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The Dazzling Journey for Insurance IoT

When Chloe steps out the door of her apartment on her way to work in the morning, her vehicle automatically unlocks its doors while the navigation system maps out the best route based on the latest weather and traffic conditions. Simultaneously, her home’s thermostat resets, and her security system arms.

During her commute, Chloe decides to stop at a name-brand franchise for a cup of coffee. In a moment of weakness, Chloe – a diabetic – elects to consume a fresh-baked pastry along with her java. Fortunately, Chloe’s smart glucose monitoring system sends her an alert quantifying the size of the impending spike, and she responds appropriately to avert any issues.

At her destination, Chloe’s car locks and arms when she walks away from it. As she makes her way indoors, Chloe’s workspace is simultaneously adjusting to her established lighting, temperature and activity levels. During the morning hours, Chloe elects to override two of the standing periods she’s selected for her daily routine.

In the afternoon, Chloe’s home heating system detects a part is on the verge of failure. It generates a signal that triggers an automated process and orders the needed part, contacts a service provider and schedules the repair.

Moments later, Chloe receives a notification of the impending breakdown as well as the day and time of the repair appointment, which she quickly confirms – via an app on her phone – and, using the same app, books a florist visit during the repair time frame to get some expert advice on an issue with her house plants.

In the evening, as she arrives home from work, Chloe’s proximity disarms the household alarm and adjusts HVAC accordingly. After a healthful meal and her nightly yoga routine, Chloe sits down to finish reviewing several mortgage offers for the home she’s buying.

Working on the mortgage causes Chloe to think about other ways to protect her family, so she clicks on a banner ad for a customized life insurance product. After staying up beyond her usual time, Chloe retires for the night.

The Insurance IoT Imperative

Today, most of us are familiar with basic forms of the electronic connectedness known as the Internet of Things (IoT). We obtain driving directions from our smartphone assistant, order pizza via smart speakers and control smart home devices with an app.

But Chloe’s game-changing level of automated, integrated and connected IoT will arrive sooner than many people realize.

As numerous consulting firms have discussed, businesses are becoming interdependent within and across categories. This will dissolve traditional industry boundaries and replace them with a set of distinctive and massive ecosystems clustered around fundamental human and business needs.

In this article, we’ll review the current state of the Insurance IoT, explore what’s needed for future success and provide an executive-level overview of the technology considerations required for gaining favorable outcomes in a connected world.

At the Starting Line

Although IoT is most common among insurtechs, industry-wide efforts to harness insurance IoT are in their infancy. Many insurers are still focused on modernizing their core systems. Most are still struggling with defining what it means to transform into a “digital insurer” to meet escalating user experience expectations.

As the accompanying overview graphic “Market Maturity” suggests, the majority of early insurance IoT initiatives have concentrated on one type of IoT, telematics, in personal and commercial auto lines. In the U.S., adoption is still minimal, with many initiatives having yet to realize a positive ROI. However, insurers have clearly grasped the larger potential as the traction and evaluation of new entrants, like Root, have captured the market’s attention and raised the sense of urgency.

We’ve also seen some property insurance IoT efforts around residential and commercial structures. There, the focus has been assessing the impacts of mitigating various risks. By and large, even the most advanced initiatives are in the piloting or developmental phases, as insurers conduct research on sensor types, analytics tools, management systems, human interaction layers and adoption barriers.

Progress among health insurers is similar to property. Early efforts range from offering fitness trackers to arming chronic obstructive pulmonary disease (COPD) inhalers with sensors for automatic tracking of medication use. Again, initiatives are in early phases, with real-world outcomes and profitability impacts yet unknown.

See also: Insurance and the Internet of Things  

Understanding the Real Value Proposition

Moving forward, there’s little doubt the insurance industry will accelerate its embrace of insurance IoT. The true winners will be those who understand the real value proposition of insurance IoT, which are the opportunities for value creation and sharing that ultimately boost an insurer’s bottom line.

To visualize how insurance IoT improves bottom lines, compared with traditional approaches, see the graphic portraying the respected “Insurance IoT Value Creation Framework.” This waterfall framework was created by the IoT Insurance Observatory, a think tank representing over 50 North American and European enterprises, including ValueMomentum. The Observatory also includes six of the top U.S. P&C insurance groups and four of the top seven global reinsurers.

Let’s review some examples drawn from Chloe’s life, which illustrate the framework’s building blocks and how insurers benefit.

First, Chloe’s renter’s insurance is a smart policy, offering more than monetary reimbursement when something bad has happened. Her insurer sold her a safety and security service for a monthly fee. Moreover, the insurer connected its systems to her smart home infrastructure and even added some water leakage sensors that were not previously present.

The insurer created and manages the automated process that gets triggered by the signal from the heating system, enabling the insurer to intervene. Further, Chloe’s insurer receives revenue from its preferred service providers, like the repair technician and the florist, who pay the insurer a fee for automatic access to fulfilling Chloe’s needs.

Although the policy Chloe selected permits her health insurer to raise her deductible for chronically engaging in risk-elevation activities, such as the contra-indicated pastries, reduced standing periods and sleep deprivation, Chloe chose this product because her transgressions are infrequent. As for the health insurer, it gains a self-selected, lower-risk policyholder.

Chloe’s health insurer is also involved in her hyper-connected day, providing the glucose monitoring system together with an app that supplies Chloe with 24/7 access to a network of nutritionists. Chloe also receives a preferred rate for the monitoring and coaching, which reduces the insurer’s claims costs.

Some of Chloe’s other activities also reduce risks and create value. These include automatically securing her home against intrusion and keeping indoor spaces the proper temperature to avoid infrastructure incidents and damage from frozen pipes, not to mention wearing her glucose monitoring system. Chloe’s insurers benefit from the reduced probability of Chloe submitting a claim.

As for Chloe’s morning stop, she obtained her coffee for free by redeeming a QR code from her auto insurer sent as a reward for driving a certain number of miles at low risk (no hard braking, speeding, phone distractions, etc.). Previously, Chloe’s auto insurer had negotiated a very favorable rate on the coffee because the chain would benefit from cross- and up-sells, like Chloe’s impulse purchase. Chloe’s insurer reduces the risks to its book of business with this inexpensive behavior-change mechanism.

In the evening, when working on her mortgage prompted Chloe to shop for life insurance, she opted in to permit the life insurer to obtain her health records, wellness activities from her mobile phone and the current contents of her refrigerator. In real time, the insurer calculated Chloe’s life score and created an exceptionally accurate quotation. Next, the insurer presented Chloe with a competitive quote based on her age, lifestyle and health history.

Due to all of the positives, Chloe now loves her insurers. However, before her life was hyper-connected, she felt insurance was more of a necessary expense than a beneficial experience. Not only was her risk exposure greater, but she never received any rewards from her insurers. What’s more, Chloe’s insurance premiums were over 20% higher.

By leveraging IoT data, Chloe’s insurers have created bottom-line value, a portion of which they share with her via discounted prices and other incentives. This value creation/value sharing model embodies insurance IoT’s transformational potential.

What’s Required to Get There

Once you’ve fully appreciated the business value embedded in the dozens of IoT data points your policyholders create every minute of every day, you can begin to acquire the appropriate technology capabilities for gathering, analyzing and acting on the IoT data in real time.

Although this journey will involve numerous steps, a good starting point is understanding the seven primary technology layers required for insurance IoT and the key considerations for assembling them into a complete solution. For a visualization of these layers, consider the graphic “Insurance IoT Architecture” framed by the IoT Insurance Observatory.

Technology Layer 1 – Sensors

Devices that collect IoT data can range from simple, purpose-built solutions, such as a water flow detector, to complex devices that incorporate multiple types of sensors, like a smartphone. Although there’s no single “correct” type of sensor to use for any given application, it’s vital to consider both what data a given sensor is, or is not, gathering and how the sensor is collecting the data as each significantly affects analytics abilities and outcomes.

Technology Layer 2 – IoT Data Collection and Data Sources Management

Upon collection, data must be transferred for storage to a location where it, and other collected information, can be properly processed, managed and accounted for. In the early days of telematics, industry-specific solutions handled this layer.
Now, as insurance IoT scales up to require data gathering from millions of policyholders, who are each generating thousands of different types of data points every nanosecond, this layer is quickly moving to mega-vendor platforms, like Microsoft Azure. Such platforms are purpose-built for fast transfer and management of vast amounts of information, plus they provide other services like device management, data security, resiliency, load balancing and ease of integration with other systems. All of these capabilities are vital to real-time insurance IoT.

Technology Layer 3 – Insurance-Specific Data Analysis and Preparation

From this layer forward, success depends on partnering with experienced solution providers that demonstrate a granular understanding of insurance nuances, ranging from rating requirements to loss specifics. Whether you’re developing a proprietary technology layer or adopting a purpose-built solution, partnering with experienced consultants and integrators is the most effective means to achieve your goals.

Within Layer 3, collected data from all real-time, non-real time, internal and external sources gets normalized, interpreted and prepared for insurance-related purposes. A simple homeowners’ example is a combination of real-time data from smart sensors, both real-time and historical climate data from external providers and policyholder data such as contact information and preferences. The most advanced solutions for this layer now included advance algorithms and machine learning capabilities, speeding the normalization, interpretation and preparation chores.

See also: Global Trend Map No. 7: Internet of Things  

Technology Layer 4 – Advanced Insurance Analytics

In this off-line layer, advanced analytics are performed on the data from the Layer 3 to create proprietary algorithms and models that are applied in subsequent two layers. A workers’ comp example is the probability of injury based on historical claims data combined with various external data sources. Or, in an automotive scenario, risk indicators that would predict a loss cost for a particular type of accident based on a particular type of vehicle on a specific type of roadway under a specific type of climatic conditions.

Technology Layer 5 – Smart Insurance Actions

Arguably, it’s within Layer 5, and its close cousin Layer 6, where the real-time “magic” of insurance IoT occurs. In other words, these layers translate the data and information from the forgoing layers into activities insurers can use for differentiating themselves and taking advantage of new opportunities to stay competitive. The technologies in both Layer 5 and Layer 6 can be made up of internal systems, cloud-based solutions or a hybrid.

Specifically, Layer 5 rapidly applies algorithms and data from the previous layers to result in smart actions related to traditional insurance activities such as underwriting decisions, pricing calculations, claims management and cross-selling.

Technology Layer 6 – Connected Insurance Ecosystems

This layer can be thought of as a neighbor to Layer 5, rather than a vertical step up. This layer contains the partnering services and all of the connections required for the use of those services, as illustrated by Chloe’s story. However, the possibilities go far beyond those we’ve presented, making innovative thinking key to competitive success.

Technology Layer 7 – User Experience

Naturally, any successful insurance IoT deployment will involve integrating all of the forgoing back-end processes and systems with the front-end experience presented to policyholders and prospects. Such experiences should be designed as a mixture of digital and physical interactions, as insurance IoT is characterized by combining automated processes, triggered by data, with human engagement.

Note that positive user experiences depend not only on the appropriateness of each interaction but also on appropriate timing. This ensures policyholders and prospects receive what they need and when they need it, rather than alienating users with distracting interactions that cause confusion or create interference.

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Regardless of which of the scenarios we’ve presented apply to your business, or where on the connectivity spectrum your enterprise is today, it’s clear the opportunities inherent in the insurance IoT offer vast possibilities for improving your bottom line and becoming beloved by your policyholders. Given the rapid paradigm shifts already underway, the greatest risk to insurers is delay. In short, the time to start building and executing your insurance IoT strategy is now.

This article was first published on Carrier Management.

Geospatial Solutions: A Vital Enabler

At SMA we have long been tracking the rise of smart things and their implications for the insurance industry. A variety of emerging technologies has been rapidly advancing to make everything imaginable smart. But participating in the ESRI User Conference in San Diego this year has driven home one key point: Geospatial solutions will have a critical role in making sense of all those smart things. The notion of a connected world is not an academic pursuit – possibilities to ponder about sometime in the future. It is a here-and-now issue affecting every industry, including insurance.

See also: Insurance and the Internet of Things  

The Internet of Things is already upon us. Sensors and embedded chips are present in buildings, infrastructure, agricultural settings, vehicles, devices in the home, medical facilities and government operations. Add to that billions of mobile phones and the capability to track location, movement and environmental conditions, and the result is many connections and massive amounts of data already measuring, monitoring and acting on the world around us. Predictions about the adoption of connected things vary widely, but, by any measure, the connection points and the data volumes will continue to increase exponentially. The problem, then, is not deploying smart things or collecting data from the smart things. The fundamental problem is the ability to combine and analyze data to gain some insights. In some cases, those insights might trigger decisions with global implications, solving some of humanities thorniest problems. In other cases, the insights might lead to a small action that improves the life of one individual.

Enter geospatial solutions. Analytics and big data, in general, have essential roles to play in understanding the data generated in the connected world. But visualizing that data in a way that tells a story and reveals insights is the province of geospatial solutions, an area that has much to contribute to the connected world. Unfortunately, old impressions of geographic information systems (GIS) linger, especially in insurance. Most insurers have GIS solutions to do geospatial analysis, but they tend to be used by a small number of specialists for very specific applications. Today, the advances in 3D; animation; digital capture through drones, satellites, or LiDAR; and other technologies offer new opportunities. Tools for spatiotemporal analysis (understanding changes over time), crowdsourcing of real-time data and cloud-based collaboration platforms for maps and apps have elevated the discipline and provided government and industry with the potential to gain a deep understanding of the world to aid in addressing both new and old problems.

See also: How Connected Will Connected World Be?

Many insurers are considering the implications of the connected world and how it will affect their particular lines of business. Connected cars, smart homes, the quantified self, smart cities, autonomous commercial fleets and many other new areas create both threats and opportunities for insurers. Evaluating how geospatial capabilities can be harnessed to gain a better understanding of these emerging areas should be part of every insurer’s strategy and planning initiatives.

Will Connected World Make Us Sloths?

The possibilities of a fully connected world are unfolding before us. Technological progress has always been about making our lives easier and providing us with more options to enjoy life – to travel, be entertained, buy stuff and communicate with others. But, the connected world promises to shift progress into overdrive. Many of the smart home, connected car and sharing economy capabilities already allow us to sit back and control the world with our mobile apps or via voice commands. Even today, a person can adjust a thermometer, launch a music playlist, check flight schedules and order a box of Twinkies – practically without lifting a finger or moving a muscle. Will this ultimately result in a populace that doesn’t think, exercise or know how to do anything except control the world through devices? Will we all end up as unthinking, lethargic, good-for-nothing sloths?

I suppose some would argue that we are already there. The YouTube-Netflix-Facebook culture spends enormous amounts of time entertaining themselves, and it conjures up images of people with eyes fixed on screens, ranging in size from tiny handheld devices to enormous, wall-mounted TVs to those giant screens on buildings in places like Times Square. Those at home are in danger of becoming couch potatoes. Others in more public places are just as mesmerized and are so attached to their devices that some fall into fountains in shopping malls or risk walking into traffic on busy streets.

See also: How to Think About the Rise of the Machines

But the developments in the emerging tech arena are made for more than just entertainment purposes, and the resulting changes in society demand a deeper exploration. The full truth is always a bit more complex. Consider the following connected world possibilities and the positive effects they can have on individuals and society:

  • Fitness Wearables: Sales of wearables for fitness and health monitoring continue to climb rapidly. Athletes and non-athletes alike are tracking a variety of biometrics and being given incentives to improve their health.
  • Smart Homes: In addition to entertainment and convenience capabilities, smart homes offer considerable opportunities to improve security and safety, reduce accidents and enable the elderly or disabled to have more options for independent living.
  • Robotic Exoskeletons: Workers in warehouses, airports and other locations are being outfitted with exoskeletons that allow them to lift heavy weights while reducing injuries.
  • Connected and Driverless Vehicles: Developments in advanced driver assistance systems (ADAS) and progress toward autonomous vehicles hold the promise of dramatically reducing vehicle accidents and the related injuries and deaths.

These are just a few of the hundreds of examples of the emerging, connected-world opportunities that may improve our health, promote wellness and enrich our quality of life. In addition, the entrepreneurial spirit and venture capital related to emerging tech and the connected world are engaging legions of individuals, both young and old. There may be one group of individuals that is looking forward to binge-watching Netflix while interacting with their world from the comforts of their living room couch. But there are many others that are actively engaging in the connected world to better themselves and the world around them.

See also: How Connected Will Connected World Be?

You may be wondering what this has to do with insurance. The answer is – a lot. Just as mobile and social media technologies have changed expectations, patterns of communication and the business environment, so will the connected world. Positive and negative implications of the connected world will affect human health, traffic patterns, accidents, population distribution, employment opportunities and many other areas of life and society. In short, virtually everything that the insurance industry covers will be affected in some way. There may be some who will sit on the couch as their health deteriorates and their societal contributions decrease, but there will also be many more who thrive on the opportunities of the connected world. Either way, the needs and risks of customers will change.

connected

How to Insure the Sharing Economy

During the snowstorm that hit the East Coast in January, I took some time to clean up my office and read reasonably current newspapers and trade magazines. I quickly identified many opportunities for new insurance products, mostly around shared assets. For example, an article on Millennials and the sharing economy explained that (primarily young) people make money by sending selfies of what they are wearing every day to a website called CovetMe; they get paid based on the brands and looks they are sporting.

They Uber their way to work, school or social events (when did Uber become a verb?) as a driver or passenger; they use their subscription to a shared car service such as Zipcar to take occasional trips; or they get paid for allowing advertising on their own car by subscribing to companies such as Carvertise. FlightCar gives you free parking at big airports if you let other travelers use your parked car when you are traveling. Similar sharing activities take place with homes, clothing and accessories, occasionally used tools and equipment and even medical equipment.

All these shared assets need to be covered in different ways than the traditional, personal lines homeowner’s or car insurance policies. Occasionally renting out assets to third parties or shared ownership of one asset between non-family members creates a different risk profile than self-use only, both for property coverages and especially for liability.

Think about deductible coverage between multiple owners in case of a claim, good driver discounts or multiple non-familial owners getting involved in the same accident, as liable parties and as claimants. The insurance market has been pondering insurance solutions for the shared economy for a while now and found ways to cover Uber drivers or Airbnb landlords or offer non-owner car insurance. As an industry, however, we defaulted to our classical model of insurance and put a commercial coverage, bought by the shared economy company for their members,  on top of individual personal insurances where needed.

It works, but, as one can imagine, it is a bit clunky. Especially on larger claims, I expect delays and issues to occur concerning liability, wear and tear, acceptable use of assets and confusion around which policy should pay followed by subrogation. Now, most shared-economy companies have stated that they will reimburse their members for losses and will figure out later what is covered by which insurance. This is a good thing for their members, of course, but it doesn’t necessarily help insurers very much.

We should be able to do better and create truly new insurance coverages for the shared economy. For example, why wouldn’t an insurer work with one of the new tech companies that provides people with a cloud solution to document all of their assets with pictures, videos, sales receipts or warranty documents? Why wouldn’t an insurer create a comprehensive coverage for property and liability for all these clients’ assets, under the assumption that they will be shared? Tag the key assets with a sensor and learn from usage data. Use telematics data on the car use. Limit home rentals to one or two partner companies and learn from usage analytics.

Why wouldn’t a carrier try a pilot with a segment of young people with limited assets, in a single location?

I know that this is not a simple proposition and that, in creating these kind of coverages, many hurdles will be encountered. I do think, however, that the market is ready, and that the sharing economy will become a force to be reckoned with soon. So, we might as well figure out how to insure and service that force.

As my colleague Mark Breading stated in his recent research brief, Insurance in the Connected World: Observations on Opportunities and Threats, “Actively participating in the rapidly growing sharing economy will be critical for personal lines insurers. Asset ownership is shifting and requiring a different approach for managing and protecting the assets.”

It is not going to be easy, but customers will count on our industry to develop solutions to protect their shared assets. We have successfully been supporting changing economies and technologies for centuries now – I am sure we’ll also find a solution for the new sharing economy in a connected world.

‘Smart’ Is Everywhere, but…

The connected world is here. Everything is “smart.” And for insurers, the implications are huge. Whatever you insure can now be connected, monitored and analyzed. People, places and things, moving or stationary, living or non-living—are all becoming smart. Think that is an exaggeration? Consider the following products announced or displayed at the Consumer Electronics Show (CES) 2016, just a few of the thousands of smart products:

  • Smart air vents to monitor and adjust temperature in each room, detect for early signs of mold, etc.
  • Smart drinking glasses to monitor hydration and caffeine intake
  • Neuro-stimulation devices to block chronic pain or alter moods
  • Smart appliances that manage energy efficiency, anticipate failures, conduct e-commerce, etc.
  • Wearable patches to monitor UV rays, toxic exposure and biometrics
  • In-car cameras that monitor a driver’s pupils for signs of stress

Add to that list smart belts, umbrellas and smoke alarms among many other things, and it’s difficult to find anything that doesn’t have a “smart version” today. And it’s all pretty exciting stuff. But here’s the rub—in many cases, the technology is way ahead of the desire and ability of consumers and businesses to use it. A few important considerations emerged as central themes at CES:

  1. Value propositions need more work. Many of the products at CES were narrow-use, high-priced items that work in isolation.
  2. Customer experience is still king. Products must be easy to install, easy to use and engaging. Progress is certainly being made here, especially among wearables, but some of the smart home and car products need to take the experience to the next level to get beyond the early adopters.
  3. Platforms and standards progress are required. Competing platforms for smart home hubs, connected car capabilities, intelligent infrastructure and other areas may impede adoption. The competitive environment is healthy, but widespread adoption will require more interoperability standards and a shakeout of players.
  4. New ecosystems and partnerships are rapidly evolving. Industry boundaries are disappearing, and new industries are emerging. Success in the connected world will require active involvement in various ecosystems as well as a flexible partnering strategy.
  5. Analytics and cognitive computing will be the differentiators. Embedding chips, sensors and devices into everything is creating vast oceans of data. The value will increasingly be based, not on owning proprietary data, but on the ability to gain actionable insights. Cognitive computing goes even further by automating real-time learning, reasoning and recommendations.

These five considerations along with other factors will affect adoption rates and opportunities for businesses and consumers. But it would be a mistake to conclude that there are too many complications or barriers to progress. In fact, the opposite is true. Advances are being made at breakneck speed, and barriers are being knocked down on a regular basis. If anything, this means that insurers need to be even more diligent and aggressive in shaping the future.

So, innovate to create new value propositions. Seize opportunities to transform the customer experience. Weigh in at relevant standards and platform discussions. Join new ecosystems and seek partnerships with unconventional allies. And build up your enterprise analytics expertise and capabilities.

The digital, connected world is here. If you want your company to thrive in this new era, you must jump in with both feet. The possibilities are endless, but you must play a role in shaping and capitalizing on them.