Tag Archives: digital innovation

Global Trend Map No. 3: Priorities

In our last post, Insurance Nexus Global Trend Map #2: Insurtech Perspectives, we looked at carrier sentiment toward disruption both globally and in a range of local markets (Europe, North America and Asia-Pacific). We found significant, though not overwhelming, impacts reported from new market entrants, while at the same time acknowledging that psychology may play a substantial role in carriers’ self-assessments.

In this context, it will be interesting to see what sorts of priorities insurers are setting – whether their money is where their mouth is, so to speak. As part of our extensive Trend Map survey, we drew up a short list of 15 priority areas and asked our carrier respondents to rank them from a money, time, staff and training perspective (results below, both globally and segmented on three key regions). You can find a breakdown of our 1,000-plus survey respondents, details of our methodology and bios of our contributors by downloading the full Trend Map here.

We allocated ranking points separately for money, time, staff and training (15 points for first, 14 points for second… one point for last). We then combined our four measures into one composite priority score’(meaning a top score of 60, representing four top ranks, and a bottom score of four, representing four bottom ranks).

See also: 2017 Priorities for Innovation, Automation  

Digital innovation tops the list internationally as well as in North America, Asia-Pacific and Europe. This result (digital innovation as respondents’ key priority, with customer-centricity not far behind) complements what we saw in our earlier post on industry challenges, where technological advancement and changing customer expectations’ were perceived as the key external challenges in the industry. Digital innovation and customer-centricity also represent much of the ground fought on by insurtech – and upon which incumbents must fight, too. Investment management is the lowest-ranked priority across the board, most likely a reflection of enduring low interest rates.

“The highest single priority for insurers – Digital Innovation – is a direct reflection that this is the widest capability gap between insurers’ expertise and what are now marketing ‘table stakes’. Time is not on the side of those who fail to close this gap.” –Stephen Applebaum, Managing Partner at Insurance Solutions Group

Looking at specific technologies attracting buzz, Analytics emerges as top-three priority across the board, while Internet of Things (IoT) struggles to break into the top ten. This is not to deny the importance of IoT for the industry over the years to come, but it does suggest that there are more immediate gains to be realised on the analytics side; ultimately, these two technology areas complement each other perfectly. We further explore Analytics (including Artificial Intelligence!) and IoT in our Key Themes section, which you can access straight away by downloading the full Trend Map here.

While Blockchain did not feature in this year’s shortlist of insurer priorities, we do still cover it among our Key Themes, in our sub-section on Fraud.

To deepen our comparison of the different regions in the table above (North America, Asia-Pacific and Europe), we also created a ‘medals table’ drawing attention to the differing levels of emphasis placed on our 15 priorities from one region to the next. For instance, Asia-Pacific achieved the highest priority score (60) for Digital Innovation and has therefore been credited with the Digital Innovation Medal on the medals table below …

Some key takeaways from our regional comparison…
  1. Analytics, Customer Centricity and Digital Innovation achieve similar scores across all our regions; Customer Centricity trails marginally in North America.
  2. Noteworthy is the perfect score of 60 attained for Digital Innovation in Asia-Pacific, which indicates that this was the number-one priority here in all four measures underlying the priority score (money, time, staffing and training).
  3. Underwriting and Risk Management both score considerably higher in North America than they do elsewhere – as we saw in the first table, Underwriting is 3rd in the list of priorities in North America, despite not getting above 7th place in any other regions.
  4. There is a step-up in focus on Claims in Europe and North America compared to Asia-Pacific.
  5. With Distribution, we have the exact inverse scenario, with Asia-Pacific leading the pack, possibly a reflection of the emerging markets within it necessitating high-scale low-cost distribution, which traditional models cannot provide.
  6. Fraud is also a marginally higher priority in Asia-Pacific.
  7. Europe and Asia-Pacific lead North America with their focus on Internet of Things.
  8. Cybersecurity and Mobile achieve similar (lowish) scores for all regions; Product Development is relatively high across the board.
  9. Regulation is the biggest deal in Europe, where respondents quoted in particular Solvency II and the Insurance Distribution Directive (IDD) as being causes for concern.

“Even though different markets seem to focus on a variety of distinct priorities, it’s clear many insurers place the customer at the heart of their strategies, whether through analytics, digital processes, mobile-first platforms or enhanced distribution capabilities. In each situation, technology is at the core of such digital innovation. Culture and mind-set may be the two elements that slow success.” – Sabine VanderLinden, Managing Director at Startupbootcamp

Find out more about how our key priority areas vary by geography in our Regional Profiles, by downloading the full Trend Map here.

Additional Insurer Priorities

Survey respondents had the opportunity to provide any additional priorities they felt we had missed. Stand-out entries included:

  • Upgrading legacy systems
  • Business transformation
  • Robotics
  • Marketing strategy
  • Blockchain

See also: Why Insurers Need to Transform  

Certainly the top three of these we could categorize as staples of any digital transformation initiative. In our next post, Insurance Nexus Global Trend Map #4: Services, Investments & Job Roles, we take our exploration of insurer priorities one step further. And if you’d like to skip further ahead, you can download the full Trend Map free of charge whenever you like…

Download your complimentary copy of the full Trend Map here.

5 Value Levers for Auto Telematics

Telematics could be one of the most relevant digital innovations in the insurance industry, directly affecting results. Worldwide diffusion of telematics-based motor insurance policies is currently at an early stage, but the best practices achieved levels of penetration higher than 20% of the motor portfolio. The diffusion is growing fast, with well-recognized benefits for the motor insurance value chain.

Looking across countries at best practices, it is possible to identify five value-creation levers:

  1. Risk selection
  2. Pricing (risk-based)
  3. Value-added services
  4. Loss control
  5. Loyalty and behavior modification programs

1. Risk selection

Telematics can be indirectly or directly used to select risks at an underwriting stage. As a matter of fact, products subjected to steady monitoring through telematics indirectly discourage purchase by risky clients, hence limiting adverse selection and fraudulent intent.

Data collection can directly improve the overall quality of the underwriting process, allowing price adjustments or covenants and options related to what the monitoring finds.

For instance, Progressive’s Snapshot provides:

  • a device that measures client driving style;
  • a predictive approach based on data collection;
  • a discount based on information gathered.

2. Pricing (risk-based)

Through telematics, a steadfast monitoring of “quantity” and “level” of risk has become possible. The risk can be calculated on the basis of information monitored continuously, directly determining pricing for individual customers. This may cover usage. Premiums can be adjusted within the year the policy covers, or there can be a discount the following year.

There are solutions such as PAYD (pay as you drive) policies that monitor mileage (with different weights for different time and itineraries) and compute a premium adjustment. PHYD (pay how you drive) policies, instead, integrate information gathered on mileage with an analysis of the client driving style, defined through both mileage and driving behaviors (the number and the intensity of accelerations and stops, driving timetables, speed and other variables).

3. Value-added services

Value-added services can be offered to the insured by the insurer or partners to exploit data detected and sent via telematics. Some examples related to the automobile business are:

  • Car antitheft systems through an installed back box;
  • Emergency services with automatic claim detection or buttons for direct-dialing the assistance center;
  • The possibility to link the telematics device to a payment system (and confirm via smartphone app) to authorize all car-related transactions, such as parking, tolls and refueling.

4. Loss control

Telematics — based on a box installed within the car — also allows for the use of data detected by sensors to limit the loss ratio of the motor portfolio. In this sense, telematics enables the development of claims management processes that are faster and more efficient, by anticipating:

  • The actual verification of the claim (anticipation of the first notice of loss);
  • The direct contact with the client for description of the claim;
  • The attempt to use agreed body shops.

The use of structured information coming from telematics sensors optimizes claim evaluation, improving fraud detection and providing more information during any eventual in-court processes.

5. Loyalty and behavior modification programs

Behavioral programs are basically approaches that exploit information gathered on comportment to direct clients toward less risky solutions.

This can be fairly achieved through the inclusion of telematics devices and measurement of risky behaviors.

Discovery’s Vitality Drive has applied this approach with a proposition based on:

  • “Black box” requested by the client to have access to the loyalty system, with a monthly fee;
  • Drive style monitoring and reporting through feedback;
  • Incentives for other “virtuous behaviors” (car maintenance, driving courses, …);
  • Cash-back fuel expense, related to the score of the driving style and of other monitored behaviors.

The telematics business evolution — from a niche underwriting solution focused on younger and low-mileage drivers to a mainstream solution broadly applied on motor portfolios — requires the creation of an integrated approach based all the five levers. This approach has the potential to be a real game changer in the motor insurance business.

5 Questions That Regulators Must Ask

Fast growth and disruptive strategies make the likes of Uber, Airbnb and Lending Club a vanguard of young, fundamentally digital companies that are changing the way people travel, save, learn, eat, pay, lend—and more. Typically positioned as alternatives, they offer, among other things, financial services without being banks, car services without being taxi companies and somewhere to stay without being hotels.

In other words, the companies don’t play by established industry rules. And that’s the reason regulators and courts in a number of countries struggle to make sense of the changed industry ecosystems they oversee as they try to determine whether to permit or prohibit these digital disruptors. We believe the choice doesn’t have to be black or white: Regulators will want to enable the potential of these digitally contestable markets to deliver efficiency and innovation, while minimizing risks for consumers and the burden of adjustment for incumbents. The question is, how should they approach this difficult task?

The entrepreneurs who create digitally disruptive companies are routinely guided by a number of related strategic questions. We believe oversight bodies can use similar questions to arrive at appropriate regulatory responses. Here we suggest five:

1. How can we better serve customers’ needs and wants?

Many of the new digital business models work by putting underemployed talents or assets—like spare rooms or underutilized cars—to productive use. These business models usually won’t fit into traditional industry categories, such as “hotels” or “taxis.” Consequently, to make sense of them, regulators should fully consider the perspective of the consumer, setting aside purely industry sector approaches and taking a market view—the market for overnight stays or for travelling within a city, for instance. This way, they can support the successful operation of the market as a whole, namely balancing the many different outcomes demanded by consumers, including price, quality, availability, choice and safety.

Doing so will enable regulators to make a sober and impartial assessment of a new player’s potential to improve or upset this balance. Ruling out new players from the start simply because they don’t fit an existing industry definition could deny consumers better or cheaper ways of fulfilling their needs and wants. Worse, a start-up whose activities fall outside the realm of regulation could decide to enter an unregulated “shadow” sector that could ultimately create even greater trouble for incumbents and consumers. The recent rise of the so-called shadow banking sector should give consumers and regulators alike pause for thought.
In practice, regulators may be constrained by existing laws; they can, however, start the conversation about how regulation will need to adapt.

2. Are we considering all the competition?

Within a digitally contestable market (for example, the market for payments) new entrants very often straddle multiple industries. A good example is Apple Pay, a new way of paying for things with an Apple device. It has the potential to reinvent in-store and mobile transactions, simultaneously disrupting the telecom, financial services and retail industries. The market for wearable biometric technology is another example, bringing together high-tech, mobile and healthcare services within accessories and apparel that needs to be demonstrably safe for personal use.

As digital markets run beyond industry boundaries, regulators in different industries will need to collaborate with one another to catch up. Collaboration between regulatory bodies, where appropriate, may be both necessary and desirable—not only to execute current responsibilities but also to create common frameworks that encourage businesses to invest in digitally contestable markets. This approach can drive growth and productivity for the economy as a whole.

3. Are we thinking globally?

Just as digital disruptors don’t conform to traditional industry definitions, neither do they confine their ambitions within national borders. Mobile apps can work in the same way the world over as long as there is unfettered Internet access, and providers want to back them with consistent services. Moreover, customer expectations exhibit a ratchet effect. If it’s possible to use a mobile app to arrange a ride in London, why not in any other city? Why should a consumer’s experience of VoIP services from the same provider vary from country to country?

The work of regulators will increasingly depend on international collaboration. National bodies should actively align their work programs to increase the evidence base, accelerate the uptake of “next practice” and coordinate regulatory responses where it makes sense to do so in the interests of consumers.

4. Where can we experiment?

Digital disruptors don’t just compete in existing markets—they explore, create, define and shape new markets. Take Postmates, a San Francisco startup launched in 2011 that has built its business model on the entire process involved in “getting things,” including queuing, purchasing and delivering. Consumers and businesses can use the company’s app to arrange for a “Postmate”—an individual with spare time and wheels—to buy and hand-deliver any item within a city in less than an hour for a distance-based fee starting at $5. Using technology to combine elements of the retail, courier, concierge and postal sectors, the company is opening up a market for integrated convenience services previously available only to the affluent. Postmates can now be found in 13 metropolitan areas in the U.S. and has inspired similar services in Europe. It is also developing a merchant program to enable local businesses to initiate deliveries to customers and establish virtual stores within the Postmates app.

Disruptive businesses don’t wait for market potential to be proved before they act—and neither should regulators. While regulators will always base their oversight activities on deliberative, comprehensive assessments, today they also need to become as agile as the new players to react quickly to events, or even anticipate them. Digital tools and techniques can help.
One example: A/B testing, frequently used by digital disruptors to run multiple fast experiments on small samples of their customer base. This enables them to refine and improve proposed changes to the online user experience—design, offerings, prices—before rolling them out in full. While taking care to secure the consent of participants, regulators could harness techniques like these to test regulatory adaptations. If a market’s participants innovate and succeed through speedy knowledge of what works and what doesn’t, why shouldn’t that market’s enabling framework benefit in the same way?

5. Do we know what’s around the corner?

Digitally contestable markets often catch regulators by surprise. The head of the UK’s Competition and Markets Authority called digital disruptors “a Schumpeterian gale” sweeping across the economy. To harness the power of this storm of creative destruction, regulators will have to do more than simply react to change. They also need to be prepared before markets are upended.
To prepare effectively, they should make renewed use of horizon-scanning activities to spot systemic risks and emerging trends. When postal agencies (and their regulators) were debating the competitive merits of “last-mile” delivery companies, did they really envisage the breadth of service integration that players like Postmates would provide? Regulatory agencies will also need to develop techniques that encompass new technologies, encourage innovative business models, and explore new and more effective policy tools.

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Getting Started

The level of uncertainty generated by digitally contestable markets is unprecedented. New market dynamics are rapidly altering the boundaries and methods of oversight. Regulators will need to build new capabilities if they are to ask and meaningfully answer the five critical questions. They can start in three areas:

1. Talent: They should recruit people with experience in startups, to acquire the range of skills and mindsets needed to cope with fast-changing markets. Agencies should also ensure they have employees who are well-acquainted with disruptive technologies, whether through their work or simply in daily life.

2. Technology: To inform and enhance decision making, regulators should become comfortable with employing digital technology, including the “SMAC” of social, mobile, analytics and cloud. In particular, they should make full use of the intelligent data collection tools available today, including consumer apps such as Field Agent, as well as the burgeoning Industrial Internet of Things. Their goal should be to improve decision making using an evidence-based and data-driven approach. Beyond that, big data analytics can help them more accurately predict changes in customer and regulatory demand.

3. Tactics: To better anticipate and meet regulatory challenges, there are some no-regret steps regulators can take. For example, they can undertake “social listening” via Twitter, LinkedIn and other conversation spaces; this will help them identify future market players and spot market trends. Regulators should also participate in industry “hackathon” events to learn about the challenges entrepreneurs and innovators are currently facing, and even employ their own open, problem-solving events—physical or digital—to understand current concerns and explore potential solutions.

Digital innovation hasn’t changed the objective of regulation: promoting consumer welfare. But how to do it—developing and applying rules that deliver efficient and equitable outcomes—has become more complex and difficult. In economies increasingly populated by digital disruptors, the first step for regulators is to begin to question, think and act like the companies they oversee.

This article was originally published in Outlook, Accenture’s online journal of high-performance business. It is available here

Read more about digitally contestable markets here and ecosystem collaboration here.

6 Trends Signaling Major Opportunity

Last year, I decided to pursue a career transition as a full-time occupation. I’ve been out in the market for the past six months, assessing business opportunities as I network with executives in financial services, healthcare, media and retail, as well as with VCs, private equity investors and advisers.

What’s been great is that invariably any role in any organization, however broad, will be framed by the priorities that drive the business, which may be using a short-range lens defined by the annual plan, or one that doesn’t offer much of a peripheral view.  Transition-as-occupation offers full permission to set the aperture and depth of field for insight-gathering and exploration.

What has also been remarkable is not only the generosity of many people at the top of their respective fields to share perspectives, but also how I’ve been able to help others by playing the role of connector among people who may not normally meet up with each other, but who are excited to understand how others are addressing common questions in a complex and changing environment.

Here are six connected trends on the collective mind of the leaders with whom I’ve met. They represent a snapshot of what I am hearing. Within them are opportunities to be realized across this industry:

  • Customer-centricity – is it talk or walk? C-suiters certainly verbalize that “customer-centricity” matters, but few teams demonstrate that empathizing with the customer is bedrock for viable, win/win relationships, growth and profit improvement. The phrase has as many definitions as (or more than) the number of people defining it. Most significantly, the connection to concrete, quantifiable business priorities is generally missing. For those who get beyond the buzzwords, there is tremendous tangible value, even disruptive opportunity, in being a customer-focused player in this sector.
  • Old norms don’t work…digital and innovation are essential. Businesses are faced with redesigning processes, structures and metrics, recruiting more agile learners who are also able to deliver and overcoming legacy infrastructure to adopt new technologies. This level of change in the way businesses operate is not for the faint-hearted. The companies that take on these real implementation requirements will gain ground.
  • Yes, technology truly is changing everything. Even with greater efficiency, there is no growth without compelling offerings that meet big market needs. For companies engineered to serve baby boomers, serving the millennial generation requires profound change, not just a digital coat of paint. The implications go way beyond having a social media presence, cool apps and clever advertising. The millennial generation is inheriting a different world, re-shaped in good and bad ways by prior generations.  The starting point for progress is to be truly insight-led, and not presume you know what people want and need.
  • The marketing bar is being raised. This discipline has been disrupted, and more is being demanded. Traditionally viewed as “support” people, marketers are now being held to results that require a different seat at the table, a different talent profile, processes and resources and an entirely new set of connections with colleagues and external partners. Begin by redefining relationships, especially with product, IT and sales internally, and with the advertising and media agencies as key outside partners.
  • Two tales are playing out within financial services. Legacy institutions remain heavily focused on regulation, compliance, expense reduction and cyber security…while fin tech is hot, with capital flowing into payments, wealth management, consumer lending and related start-ups pursuing market disruption and reshaping the industry. Start-ups are doing great things in this sector and will keep incumbents on their toes, as well as representing potential acquisition opportunities as a strategy to modernize. Alignment around a clear strategy and a collaborative culture are at the foundation of leading change vs. playing defense.
  • Healthcare disruption is creating opportunities, but the pace is slow. Payers and providers are aiming to address Affordable Care Act and other government, employer and consumer-driven impacts.  Using electronic medical records, controlling employer healthcare expenses and enabling patient accountability for medical care decisions are just three of many big and complex challenges. The road to change will be long and slow given the sheer complexity and fragmentation of healthcare delivery. As in financial services, new entrants are leading innovation with solutions that address elements of the ecosystem. As in financial services, there is room for incumbents to realize opportunity with the right strategic and cultural conditions.