creating opportunities to deliver a better insurance experience for consumers. And, as vehicles become more connected, streaming more data, the role of AI will only grow.

AI Now

If you’re still not clear on what exactly AI is, it refers to programs that are capable of learning to make decisions more like humans. AI is at work all around us – when robots control other robots on the manufacturing line, intelligently automating the management and optimization of financial portfolios, detecting cancer using MRIs and machine vision and powering self-driving cars. In fact, AI is becoming so prevalent it’s expected to create $1.2 trillion in business value by the end of this year and $3.9 trillion by 2022.

AI in Insurance

It’s now our industry’s turn to put AI to work. What we’re seeing in other industries is now happening in claims. AI is being injected into key points in the claim process, helping to create value that can be seen (and felt) inside and outside the organization. Meaning, AI done right can yield improvements designed to enhance the experience of all stakeholders.

From an internal efficiencies perspective, consider AI’s impact on workflow challenges. As just one example, let’s look at the value of mobility and IoT, telematics in particular, because this is foundational to AI-driven improvements in processes. As you read on, think about all the existing processes and labor currently linked to your own auto claims area, because even the workflow that initiates a claim–in place for a hundred years–is now being changed, thanks to AI.

See also: Strategist’s Guide to Artificial Intelligence  

The New Claims Workflow

There is a new claims workflow taking hold right now, not some point in the future.

First, policyholders won’t call the insurer when they experience an accident—the insurer will contact him/her. This is because the insurer will apply AI to telematics data, setting an alert tagged to view the rate of change of the vehicle and determine in real time that there has been an accident.

Now apply AI-driven conversations via chatbots with customers at scale, in real time, to guide them through the claims process after that accident occurs. In our example, the chatbot asks the claimant for a photograph—an automated, back-end review determines suitability of the photograph, enabling the insurer to determine with high accuracy and in real time whether the vehicle is likely to be a total loss or repairable and advises the policyholder accordingly. Fast, transparent communication.

If the damage is repairable, the chatbot asks for additional facts and photos. The insurer detects location and severity of the damage by automatically comparing it against millions of collision variables and applying predictive, model-driven AI. Heat maps are used as visible illustrations of the damage, building credibility with your policyholder.

The internal workflow changes further when virtual inspections are powered by AI. Remote appraisers can be given photos, heat maps and even a guided estimating tool, reducing time and effort in the field and yielding higher accuracy and productivity, processing 15 or more estimates per day versus four to five estimates in a pre-AI, field inspection world. Once the estimate is written, information gleaned from the photographs is fused with insights gleaned from CCC’s wealth of estimating experience to determine if the estimate is in line with insurer guidelines. The appraiser views the pictures and, applying AI, builds out the estimate with interactive prompts to improve it.

Thanks to AI, the policyholder is given an estimate in significantly less time than is possible today. AI also fuels communication that is more transparent and consistent with consumer expectations. When a vehicle is repairable, the policyholder doesn’t need to wait impatiently for days while the claims and repair process slowly unfolds in ways they don’t know about or understand. Instead, a consumer has access to a host of chatbot and SMS technology, where messages communicate the necessary steps to resolve the claim. Similar to how we book a restaurant reservation, the policyholder can schedule a repair shop appointment; and like an airline that can notify us of flight status, repair status updates have become standard practice for shops.

Through the use of AI, services can be dispatched and intelligently routed to the repair shop of choice—or the salvage yard in the case of a total loss, saving time and money on additional tows and storage fees. From the policyholders’ perspective, the insurer continues to prove that it has their best interests at heart, building trust and loyalty at a pivotal time in the relationship.

In other words, an experience is built around AI, putting it to work to benefit the consumer. And, the same thing is happening for the estimator.

On the casualty side, insurers handling first- and third-party claims can leverage AI to help inform investigations and increase loss cost management accuracy. For example, AI can detect the principal direction of force and the delta V to predict the likely physical injuries and outcomes of the vehicle’s occupants. There are early indications that integrating this data for analytics and intelligence purposes can improve claims outcomes, both by qualifying injury causation and revealing whether certain injuries are consistent with the facts of the accident.

See also: Why AI-Assisted Selling Is the Future  

AI Next

What I’ve just described is the tip of the iceberg. We are at the tipping point. Connected cars will drive another wave of claims innovation. According to IHS Markit, worldwide sales of connected cars will reach 72.5 million units in 2023, up from 24 million units in 2015. That means, in just over eight years, almost 69% of passenger vehicles sold will be exchanging data with external sources.

What does that mean for us?

If I’m looking into my crystal ball, here’s what I see:

When there’s an accident, the amount of instantaneous information available to us will probably be 10 times what it is today. We won’t need policyholders to take the photographs I mentioned earlier. With telematics data, we will have all of the information that is knowable about an accident event, which makes the AI even faster and more accurate and claims management and related outcomes even that much better.

If the car isn’t that safe, it will be picked up by a self-driving tow truck and taken to the shop while another self-driving car will come pick up the policyholder. By the way, at the shop, no one’s going to have to order any parts; the parts will be ordered within minutes, maybe even seconds after the accident.

From an internal and external perspective, there is no downside to embracing AI’s promise: reduced claims costs, increased customer satisfaction and improved business outcomes – today and into the future. The value is there; the time is now.

Car Makers, Insurers: Becoming Partners?

When “Car and Driver” magazine debuted more than 60 years ago (originally titled Sports Cars Illustrated), nobody could have envisioned the approaching changes that would transform life as we knew it – including all things automotive and consumer. Today, the expression “car and driver” suggests a completely different meaning as automobiles are becoming “driven” by software and technology and their owners are becoming passengers – and increasingly we are riding in vehicles we don’t even own but rather share or rent.

But while we await our future, current innovations in vehicle and consumer technologies have already emerged to create a transition period full of complex challenges and issues accompanied by potentially significant opportunities for all participants. While much attention is being paid to the emergence of telematics and the connected car, and seemingly endless amounts of investment capital are flowing to the many innovative and promising startups sprouting in this fertile global environment, something even more consequential is also beginning to evolve. Auto insurers and auto makers – once basically adversaries – are beginning to cooperate around many of the related opportunities.  

See also: 3 Technology Trends Worth Watching  

These two industries, which serve and share a common customer base, have traditionally been wary of one another because they had so many conflicting interests. Carriers insure the people who drive the cars that OEMs make, and, when accidents inevitably occur, liability is frequently brought into question to protect the interests of one from the other. In addition, franchised new car dealers, upon whose success OEMs depend for sales and vehicle distribution, earn significant revenues from selling a variety of related products and services – including warranties and insurance, another area of potential conflict. Finally, when insured vehicles end up in collision repair shops as a result of accidents (which happens more than 20 million times a year), insurance carriers do their best to manage repair costs by encouraging these shops to find and use less expensive parts, which costs OEMs and their franchised new car dealers significant parts sales revenues. And, at a higher level, insurers and OEMs value and fiercely protect their customer relationships and have no interest in sharing them with others.   

However, these dynamics are quickly changing as new mobile technologies are rapidly transforming consumer behavior and expectations and as new connected car and automated driver assist technologies begin to present significant new challenges as well as exciting opportunities to both auto insurers and OEMs. It is far from a given that today’s auto market share leaders will enjoy similar shares of future autonomous vehicle sales, and it is equally uncertain as to by whom and how these vehicles will be insured.

Tesla is positioning itself to do both. And so the ancient proverb that “the enemy of my enemy is my friend” seems to apply very well here. Evidence of insurer/OEM partnerships, both direct and indirect, is plentiful and growing daily.

Insurer/OEM connected car partnerships date back to as early as 2012 and include State Farm/Ford, Progressive/GM OnStar, Allstate/GM OnStar and Nissan/Liberty Mutual. In 2015, Ford conducted a “Data Driven Insurance” pilot program that provided participating drivers with their driver history for use in obtaining auto insurance. In 2017, GM OnStar began offering its subscribers 10% discounts on auto insurance from participating carriers including National General, 21st Century, Liberty Mutual, State Farm and Plymouth Rock.  

And data and analytics information providers Verisk and LexisNexis Risk Solutions, which collect data and analytics solutions for use by the insurance industry, have both recently launched telematics data exchanges with OEM participants including GM and Mitsubishi. Consenting connected-car owners have the option to contribute their driving data and seamlessly take advantage of insurers’ usage-based insurance (UBI) programs designed to reward them for how they drive.

Other innovative telematics data models include BMW CarData, which allows owners to share customized data with pre-approved third-parties such as insurers, auto repair shops and other automotive service providers. Drivers can obtain custom insurance coverage based on their exact number of miles driven while repair shops could automatically order parts in advance of service appointments.

For carriers, existing data pools and analytics tools will become less useful than real-time data streaming from connected cars coupled with increased proficiency in predictive modeling and machine learning. OEM/insurer partnerships can enable both parties to share the costs and co-develop big data mining technologies and advanced analytics methodologies to benefit their respective businesses. Insurers can improve underwriting and claims processes while OEMs can improve vehicle safety, design and performance.

Data provided by connected-car devices could be used to initiate claims processing, order damaged parts, triage required collision repair and manage other third-party services (e.g. towing, rental, appraisal) and record accident dynamics as well as occupant placement. OEM/insurer partnerships sharing this data could lead to better claims service and satisfaction and more reliable injury claim evaluation. OEMs could use this data to improve vehicle and occupant safety and could ensure that repairs are performed at properly certified collision repairers and that appropriate parts are used in the repair.

OEMs and insurers can partner to offer customers innovative customer experiences, becoming primary points of contact for risk prevention and new hybrid insurance products as well as dealer parts, service and sales opportunities. New revenue sources for both parties could include Intelligent GPS for theft recovery, real-time notifications of traffic and other travel inconveniences, intelligent parking, location-based services, safety and remote maintenance services. Cost duplication from currently overlapping services such as roadside assistance and towing could be eliminated by single-sourcing such services.

See also: The Evolution in Self-Driving Vehicles  

To be sure, other telematics data business models have emerged that could threaten OEM/insurer partnerships.  In June 2017, BMW and IBM announced the integration of the BMW CarData network with an IBM cloud computing platform that could help as many as 8.5 million German drivers who grant permission to diagnose and repair problems save on car insurance, and take advantage of other third-party services. IBM can also collect data from other OEMs over time, and BMW plans to expand the program to other markets. And technology companies, including Automatics Labs and Otonomo, are seeking consumer consent to sell data through their exchange platforms.

While we await the day that self-driving vehicles dominate our roadways – which will no doubt make many of these driver data initiatives basically irrelevant – we have the most pragmatic of all reasons why OEM/insurer partnerships make sense. Participants can mitigate their risk and reduce their investments in these costly but still relatively short-term opportunities as they position their companies for the as-yet-undefined future of transportation and insurance.

Telematics Has 2 Key Lessons for Insurtechs

Connected insurance represents a new paradigm for the insurance business, an approach that fits with the mainstream Gen C, where “C” means connectivity. This novel insurance approach is based on the use of sensors that collect and send data related to the status of an insured risk and on data usage along the insurance value chain.

Auto telematics represents the most mature insurtech use case, as it has already passed the test and experimentation phase. It is currently being used as an instrument for daily work within motor insurance business units. In this domain, Italy is an international best-practice example: Here, you can find at the end of 2015 half of the 10 million connected cars in the world have a telematics insurance policy. According to the SSI’s survey, more than 70% of Italians show a positive attitude toward motor telematics insurance solutions. According to the Istituto per la Vigilanza sulle Assicurazioni (IVASS), about 26 different insurance companies present in Italy are selling the product, with a 19% penetration rate out of all privately owned insured automobiles in the last quarter of 2016. Based on the information presented by the European Connected Insurance Observatory, the Italian market surpassed 6.3 million telematics policies at the end of 2016.

See also: Telematics: Moving Out of the Dark Ages?

Based on this data, we can identify three main benefits connected insurance provides to the insurance sector:

  1. Frequency of interaction, enhancing proximity with the customer while creating new customer experiences and offering additional services
  2. Bolstering the bottom line, through specialization,
  3. Creating and consolidating knowledge about the risks and the customer base.

The insurance companies are adopting this new connected insurance paradigm for other insurance personal lines. The sum of insurance approaches based on IoT represents an extraordinary opportunity for getting the insurance sector to connect with its clients and their risks.

The insurers can gradually assume a new and active role when dealing with their clients—from liquidation to prevention.

It’s possible to envision an adoption track of this innovation by the other business lines that are very similar to that of auto telematics, which would include:

  1. An initial incubation phase when the first pilots are being put into action to identify use cases that are coherent with business goals;
  2. A second exploratory phase that will see the first rollout by the pioneering insurance companies alongside a progressive expansion of the testing to include other players with a “me, too” approach;
  3. A learning phase in which the approach is adopted by many insurers (with low penetration on volumes) but some players start to fully achieve the potential by using a customized approach and pushing the product commercially (increasing penetration on volumes);
  4. Finally, the growth phase, where the solution is already diffused and all players give it a major commercial push. After having passed through all the previous steps in a period spanning almost 15 years, the Italian auto telematics market is currently entering this growth phase.

The telematics experience teaches us two key lessons regarding the insurance sector:

  1. Transformation does not happen overnight. Before becoming a relevant and pervasive phenomenon within the strategy of some of the big Italian companies, telematics needed years of experimentation, followed by a “me, too” approach from competitors and several different use cases to reach the current status of adoption growth.
  2. The big companies can be protagonists of this transformation. By adding services based on black box data, telematics has allowed for improvements in the insurance value chain. Recent international studies show how this trend of insurance policies integrated with service platforms is being requested by clients. The studies also show that companies, thanks to their trustworthy images, are considered credible entities in the eyes of the clients and, thus, valid to players who can provide these services. If insurance companies do not take advantage of this opportunity, some other player will. For example, Metromile is an insurtech startup and a digital distributor that has created a telematics auto insurance policy with an insurance company that played the role of underwriter. After having gathered nearly $200 million in funding, Metromile is now buying Mosaic Insurance and is officially the first insurtech startup to buy a traditional insurance company. This supports the forecast about “software is eating the world”— even in the insurance sector.

See also: Effective Strategies for Buying Auto Insurance

How can other markets capitalize on the telematics experience and create their own approach?

It’s Time to Act on Connected Insurance

It is not a secret that I’m an insurtech enthusiastic; I have shared my view about the need for any insurance player (insurer, reinsurer, distributors, etc.) to become an insurtech-player during the next several years. This will mean: organizations where technology will prevail as the key enabler for the achievement of the strategic goals.

It was only 12 months ago when I published my four Ps to assess the potential of each insurtech initiative. My approach is based on four axes related to the fundamentals of the insurance business:

  1. Productivity: Impact on client acquisition, cross-selling or additional fee collection for services;
  2. Proximity: What an insurtech approach can do to enlarge the relationship frequency, by creating numerous touch-points during the customer journey — a proven way to increase the customer’s satisfaction;
  3. Profitability: What can be done to improve the loss ratio or cut costs without an increase in volumes; and
  4. Persistence: Increasing the renewal rate, and, thus, stabilizing the insurance portfolio.

The insurtech ecosystem has shown terrific growth in the last 20 months, after many VCs complained about the absence of insurtech startups. The updated Venture Scanner’s map shows more than 1,000 initiatives, with more than $17.5 billion invested. The needs for a pragmatic approach, the ability to prioritize the initiatives and a stronger focus on innovation have become more and more relevant.

See also: 10 Trends at Heart of Insurtech Revolution  

I strongly believe in the effectiveness of the aforementioned four axes to evaluate a business. In the last few months, I followed this view to make investment and career choices.

Several months ago, I invested in Neosurance, an insurtech startup currently accelerated by Plug & Play in Silicon Valley, and I’m supporting the company as a strategic adviser. This company developed a platform to enable incumbents to sell the right product with the right message at the right time to the right person. By using artificial intelligence, Neosurance aims to become a virtual insurance agent with the ability to learn and improve how it sells. I fell in love with its model because of its productivity angle, the first of the four Ps.

Let’s consider all the non-compulsory insurance coverages. The large part of the purchases have been — and still are — centered on a salesman’s ability to stimulate awareness and to show a solution. In a world that is getting increasingly more digital and is becoming less about human interaction, I’m skeptical about the ability to cover the risks with the current approaches of online distribution, comparison websites and on-demand apps. All three of these approaches require a rational act and a lot of attention. But many customers look like more to Homer Simpson than to Mr. Spock.

Those are the reasons I’m optimistic about Neosurance’s business model. On one hand, its B2B2C model aims to be present where and when it matters most for the customer. And, its “push” approach is able to preserve underwriting discipline, which is the only way to continue in the middle term and distribute a product that keeps a promise to the customers. My investment choice was based on the business model evaluation, the company’s pipeline and the quality of its team. I hope to be able make more investments.

Connected Insurance Observatory from Matteo Carbone

I also decided it was time for a job change at the end of 2016. After 11 years, I left my career with Bain & Company, where I advised the main insurers and reinsurers on the European market. I had focused my activity on the insurtech trend, because I’m passionate about connected insurance. In the last several years, I have advised more than 50 players on this topic — from insurers to reinsurers and from service providers to investors. I consider the use of sensors for collecting data on the state of an insurable risk and the use of telematics for remote management of the data collected to be a new insurance paradigm. For years, many of the use cases we have seen globally have only somewhat used the potential of this technology to support an insurer and achieve his or her strategic goals.

My belief could be well understood by observing the best practices of auto insurance telematics and their performance regarding the other three Ps:

  • Let’s start with the proximity angle. Insurers have provided telematics-based services that have reinvented a driver’s journey. More and more players are focusing on this opportunity to create an ecosystem of partners to deliver their suite of services. Discovery Insure is one of the best at doing this because it is able to reward clients with a free coffee or smoothie for each 100 kilometers they drive without speeding or braking hard. Is there a way for you to be closer to your client?
  • The Italian market shows the potential benefits in terms of persistency. There are more than 6.5 million cars with a device connected to an insurance provider in Italy, and the telematics penetration reached 19% in the last three months of 2016. On average, the churn rate on the insurance telematics portfolio is just 11%, which is lower than the 14% churn rate on the non-telematics portfolio.
  • Last — but definitely not least — is the profitability side. The Italian telematics portfolio shows a claims frequency that, risk-adjusted, was 20% lower in comparison with the non-telematics portfolio, as I mentioned in a paper last year. The best practices were able to achieve an additional 7% average claims cost reduction by acting as soon as a claim happened and by reconstructing the claims dynamic. These savings let insurers provide an up-front discount to the clients. This makes the product attractive and achieves higher profitability.

See also: Insurtech: Unstoppable Momentum  

My day job is now to run an international think tank focused on connected insurance. More than 25 companies have joined the European chapter since the beginning of the year, and eight players have joined the North American chapter since March. This initiative is developing the most specialized knowledge on insurance IoT, which is based on a multi-client research. I personally deliver the contents through one-to-one workshops dedicated to each member. Throughout the rest of the year, I will host plenary meetings with all the players to discuss this innovation opportunity.

I felt honored and privileged last spring when former Iowa insurance commissioner Nick Gerhart invited me to present my four Ps at the Global Insurance Symposium 2017 in Des Moines, but I did not realize how this framework would so deeply influence my life decisions.

It is definitely an interesting time to be in the insurance sector.