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Outsiders Retreat From Insurance

Cargill, Monsanto, Wells Fargo and John Deere are officially out of the crop insurance business, according to a recent article from Bloomberg. Large companies like these expanded into different aspects of the agriculture industry over the past few years, and their debut in the insurance industry made quite an impact. With their newly acquired insurance operations, they were the market players to watch – and now we’re watching them leave the industry.

Behind this exodus is the matter of profit. Large companies, especially those that are publicly traded like Monsanto and John Deere, have a different perspective on risk and profit than the typical insurer.

Let’s take crop insurance profit and loss over the past couple years, which is driven by fluctuations in crop prices. As Bloomberg explained, “Bumper harvests have sent corn, the biggest U.S. crop, to less than half its 2012 peak, ratcheting down the premiums farmers pay to insure against loss. Other crops have also seen steep price declines.” At the same time, the broader insurance industry has been seeing lackluster results. The most recent numbers from the Congressional Research Service indicate an underwriting loss of $1.3 billion in 2012 and profit of $657 million in 2013. For insurers, although these are not welcome results, the reality is that there will be challenging years – and insurers are accustomed to anticipating them. They are in for the long haul. But large, diversified commercial companies such as Cargill, John Deere and Monsanto have a much harder time adjusting to these financial results.

So, were these big external players a collective blip on the map, or a real disruption? A pattern visible across many industries offers a possible answer. Large companies diversify around their current offerings, and, if the results are disappointing, they realize the expanded offerings are not core to their business. Google has been extremely successful in most of its diversification, but Google+, its social network offering, never became the powerhouse the compay had hoped would challenge Facebook. If these large companies are unsuccessful, they often leave the new industry.

This is not to downplay the role that new entrants have in the insurance ecosystem. They push our thinking and ways of doing business in directions that might otherwise have taken years for the industry to adopt. New players like Haven Life and Google are not attempting to be the same old insurer, only better. Their goal is to disrupt the business of insurance and to create something in a niche that the industry had not perceived. The disruption they cause can take many forms, from new solutions to new distribution channels. They can go after these markets without owning the entire process – and, in doing so, they create real changes in how the insurance industry has to operate.

Driverless cars will present similar challenges. Volvo and Ford have both mentioned the possibility of covering product liability insurance. How will this affect the insurance industry? Will automakers really cover the liability, or will they front it? Autonomous vehicles will change the insurance landscape by opening doors for these new thinkers. But will the insurance industry need to step in to present new insurance products that provide the necessary coverage? What role will insurers play in the new auto world?

Disrupters like Monsanto, Cargill and John Deere were not in the market for a long time, but they do have an impact. They invested in changing the claims process, and they applied data, analytics and automation in areas that were previously very manual – which causes us to rethink other processes. We can hope that their new ways of doing business opened some eyes in the industry. They did not change the game so much as establish that the game needs to be changed.

New Themes Emerging on Role of IoT

The IoT in Insurance event just concluded in Miami with an impressive lineup of 32 speakers over two days (including yours truly). Above all, the event demonstrated that the IoT is alive and well in insurance. Insurers are exploring, strategizing, investing, piloting and putting real value propositions into the marketplace. Most, if not all, of the participants believe that the industry is paddling into a huge wave – those companies that are aggressive will catch the wave and enjoy a great ride. The rest will get swept under. The industry is in for major disruption and transformation over the next three to five years … and the IoT will play a big role. Although the potential opportunities and threats are vast and varied, a number of important themes emerged at the conference.

Customer Experience Is Key: Customer expectations are a driving force of change. The IoT creates many opportunities to transform interaction with customers: Real-time data enables more active advice and communications, and there is big potential to shift from a few touchpoints a year to daily interactions. Insurers that are already leveraging IoT devices in policyholders’ homes, vehicles and businesses are learning how to offer new value.

It’s All About the Services, Not the Things: So much cool stuff is happening out there! There are so many new IoT-based companies, devices and services that it is almost impossible to keep up. Insurers need to search out the “things” that make sense and create services around them that are valuable to customers. The Ring doorbell, the Roost smoke alarm battery, the Google/Nest thermostat, the leakSMART water detection device and many others are interesting as separate devices but provide even more value when integrated with an insurance offering.

Behavioral Science Is Increasingly Important: Since the dawn of the industry, insurers have relied on actuarial science to develop and price products and plan for losses. Loss experience has always been king in terms of understanding and evaluating risk. The IoT now provides the opportunity to leverage real-time data and interactions to shape behavior and change the risk equation, with the goal of improving safety and helping individuals live longer, healthier lives.

Ecosystem Participation Is Essential: Insurers are not going to be at the center of the universe in the connected world. In fact, the whole notion of the connected world leads to a blurring and overlapping of traditional industries. Networks of partnerships – ecosystems – are being built around the connected car, connected home, connected agriculture and many other domains in the connected world. Each ecosystem is loosely defined and rapidly evolving – and insurers must determine how they participate and contribute to a particular domain.

Data, Platforms and Standards Form the Foundation: One thing is certain. The IoT generates mountains of data – both structured and unstructured – orders of magnitude more than insurers and others are used to capturing, routing, storing, analyzing and leveraging. Insurers must create standard platforms and new standards for data exchange to avoid yet another set of operational silos.

Innovation Is Mandatory: The possibilities are virtually endless. Many insurance professionals see the possibilities and are dreaming up offerings and services. In the end, the winners will be those that can create a culture of innovation, with a continuing commitment to reimagine the business, and the willpower, brainpower and resources to bring ideas to fruition – quickly.

One last observation: Many are excited about the opportunities for the industry but fearful that insurers will not move fast enough. Innovative start-ups, as well as the global behemoths of the digital age (i.e. Google, Amazon, Facebook), go from idea to implementation in days or weeks. There is the potential that insurers will be relegated to back office administration while others own the customer experience. Despite that fear, it is heartening to see so many insurers making aggressive moves, so many Millennials being given the latitude to innovate and so many partnerships established that would have been unthinkable even five years ago.

The industry is not going to go away, but there will clearly be winners and losers in this era – and probably many surprises along the way.

A Word With Shefi: Applebaum at ISG

This is part of a series of interviews by Shefi Ben Hutta with insurance practitioners who bring an interesting perspective to their work and to the industry as a whole. Here, she speaks with Stephen Applebaum, managing partner, Insurance Solutions Group, and senior adviser at StoneRidge Advisors, who describes the implications of the “torrents of data that will flow from connected cars, homes, buildings and people.”

To see more of the “A Word With Shefi” series, visit her thought leader profile. To subscribe to her free newsletter, Insurance Entertainment, click here.

Describe what you do in 50 words or less:

I provide consulting and advisory services to participants across the North American auto and property insurance ecosystem, which leverage my experience, industry contacts and understanding of innovation and emerging technologies to drive meaningful, measurable improvement in revenue, market share, process, profitability and user and customer experience.

What led you to your career in insurance?

Serendipity, actually. An early management consulting engagement with a technology-based startup providing insurance claims solutions to P&C carriers led to a full-time operational and management role and ultimately a very exciting and rewarding 30-year career spanning several different companies that continues today.

What emerging technology will change how insurance is sold?

Prescriptive analytics applied to the torrents of data that will flow from connected cars, homes, buildings and people – enabled by mobile devices and embedded sensors – will transform virtually every aspect of how insurance products are developed, priced, packaged and sold, and how risk is managed in general.

A carrier you highly value for its innovative culture?

Among the many top-tier carriers that have invested in and developed innovative cultures, USAA stands out because of its highly focused and fierce dedication to pursuing constant improvement and technological innovation in the pursuit of providing superior service excellence to its “members” in insurance as well as the full range of its financial services.

You recently published an article on “Disruption in the Automotive Ecosystem.” What tip do you have for companies looking beyond their core value to offer innovative solutions in the auto ecosystem?

I suggest that auto insurance carriers focus on leapfrogging current incremental innovation around connected vehicle and data technologies and begin designing and developing the auto insurance products and services of the future. These will likely be very different than anything offered today and will be enabled by enormous amounts of data flowing from not just connected cars but the broader Internet of Things. They may include personalized, utilization-based micro auto insurance coverages, ride-and-car sharing insurance solutions for owners, drivers and passengers, risk management services from behavioral driving modification assistance to location-based and contextual alerts for commercial favorites as well as navigational, traffic, roadside assistance and weather conditions.

You’ve had more than 25 years of consulting experience in the P&C space. What piece of advice have you found to always be relevant regardless of the subject matter?

I regularly ask myself, “What am I doing, and why am I doing it, and is this the best possible use of my time and talents?” It sounds so simplistic, but if you do it honestly you will find it very valuable.

You are a frequent chairman in industry conferences. In fact, you are the chairman of a coming event on IoT in Miami in December. Who should be attending and why?

Anyone who plans to work, invest and succeed anywhere in the insurance ecosystem over the next decade and beyond should attend. This includes insurance C-level executives, heads of innovation, strategy, claims and innovation, underwriting, business development, product development, strategy, design and innovation, heads of IT, technology and digital, IoT technology companies and startups and regulators.

When you are not consulting on insurance or hosting insurance events, you are most likely…?

Reading, watching and listening to anything and everything that relates to my work – which is, in fact, also my hobby.

New Insurance Models: The View From Asia

Recently, I chaired the 4th annual Asia Insurance CIO Technology summit in Jakarta, Indonesia. The experience brought me into contact with an entirely different set of insurers and insurance technology players. I was rewarded with a fresh view on the challenges and opportunities of insurance during an era of disruptive innovation, as well as a new perspective on how Asian insurers are creating and launching products, defining new channels and new models to out-innovate the competition.

I should state at the outset that Asian insurers aren’t doing everything differently than North American and European insurers. It is a global era. In many ways, their competitive issues are similar. We are all having the same conversations. As I considered the similarities, however, it made the small differences stand out. Just as Asia is hours ahead of the Western world throughout the day, I had the strange feeling that I was listening to the ends of conversations that are only beginning in other parts of the world. Because populations, cultures, use of digital technology and the nature of businesses vary, I thought I would share a short list of insights from my eavesdropping in an effort to shed light on how disruption is being embraced elsewhere and how it could ripple through the industry. I’ll center my thoughts on models, mandates and marketing.

Models

Everyone is discussing models. Business models. Technology models. Distribution models. Transaction models. There is good reason. It’s a model v. model world, and Asia-Pacific insurers know that the model is the center of a business. For the outer layer to be responsive, the business model can’t be a slow-moving leviathan. Disruption has the disturbing tendency to render perfectly good models obsolete. Creating a responsive, obsolescent-proof business model is of great interest to Asian insurers, which are responding to radically different consumer expectations and competitive models than in prior decades.

Traditional insurers at the conference (as well as challengers) are aggressively rethinking the insurance business model. Some believe that insurance will be run more in an open ecosystem, becoming more fragmented and niche-focused, building on the micro concept. If an insurer can embed products in other business models/industries, especially those with high-frequency transactions, then they capture the opportunity for both a new distribution channel and a new product. New Distribution Channel + New Product = New Market Opportunity.

These are areas where insurers can see quantum leaps in growth, yet they are also the areas where insurers are most susceptible to start-ups beating them to the punch.

Mandates

Three clear mandates stood out above all others for Asian insurers – the role of CIOs, the necessity of new cyber security solutions and a new, enterprise-wide look at analytics.

For CIOs, the clarion call was for a rapid advancement and widening of scope for their role within the insurance organization. CIOs must become change agents and grow in influence. They must be active in technology review and adoption, more collaborative with CMOs regarding digital platforms and data sharing and more effective at translating business vision into system and process transformation.

Cybersecurity is a never-ending mandate that also seems to never have the perfect solution. It was universally agreed-upon that today’s security measures have the frustrating trait of being mostly temporary solutions. Blockchain technology (currently in use by Bitcoin, among others) was discussed as a more permanent solution for many security issues. Blockchain use makes transaction fraud nearly impossible. Verification of transaction authenticity is instant and can be performed by any trusted source, from any trusted location.

On a broader note, however, it was conceded that security is no longer just an IT issue, but it is a board-level, organization-wide imperative because security concerns the full enterprise. Boards must fund and address cybersecurity across three aspects: confidentiality, availability and integrity.

Enterprise-wide analytics was another organizational mandate. Some Asian insurers are moving toward using end-to-end analytics solutions that cross the enterprise in an effort to gain a single client view and execute a targeted pipeline, with unified campaigns and advertising. Analytics will also give them risk- and assessment-based pricing, improved predictability for loss prevention and better management of claims trends, recovery and services.

Marketing

Insurers are rapidly moving from product-driven to customer-driven strategies and from traditional distribution channels (such as agents) to an array of channels based on customer choice. At the same time that Asian insurers are looking at relevant business models, they are diving deeply into how marketing tactics may completely shift from a central hub to a decentralized “micro” model. The industry spark has been a short list of both established insurers and start-ups that are capturing new business through new marketing methods, new partnerships and new market spaces.

ZhongAn, for example, is selling return insurance for anything bought on Alibaba. Huatai Life is promoting unit-linked policies on JD.com and selling A&H insurance via a WeChat app. PICC Life has found a distribution partner in Qunar.com, an online travel information provider. These examples require a completely different, high-volume, interaction-based, data-rich, small-issue marketing plan. That kind of marketing will prove to be of great value to insurers that have added flexible, transaction-capable core insurance systems…that are cloud-based to scale rapidly.

Aggregators are now commonplace in insurance, and Asian insurers are looking at how this channel will affect their business, as well as how to use aggregators as a tool for competitive advantage. GoBear, currently selling in Singapore and Thailand, was given as a prime example of how aggregators represent the future of insurance shopping. GoBear isn’t just an aggregator. It is an innovator, revamping the concept of insurance relationships. GoBear Matchmaker, for example, will allow a prospect to pick insurance but also allow the insurer to pick prospects/clients. GoBear Groups will leverage groups/crowd sourcing.

What do these M’s add up to?

Insurance business models, mandates and marketing are all ripe for inspection and change. In some ways, Asian insurers are in a better position for these ground-shaking industry changes because so many of them recognize the stakes involved and the cultural shift required to thrive. Asian populations and culture are ready to embrace technology solutions to meet consumer demands. As all insurers globally address their models, mandates and marketing, it will be fascinating and educational to see how quickly the different markets adapt and are emerging as innovative leaders and how these regional innovations will influence other regions as they turn into global solutions.

One thing was clear to me in my time in Jakarta – Asian insurers are optimistic, active and excited about the road ahead.

The Future of Telematics Is… Italy

The black box used for telematics makes it possible for insurers to enrich their auto insurance value proposition by adding services built upon data. These services represent a way of de-commoditizing the car insurance policy and are also a source of income. In the medium/long term, such services will become more and more important as the risks covered by car insurance decrease because of technological progress on security and connected cars. These services also increase the number of interactions with the client, creating a richer connection and improving customer satisfaction. This is true both for Italy and at an international level.

There are three macro categories when it comes to services:

  1. Informational services related to the UBI (usage-based insurance) policy, typically delivered through a smartphone app or a dedicated area on a website. These services concern: quantification of pricing adjustment at the moment of the contract renewal based on previous driving behavior; coaching and advice regarding the style of driving; advice on how to save more while behind the wheel; “gamification” that allows a comparison of one’s own driving style with that of friends. A Canada-based company called Intact and Discovery, which is based in South Africa, can be considered among the most advanced examples that currently use this type of approach. According to recent data made available by a telematics service provider, four out of five clients owning a telematics insurance policy check put their driver score at least once a month. Furthermore, there is evidence that remote coaching programs can lead to concrete results in modifying driving behavior.
  2. Product offers related to the client’s automobile — like Discovery has done in South Africa with the Tires or like Allstate Rewards — or insurance policies sold “on the go” using data collected from the boxes installed on cars (a process known as reverse geocoding). Tokio Marine (Japan-based) and telephone operator NTT Docomo have shown that impulse “cross-selling” of low-value insurance coverage is a valid approach.
  3. Services related to the customer journey in a connected car.

There is a vast array of services that can be developed within the connected car ecosystem, and the technology is moving fast. There are start-ups and innovative business models popping up everywhere around the world. To cite just a recent Italian example, there is WoW — a digital wallet created by CheBanca! — which has integrated a parking payment service called Smarticket.it.

Services could be observed on three stages of the customer journey:

  • While behind the wheel. Services include bad weather alert, speeding alert, dedicated concierge and even an alert that is activated if the car leaves a pre-defined “safe area” (family “control” options for young or old members of the family). Discovery‘s approach in this field is highly relevant and includes an anti-theft service that signals to the client if the driver has a different driving style compared with the usual one;
  • In case of an incident. Here the Italian market is considered to be an international best practice because of how it has perfected the usage of telematics data to manage services. Many companies here have invested in creating a valuable customer experience by involving partners specialized in assistance. The solutions provided in case of an incident start with contacting the client and — depending on the gravity of the event — continue with sending help directly and taking care of all the logistic and case management problems that can arise. Innovation is now focusing more on simplifying the FNOL (first notice of loss) procedure. One such example is Ania, Italian Association of Insurers, which has announced for 2016 the launch of an app for FNOL.
  • While the car is parked. Beyond locating and recovering the car in case of theft, the blackbox can send alerts when the vehicle is moved or damaged in any way. This also allows a driver to locate a parked vehicle. There are three Italian companies – TUA, Cattolica and Cargeas – that have recently launched innovative value propositions for parked cars. One of the best practices is the street sweeping alert by Metromile.

In this new service ecosystem, insurers will find themselves forced to co-compete (that is collaborate and compete) with different actors that are active in the connected car sector.

Italy is at the moment one of the most advanced countries in terms of service development connected to telematics; they have become mainstream, not just a niche. At the end of 2014, telematics represented 15% of motor insurance sales and renewals in Italy, reaching 30% in some regions, as underlined by a recent analysis by IVASS.

This creates the perfect conditions for the consolidation of approaches driven by insurance companies.