Tag Archives: connected insurance

Tomorrow’s Insurance Is Connected

Insurance is, at its core, five things: underwriting and pricing risk, selling and distribution, claims adjudication, servicing and, finally, investment management. Of course, there are hundreds of other skills and important areas, but these are the five central pillars of any insurance company.

Technologies are emerging that enable omnipresent, real-time connectivity between the people and businesses being insured and their insurers, and that is fundamentally changing the business of insurance. Here’s how.

Underwriting: Retrospective to Prospective

Underwriting and pricing is all about data and information at both the macro and micro level. Understanding socio-economic market trends, segmenting and accurately predicting how those may move and change is important. But the most critical data of all is at the individual customer level – the person or business you are about to insure. The more you know about their risk profile, the more accurately you can price their insurance and therefore the more competitive you can afford to be in selling and marketing.

Imagine if an insurer knew virtually everything about the behavior of the insured. Not only where they live but how they live, how they drive, their health and their daily habits. And imagine if the insurer had access to all the historic and predicted natural risk data about where the insured lived and worked and traveled. And imagine if there were computer programs powerful enough to gather, store and use this data to create an accurate and dynamic risk profile of the insured. No need to imagine – those capabilities already exist and are being refined and expanded. The debate over whether ZIP codes or credit scores are a fair and proper proxy for insurance risk will soon be moot, along with all the other retrospective information that has until now informed the underwriting process.

See also: Ready for the Fully Connected Future?

Usage-Based Insurance Evolves to Hyper-Personalized Insurance

A good example of this evolution in insurance is the well-publicized auto insurance product known as usage-based insurance (UBI), which is enabled by telematics – the joining of two sciences, telecommunications and informatics such as computer systems. In its infancy, UBI purported to offer auto insurance discounts based on driving behavior as reported by a device connected to the insured’s vehicle. In fact, these early programs were little more than clever marketing programs and were mostly counter-productive and unprofitable. Adoption rates grew slowly, initially attracting mostly better drivers willing to share their information. But, as smartphones proliferated and became more powerful and capable of reporting more critical driving metrics, these programs have evolved to become effective enablers of accurate risk quantification. In fact, some of today’s more sophisticated reward -based telematics programs are shown to significantly modify driving behavior and reduce risk.    

The initial resistance of consumers to share personal information eroded as they began to embrace other tech-enabled programs such as Google, Facebook, Amazon, Spotify and Uber, which require extensive sharing of personal information for users to participate.  

We are already seeing the expansion of these connected platform ecosystems to include car makers, insurers and supply chain partners and transform the risk, accident and claims management process in terms of speed, cost and customer service. And, early-stage telematics programs have evolved and expanded to pay-per-mile, distracted driving avoidance and – while still early on – crash notification.

The future of connected auto insurance programs is promising as adoption rates increase and accident services enter the mainstream from various directions. One of the more important benefits will be the transformation of today’s reactive claim model into one that self-activates and makes the process easier and more efficient, from initiating a claim and every step through to reconstructing how the accident happened. This model will serve to make current breakthrough technology even more powerful and spontaneous — for example, photo estimating. The possibilities to accelerate the claim life cycle and bolster service represent exciting new value propositions waiting to unfold.

Connected insurance is spreading beyond auto to include other personal lines of coverage such as homeowners, property, life, health, accident and travel and into commercial lines, including property, small business, fleet, ride-sharing, home-sharing and workers compensation. 

Digital Ecosystems: Opportunities Through the Internet of Things 

The Internet of Things (IoT) will transform the world in the near future, and networked devices and sensors will enable this change. According to McKinsey, in 2010 there were 12.5 billion networked devices, and it is estimated that by 2025 that number will exceed 50 billion.

See also: Designing a Digital Insurance Ecosystem

The IoT is becoming a routine aspect of the everyday lives of consumers globally and is transforming business models across all industries. This new digital landscape presents opportunities for insurers: to develop new products (such as parametric insurance), open new distribution channels (such as embedded insurance) and fundamentally reinvent their business and products to include risk prediction and avoidance and real-time assistance and support on a hyper-personalized basis.

Even the investment management function of insurance is changing as carriers form corporate venture capital arms and invest in third-party vehicles that fund and leverage insurtechs and innovative technologies that are not only transforming insurance business operations but are earning outsized returns on investment capital as they exit into public markets.

A Connected Insurance Industry

The connected insurance industry of the future will still be supported by the same five core pillars, but underwriting and pricing risk, selling and distribution, claims adjudication and servicing and even investment management will look nothing like they did in the last millennium – to the benefit of all stakeholders, including the customer.

The Switch to Preventing Claims

To some, it is magic. To insurance, it is reality. The ability to accurately discern the past and predict the future based on nothing but data points and the long-lived experience of actuaries and adjusters has served the industry well, allowing insurance to become a multibillion-dollar industry. The picture has changed dramatically in recent years, however, driven by the advent of the Internet of Things (IoT): technologies that collect, record and transmit live and granular data about their surroundings. The technologies may already seem ubiquitous, but estimates of how many IoT devices will connect our cars, homes, communities, medical services and work lives by the year 2020 range from 30 billion to 50 billion. Whatever the precise number, the IoT will generate a huge amount of data to be analyzed and monetized.

Already, writing policies can now be far better informed by what is known about the risk level of an individual or entity, as opposed to simply what is known about the claims generated by an entire class of risk. John Hancock, for example, announced in 2018 that all new life insurance policies must use digital fitness trackers to monitor policyholders. Using the high-quality, objective data derived from IoT, it is now possible to assess claims more accurately and efficiently, and in some cases, even prevent them from arising entirely.

“IoT is already enabling customers to avoid bad things happening to them,” said Nick Ayrdon, head of strategy and development at Aviva. “Some people call it prevention. I see it as empowerment of customers.”

Insurers are changing how they interact with customers, both before and after a claim. One executive predicted that that we are in fact “shifting from a claims-handling business to a claims-prevention one.” As the value proposition of exchanging data for value becomes more concrete, it could drive uptake of connected insurance products. And yet, already operating in an environment of squeezed profits, high regulation and low consumer trust, the industry is witnessing something of a perfect storm. The tools for insurance carriers to stay relevant and appeal to today’s consumer do exist, but uncertainty over how best to implement such profound strategic transformation is holding many back.

See also: 3 Technologies That Transform Insurance  

To provide a comprehensive overview of the progress and prospects of connected insurance, Insurance Nexus has produced the Connected Insurance Report, an in-depth study of the progress of insurance technology globally, based partly on a survey of over 500 people working in insurance and related industries, as well as on the insights of 20 thought leaders, including Matteo Carbone (founder and director of the IoT Insurance Observatory), Cecilia Sevillano (head of smart homes solutions for Swiss Re) and Boris Collignon (vice president, strategy, innovation and strategic partnerships, Desjardins General Insurance Group).

Access the Connected Insurance Report today for in-depth insights, analyses and case-studies on the technology-led transformation of insurance, including:

  • How the Benefits of Technology Confer to Insurance: More data, fewer claims and lower costs. Discover how the application of technology to insurance is changing the relationship between insurers and insureds and where extra value can be created.
  • The State of Play of Technology in Insurance Today: What progress has been made so far across the different lines of insurance? Which lines are most developed and where is ripe for transformation?
  • The Practicalities of Embedding Technology in Insurance: From proving the business case to organizational restructuring and digital transformation, explore how carriers have succeeded in leveraging the benefits of insurance technology.
  • Making Sense of the Insurance Tech Stack: Provide value to customers by maximizing the worth of all data throughout the value chain. While challenges to each entity and line of business are unique, discover and overcome the principal challenges to embedding technology as reported by the industry.
  • The Long-Term Opportunities: From claims prevention to customer engagement, what will the technology-led future of insurance be like? Discover what is on the management “to-do list” to ensure readiness for the era of “insurance 2.0.”

How Insurers Are Innovating Right Now

From day-to-day operations, to the very relationship between insurers and policy-holders, it is no exaggeration to say that connected insurance represents the biggest potential for transformation that insurance has witnessed since the invention of the computer. See, for example, the ability of an insurance carrier to react to live data, in real time, and prevent a loss from occurring. From simply mitigating the effects of a loss, they become partners in risk-prevention.

In an increasingly competitive, technology-driven market, insurance carriers must continually innovate to deliver connected products and services that resonate with customers and provide what they need, rather than what the insurer can offer. Likewise, as technology develops and the digital distribution of insurance products increases, product development itself must become similarly agile and responsive.

Squeezed between decreasing profit margins, increasing customer expectations and greater competition, however, all insurance companies find themselves in a potentially make-or-break position; innovate or die.

See also: Understanding New Generations of Data  

Yet while technology represents insurers’ best chance at outstripping competitors in terms of product development, efficiency and customer experience, with so many new technical possibilities available (many of which are relatively unexplored), there is also ample opportunity for them to overspend and underdeliver.

To provide some clarity, Insurance Nexus recently interviewed over 300 executives to understand where insurance companies are concentrating their efforts to improve connected product and service innovation, who is responsible for these projects and how things are expected to progress in the future.

In the course of our research, it was striking to note the degree of importance with which executives are now viewing connected insurance innovation. 50% of respondents believe that CEOs and heads of strategy must take the lead in connected product development–a clear indication that innovation is rightly regarded as an enterprise-wide undertaking.

Our results also suggest that insurers recognize the scale of these projects and that, in many cases, they do not have the required competencies in house; 54% said that leveraging the expertise of external technology partners and insurtechs has been of greater value than relying solely on in-house talent.

On the subject of departmental collaboration, the results show that data and analytics departments feature heavily in connected product innovation. This is significant principally because the success of the AI and machine learning systems that underpin so much of connected products is predicated first and foremost on data, both volume and quality. If insurers can maximize the potential of the data they already possess and then intelligently insert aspects of AI (as opposed to hastily implementing an AI system and feeding it on poor-quality, invalid or disparate data), they will see the greatest results.

One particularly eye-catching statistic was that over half of respondents claim that their most successful channel for communicating product development and new services is by word of mouth. Although initially surprising to us in the digital age, this will be of great comfort to marketing teams everywhere because it tends to support the idea that product development should begin with the customer and their needs. If those needs are met, customers are showing themselves willing to become brand ambassadors themselves, a particular boon to insurers in such a saturated marketplace.

Download the infographic for detailed statistics on:

  • Which technologies are insurers embracing and actually integrating into their everyday procedures and products, including AI, ML, data analytics, automation and IoT?
  • Where are insurers prioritizing investment: operational efficiencies and internal procedures or customer-facing UX technologies?
  • What are the proven internal blends of skill sets that drive transformation forward, including leadership buy-in and recruitment initiatives in IT and data analytics?
  • How to incorporate external technology experts and insurtech that supercharge what you can offer your customer.

This infographic was created in association with Insurance Nexus’ coming Connected Insurance Europe Summit, taking place May 15-16 at the Novotel Hotel in Amsterdam. Welcoming more than 350 senior executives from across departments, the event will provide organizations with the necessary strategies and insights to transform each core pillar of product development, strategy and innovation and communication of value to the customer. For more information about Connected Insurance Europe, please visit the website.

Connected Insurance Comes of Age in 2019

In a more virtual world, socially efficient ecosystems will generate more customer loyalty than do bricks and mortar, big advertising budgets or legacy insurance brands.

The relentless conversion of analog to digital communications and information over the past 15 years, bolstered by the voracious appetites of consumers and an impressive array of AI technologies, has already fueled real industry transformation, spawning the connected insurance ecosystem. This connected network partnership of complementary services will begin to deliver levels of insurance customer experience excellence approaching those provided by established ecosystems such as Amazon’s. McKinsey predicts 12 distinctive and massive ecosystems will emerge around fundamental human and organizational needs, which will account for $60 trillion in revenues by 2025, or roughly a stunning 30% of all global revenues.

These insurance ecosystems, powered by AI technologies across the entire enterprise, are quickly transforming the industry across the value chain. Chatbots are taking policy servicing inquiries and triaging them expertly. First notices of loss are being self-reported by policyholders using smartphone cameras and in real time from connected vehicles, homes and businesses, investigated and documented by drones, evaluated and settled in days instead of weeks and subrogated electronically in a frictionless process. Almost every one of these functions is supported by seamlessly connected third-party technology, software and databases. Insurance applications are automatically pre-filled after requiring little more than a few items of personal information. Life insurance policies are being bound simply and digitally and without the need for a medical exam. New hyper-personalized insurance products are being developed and brought to market with lightning speed.

Next Inflection Point: Real Loss Prevention

But the next major insurance industry inflection point will be its most impressive and game-changing. The power of networks has already become apparent, but in 2019 it will come of age in insurance. Driven by the torrents of information that will be transmitted by billons of connected things and turned into actionable insights and decisions through the application of artificial intelligence, claims will actually be prevented, turning carriers into risk managers in the truest sense.

See also: It’s Time to Act on Connected Insurance  

Extending this trend, advanced driver assistance systems and autonomous and connected vehicle safety programs will continue to reduce accident and claims frequency and transform personal auto insurance into manufacturer and software liability insurance. Wearables will monitor the health and wellness of life and health insurance policyholders, broadcastings warnings of diabetes, high blood pressure and other conditions, likely avoiding medical claims and even more serious risks. Connected home sensors will notify home owners and first responders of potential risks such as fires, water or gas leaks, thereby minimizing and even completely avoiding costly claims.

Consequences of Connected Insurance Ecosystems

However, the impressive benefits emanating from this new connected insurance ecosystem will come at a price – namely the erosion of personal privacy, the growing threat of cyber theft and the need for ethical oversight of the uses and applications of artificial intelligence. Related consumer protection regulations and standards will emerge and impose new requirements and limitations on the various custodians of this personal information.

Another consequence of the adoption of AI technology will be its impact on the nature of work. Automation will free knowledge workers from repetitive tasks, enabling them to focus on higher-value functions and augment human intelligence, enabling faster and better-informed decision making. Significant change management, re-training and continuing education of workers will be critical for workers to operate and thrive in the new world of human/machine partnerships.

Strategic Partnerships Become Mandatory

The insurance ecosystem and the relevant data being generated is rapidly expanding and becoming connected. No single company, regardless of its size, has all the expertise, resources, relationships and necessary understandings of every co-dependent industry. Cross-industry partnerships and alliances will speed time-to-market, expand market reach for each participant and add more value to the products and solutions consumed by their common customers.

Insurance Evolves from Product to Services

As a result of these changes, the insurance business model will also change to reflect this new and different role of insurers as service providers whose “products,” delivered through ecosystem partners, will be priced on the basis of the economic value of their risk-avoidance potential. The products known today as “insurance” will evolve into the services known as “protection” as loss avoidance becomes the most valuable benefit and the need for loss reimbursement diminishes. Insurers can also help protect customers from the increasing threat of cyber attacks, which are enabled by the exploding number of connected devices in their lives through which their information is exposed.

See also: Insurance: On the Cusp of Disruption  

In this more virtual, less physical world, trust will be gained digitally and socially efficient ecosystems (think Amazon) will generate more customer loyalty than do bricks and mortar, big advertising budgets or legacy insurance brands.

You can find the article originally published here.

Insurers Will Be Even More Relevant

The insurance sector is now seeing the same dynamics many other sectors have already experienced — startups and other tech firms are innovating one or more steps of the value chain that traditionally belongs to financial institutions. Insurtech has seen extremely important investments in the last years, and the word “disruption” is coming out frequently in insurance debates. But I consider it a joke when an industry conference shows a picture of a newborn and sells it as its last intermediary or its last client to have purchased an insurance policy.

How to start from the strategy looks like

One U.K. insurer, MORE TH>N, addressed claims related to the obesity of the insured dogs. It invented a value proposition that provides the insurance coverage, adding all the preventive treatments a dog needs, a monthly box delivered to your home with the accessories and food that your specific dog needs and a pet tracker to nudge you to make the dog exercise more. Moving to insurance for humans, the South African insurer Discovery demonstrates incredible innovations. Over the last 20 years, the insurer has introduced new ways to improve policyholders’ lives using connected fitness devices to track healthy behaviors, generate discounts and deliver incentives for activities supporting wellness and healthy food purchases.

Insurers were able to imagine and execute these exceptional innovations. For this reason, I’m positive regarding the future of the sector. I’m convinced that insurance companies will still be relevant in the future — or will become even more relevant than they are now — but these companies will have to be insurtechs or players who use technology as the main enablers for reaching their own strategic objectives.

See also: Insurtech: How to Keep Insurance Relevant  

Insurance IoT is one of the first insurtech trends to come of age. Sensors have become a ubiquitous part of everyday life, expanding to include people and businesses around the world — even while they connect us more intimately with those nearby and with ourselves, as well as with our homes, workplaces, possessions and increasingly, insurers. Today, there is more than one connected device per person in the world, and some analysts estimate 50 devices for a family of four by 2022. The insurance sector cannot stop this trend; it can only figure out how to deal with it.

“Connected insurance” — insurance solutions using sensors to collect data on the state of an insured risk and telematics for remote transmission and management of that data — is the name of the game. Auto telematics is the most mature use case, but there are relevant innovative initiatives both on home and health insurance.

Connected insurance is affecting the whole insurance value chain and generating real value for insurance P&L. The five main value creation levers are:

  1. Behavior “steering” programs: leading the client toward less-risky behaviors, therefore reducing their claims;
  2. Value-added services: developing client-tailored ancillary services that allow the insurer to deliver enlarged value propositions;
  3. Loss control: developing a broad approach to reduce claim costs
    –acting in real time on the single situation to mitigating the risk before the damage happens and contain the damage
    –anticipating the claims management and improving reimbursement valuation, improving the efficiency of the claims process
  4. Risk selection: creating value propositions able to attract fewer risky clients, improving the quality of the underwriting process based on the sensors’ data or increasing the efficiency of the underwriting process
  5. Dynamic risk-based pricing: developing insurance policies with pricing linked to client individual risks and behaviors (on one side: reducing premium leakages; and on the other side: offering low-risk individuals lower prices to increase their retention and acquisition)

The connected insurance paradigm is based on the value sharing. In any business lines, insurers can, on one side, use the data from connected devices to generate a value on the insurance P&L, and, on the other side, build value propositions focused on sharing this value through incentives, services and discounts. The value creation equations will become more and more articulated with the diffusion of those approaches on the market, but that scenario will be characterized by relevant value sharing.

You can figure out the level of positive externalities generated by an insurance sector that is able to change behaviors and prevent risks.

I created two Insurance IoT think tanks — one dedicated to the North American market and one to the European one — consisting of more than 50 insurers, reinsurers and tech players and formed to discuss the insurance IoT opportunity and promote a culture of innovation in the insurance sector. From the discussion I have with them weekly, I believe the concrete and actionable five levers mentioned above will allow insurance carrier to exploit the value of the IoT data on their P&L. This approach represents a unique competitive advantage over any other players in the IoT arena. In this way, insurance carriers will stay relevant or become more relevant than ever. The benefits for the insurance sector of adopting this paradigm also include the increased frequency of interaction with the customer — a proven way to garner greater loyalty — and the unique opportunity to increase knowledge about customers and their risks.

See also: The Insurance Renaissance Rolls On  

It is a pity to hear futurologists at insurtech conferences imaging insurance IoT use cases as an AI within a connected home, buying insurance via smart contracts when the fridge needs maintenance or as an AI within a wearable watch buying insurance via smart contracts in case you are injured playing basketball.

This will not be insurance — there isn’t risk transfer or randomness (accidental and unintentional loss).

Instead, the business model and the role of insurance companies are enlarged by this technology. The essence of the insurance sector — since its origin in 1347 — has been assessing, managing and transferring risks — but the direct results of the technology adoption are “superpowers” to do the same things much better.