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New Power Shift in P&C Insurance

P&C insurance carriers have witnessed a lot of changes in the past decade, but few have been as surprising as the shift of power currently taking place across the industry.

According to Dennis Chookaszian, the former CEO and chair of CNA, carriers maintain only 40% of profits today, representing a drop of 20 to 25 points from the 1960s. An equal share now goes to the distribution system, as carriers line up to acquire and maintain more customers.

What’s behind this shift in profitability can’t be summed up in a single word, but increasing competition, new market entrants, improving technology, changing customer expectations and continued consumer price sensitivity all play a role.

To remain competitive, carriers will need to gain more control over distribution, a goal that even Chookaszian admits will not be easy to achieve.

Why the Power-Shift Toward Distribution

In the mid-part of the last decade, insurance carriers required two primary competencies to operate: data and capital. Because neither was easy to acquire, competition was less robust, and incumbent carriers found greater profitability, taking in roughly two-thirds of insurance transaction profits.

Today, data is everywhere, and through the use of analytics, simpler than ever to understand and use. Capital is also easier to acquire, as is evidenced by the growing number of insurtech players in the industry. According to Willis Towers Watson, $2.3 billion was invested in new insurance tech companies in 2017.

According to Chookaszian, the core competency for insurers now lies in distribution and control of the customer.

“It’s become so competitive that the carriers basically are always out looking for new accounts,” Chookaszian says.

That means higher commissions are paid to agents as carriers battle it out for market share, resulting in shrinking margins.

“Given the shift in profitability to distribution, the carriers that will be better off will try to regain some control over distribution,” Chookaszian says.

Admittedly, that is not an easy thing to do. The agent enterprise is part and parcel of most insurance operations. Directly selling insurance to consumers will require insurers to set up their own distribution systems, while still supporting their vast networks of independent or captive agent forces.

See also: The Future of P&C Distribution  

Distribution Goes Digital

When Benjamin Franklin started the first successful U.S.-based insurance company in 1752, he was dealing with a localized Philadelphia population, but, by the end of the 18th century, citizens were moving westward, making it necessary for insurers to expand their distribution networks.

The Hartford made the first foray into direct distribution by offering insurance through the mail, but few consumers of the time were willing to give up the personal services of an agent when it came to purchasing something as critical as insurance. Carriers of the time faced a similar dilemma as carriers do today: how to acquire customers in a changing marketplace.

According to the J.D. Power 2018 US. Insurance Shopping Study, insurers are aggressively courting customers with new options and amenities as auto insurance rates remain stagnant and the number of consumers seeking coverage declines.

“We’re entering an era of consumer-centric insurance that will likely be marked by a surge in new digital offerings and serious efforts by insurers to improve the auto insurance shopping experience,” says Tom Super, director of the property and casualty insurance practice at J.D. Power.

This shift is happening across all lines of coverage, even small commercial.

While citizens on the new 17th-century frontier may have been hesitant to buy coverage without the guidance of an agent, many 21st-century buyers have no such qualms. Nearly half of consumers responding to a survey conducted by Clearsurance said that they would purchase an insurance policy online, while 65% believe this will be the primary channel for purchasing coverage within the next five years.

According to research conducted by Accenture, consumers are open to a number of new possibilities when it comes to buying the policies they need:

Power in the form of profits may have shifted to distribution, but consumers are making a power play of their own, demanding greater service and amenities and taking their business to the carrier most capable of meeting preferences and price points. In a world of shifting power, creating an active, online distribution channel puts more of the profit back into the carrier’s bottom line and allows it to attract more customers in three distinct ways.

Cutting Transaction Costs

According to a report from the Geneva Association, the leading international insurance think tank for strategically important insurance and risk management issues, 40% of P&C premiums are absorbed by transaction costs, leading to inflated policy pricing that drives away potential customers. PwC pegs distribution as a heavy culprit, reporting that 30% of the cost of an insurance product is eaten up in distribution.

On the other hand, Bain predicts that insurers could cut the cost of acquisition by as much as 43% through digitalization. Underwriting expenses could drop as much as 53%.

Reducing these costs allows insurers to present a more attractively priced product to consumers, an important consideration given that 50% of customers base their loyalty with an insurer on price.

To understand how costs are reduced through digital distribution, it helps to understand how a leading digital distribution platform works to raise efficiency. According to PwC, up to 80% of the underwriting process can be consumed by administrative tasks that require manual workarounds, such as re-entering information into multiple systems.

Much of this re-inputting of data is due to the siloed nature of insurers’ administration systems. Digital distribution platforms create a layer between the front-end online storefront, where customers enter application data, and the back-end systems used to store information.

As consumers enter their personal details into the online application, all back-end systems are populated automatically, eliminating the need for manual work-arounds. Everyone across the organization has the same view of the customer and access to any information that has been provided.

Digital platforms are also masters of straight-through processing, automating the quote-to-issue lifecycle and reducing the need for manual underwriting. By automatically quoting, binding and issuing routine policies, insurers reduce costs and also provide a more “informed basis for pricing and loss evaluation,” according to PwC.

As costs drop, insurers are also able to more competitively price insurance coverage. Lower prices win more customers allowing insurers to take back some of the profitability of distribution.

Improving Customer Experiences

When it comes to insurer-insured relationships, there is a gap between what consumers want and what insurers provide. Consumers rate the following points as very important aspects of the insurance buying experience:

  • Clear and easy information on policies
  • Access to information whenever it is needed
  • Ability to compare rates and switch plans
  • A wide range of services

But few consumers agree their insurer is meeting these expectations:

27% see clear and easy information on policies

29% report access to information whenever they need it

21% say there is the ability to compare rates and switch plans

24% see a wide range of services

The customer experience is becoming a key differentiator across the insurance industry. McKinsey reports two to four times higher growth and 30% higher profitability for insurers that provide best-in-class customer service, but here’s the rub. Only the top quartile of carriers fall into this category.

Becoming a customer experience leader requires insurers to understand that the separate functions associated with policy sales and distribution appear as a single journey to consumers. They expect to quote, bind and issue multiple policies through a single application, using as many channels as they feel necessary to get the job done.

While 80% of consumers touch a digital channel at least once during an insurance transaction, 45% of auto insurance shoppers use multiple channels when making a purchase. They expect to be recognized across these channels, picking up in one where they left off in another.

The multiple back-end systems employed by most insurers present a strategic dilemma here, as well as in the area of cost containment. Without transparency between channels, consumers are forced to restart a transaction every time they change their engagement method.

“It amounts to a great deal of frustration for the consumer,” says Tom Hammond, president U.S. operations, BOLT. “You start an application online and then call the customer-facing call center, and they can’t see what you did through the online storefront.”

Hammond explains that digital distribution needs to be omni-channel distribution, seamlessly integrated with a single view of the customer. It’s the only way to meet consumer experience expectations now and into the future.

Thanks to advances in analytics and artificial intelligence, the amount of data that is available to carriers has grown significantly, and consumers expect that information to be leveraged for their benefit. Eighty percent of consumers want personalized offers and pricing from their insurers.

Progressive is one of the 22% of carriers currently making strides to offer personalized, real-time digital services, having recently released HomeQuote Explorer. From an app or computer, consumers can enter information once and receive side-by-side comparisons from multiple homeowners insurance providers. According to the company, they leverage a network of home insurers to make sure customers can find the coverage they need at a comfortable price.

Oliver Lauer, head of architecture/head of IT innovation at Zurich, believes these collaborative networks are an integral part of the digital future of insurance.

“Digital innovation means you have to develop your insurance company to an open and digitally enabled platform that can interface with everybody every time in real time – from customers to brokers, to other insurers, but also to fintechs and insurtechs,” Lauer says.

Using a digitally enabled market network, insurers can fill product gaps and even meet customer needs when they don’t have an appetite for the risk. The premise is simple. By offering coverage from other insurers, they maintain the customer relationship and reap the rewards of loyalty.

As society changes and consumer needs evolve, the ability to personalize bundled coverage to the needs of the individual will become increasingly important. Consumers are now looking for coverage to mitigate risk in previously unheard-of areas, such as cyber security, identity theft and even activities related to legalized marijuana.

When an insurer is unable to provide the coverage a customer needs, it risks forfeiting that relationship, and any other policies bundled with it, to another carrier. But when the carrier takes part in a market network, it can bundle the appropriate coverage from another insurer with its own products, personalizing the coverage to better fit the needs of the customer.

See also: Key Strategic Initiatives in P&C  

Digital platforms offering market networks also set the stage for insurers to offer ancillary services, such as roadside assistance, that make their insurance products more attractive to consumers. We see this happening with increasing frequency as carriers seek to improve the customer experience and lift their acquisition efforts.

DMC Insurance, a provider of commercial transportation insurance solutions, recently announced a partnership with BlackBerry Radar. The venture would provide transportation companies with real-time data on vehicle location, as well as cargo-related information, such as temperature, humidity, door status and load state. Information like this will help companies better manage risk.

In the personal lines market, insurers are partnering to offer services that enhance the life of their customers. Allstate’s partnership with OpenBay allows consumers to review repair shops and schedule an appointment from an app. Allianz is helping home owners safeguard properties by partnering with Panasonic on sensors that monitor home functions and report issues. Customers can even schedule repairs through the service.

Digital Distribution Benefits All

J.D. Power reveals that digital insurers are winning the intense battle for market share in the insurance industry, starting a shift that could help level the profitability field between distributors and carriers. In a recent insurance shopper survey, overall satisfaction was six points higher for digital insurers over those that sell through independent agents. This lead grows to 12 points when compared with carriers with exclusive agents.

According to research by IDC, digital succeeds on the strength of its data. The ability to collect and analyze the vast stores of data available through these interactions, including such variables as the time of day the consumer shopped for coverage, the channel the consumer used, and stores of information collected from third-parties as part of the automated application process, provides the key to improved customer service.

“By analyzing this data, insurers can understand each customer’s lifestyle, behaviors and preferences in order to engage with them at the right time and place, offer personalized service and offers and more,” says Andy Hirst, vice president of banking solutions, SAP Banking Industry Business Unit.

As insurers create omni-channel engagement, they’re strengthening distribution from every angle, giving consumers the option to quote coverage online when it’s most convenient for them, and then buy it right then and there or to seamlessly call an agent to discuss their options and their risk.

Customer experience is rapidly becoming the foundation of success in the industry, and digital distribution provides the first link in building that base of core customer satisfaction. By providing consumers with multiple channels of engagement and the ability to meet more of their needs at any time, day or night, carriers are taking back the lead on profitability.

How to Use All the New Data

Most people who purchase an insurance policy are faced with the daunting task of filling out an extensive application. The insurance company – either directly or through an intermediary – asks a myriad of questions about the “risk” for which insurance is being sought. The data requested includes information about the entity seeking to purchase insurance, the nature of the risk, prior loss experience and the amount of coverage requested. Insurers may supplement that information with a limited amount of external data such as motor vehicle records and credit scores. The majority of information used to inform the valuation process, however, has been provided by the applicant. This approach is much like turning off your satellite and data-driven GPS navigation system to ask a local for directions.

According to the EMC Digital Universe with research and analysis by IDC in 2014, the digital universe is “doubling in size every two years, and by 2020 the digital universe – the data we create and copy annually – will reach 44 zettabytes.” That explosion in the information ecosystem expands the data potentially available to insurers and the value they can provide to their clients. But it requires new analytical tools and approaches to unlock the value. The resulting benefits can be grouped generally into two categories:

  • Providing Risk Insights: Mining a wider variety of data sources yields valuable risk insights more quickly
  • Improving Customer Experience: Improving the origination policy service and claims processes through technology enhances client satisfaction

For each of these areas, I’ll highlight a vision for a better client value proposition, identify some of the foundational work that is used to deliver that value and flesh out some of the tools needed to realize this potential.

Risk Insights
Insurance professionals have expertise that gives them insight into the core drivers of risk. From there, they have the opportunity to identify existing data that will help them understand the evolving risk landscape or identify data that could be captured with today’s technology. One can see the potential value of coupling an insurer’s own data with that from various currently available sources:

  • Research findings from universities are almost universally available digitally, and these can provide deep insights into risk.
  • Publicly available data on marine vessel position can be used to provide valuable insights to shippers regarding potentially hazardous routes and ports, from both a hull and cargo perspective.
  • Satellite imagery can be used to assess everything from damage after a storm to proximity of other structures to the ground water levels, providing a wealth of insights into risk.

The list of potential sources is impressive, limited in some sense only by our imagination.

When using the broad digital landscape to understand risk — say, exposure to a potentially harmful chemical — we know that two important aspects to consider are scientific evidence and the legal landscape. Historically, insurers would have relied on expert judgment to assess these risks, but in a world where court proceedings and academic literature are both digitized, we can do better, using analytical approaches that move beyond those generally employed.

Praedicat is a company doing pioneering work in this field that is deriving deep insights by systematically and electronically evaluating evidence from various sources. According to the CEO Dr. Robert Reville, “Our success did not come solely from our ability to mine data bases and create meta data, which many companies today can do. While that work was complex, given the myriad of text-based data sources, others could have done that work. What we do that is unique is overlay an underlying model of the evolution of science, the legal process and the dynamics of litigation that we created from the domain expertise of our experts to provide context that allows us to create useful information from that data built to convert the metadata into quantitative risk metrics ready to guide decisions.”

The key point is that if the insurance industry wants to generate insights of value to clients, identifying or creating valuable data sources is necessary, but making sense of it all requires a mental model to provide relevance to the data. The work of Praedicat, and others like it, should not stop on the underwriter’s desktop. One underexploited value of the insurance industry is to provide insights into risk that gives clients the ability to fundamentally change their own destiny. Accordingly, advances in analytics enable a deeper value proposition for those insurers willing to take the leap.

Customer Experience
Requiring clients to provide copious amounts of application data in this information age is unnecessary and burdensome. I contrast the experience of many insurance purchasers with my own experience as a credit card customer. I, like thousands of other consumers, routinely receive “preapproved” offers in the mail from credit card companies soliciting my business. However appealing it may be to interpret this phenomenon as a benevolent gesture of trust, I know I have found myself on the receiving end of a lending process whereby banks efficiently employ available data ecosystems to gather insights that allow the assessment of risk without ever needing to ask me a single question before extending an offer. I contrast this with my experience as an insurance purchaser, where I fill out lengthy applications, providing information that could be gained from readily available government data, satellite imagery or a litany of other sources.

Imagine a time when much of the insurance buying process is inverted, beginning with an offer for coverage, rather than a lengthy application and quote request. In that future, an insurer provides both an assessment of the risks faced, mitigations that could be undertaken (and the savings associated), along with the price it would charge.

While no doubt more client-friendly, is such a structure possible? As Louis Bode, former senior enterprise architect and solution architect manager at Great American Insurance group and current CSO of a new startup in stealth-mode observes, “The insurance industry will be challenged to assimilate and digest the fire hose of big data needed to achieve ease of use and more powerful data analytics.”

According to Bode, “Two elements that will be most important for us as an industry will be to 1) ensure our data is good through a process of dynamic data scoring; and 2) utilize algorithmic risk determination to break down the large amounts of data into meaningful granular risk indexes.” Bode predicts “a future where insurers will be able to underwrite policies more easily, more quickly and with less human touch than ever imagined.”

The potential to use a broader array of data sources to improve customer experience extends well beyond the origination process. Imagine crowdsourcing in real time the analysis of images to an area affected by a natural disaster, getting real time insights into where to send adjusters before a claim is submitted. Tomnod is already crowdsourcing the kinds of analysis that would make this possible. Or imagine being able to settle an automobile claim by simply snapping a picture and getting an estimate in real time. Tractable is already enabling that enhanced level of customer experience.

The future for insurance clients is bright. Data and analytics will enable insurers to deliver more value to clients, not for additional fees, but as a fundamental part of the value they provide. Clients can, and should, demand more from their insurance experience. Current players will deliver or be replaced by those who can.

I’d like to finish with a brief, three-question poll to see how well readers think the industry is performing in its delivery of value through data and analytics to clients. Here is my google forms survey.


Wanted by the CEO: A Superhero CMO

The IDC “2016 Global Chief Marketing Officer FutureScape” predicts CMO turnover continuing at 25% per year or higher through 2018.

This is not surprising, as marketing continues to be disrupted and reinvented.

The CMO must anticipate the expectations of the connected consumer, master an accelerating digital learning curve and negotiate a new role and relationship to the CEO – who himself must come to terms with marketing playing a new position in the organization.

While this is true across companies in all sectors, it is a special consideration in insurance, where marketing is emerging from a historical “back seat” role in sales support and becoming the leader of customer-centricity and digital transformation efforts.

The CMO is now often expected to be a superhero – one who speedily turns customer-centricity into P&L results … uses technology and data analytics to drive performance … delivers marketing ROI … drives leads to sales channels … and advances capabilities to keep up with marketplace opportunities. She is a leader who gets beyond intellectualizing the need for change and quickly makes change happen. She gets Millennial consumers to flock to the brand.

Being data-driven is core to the wiring of the CMO who can accomplish all of this. Being a member of the Millennial generation may be useful, too. But I’m hearing a hunger for even more, from start-ups to Fortune 500 leaders.

These leaders are looking for a CMO who demonstrates:

  • Strategic, visionary and transformational wiring, with the ability to execute
  • Skill at seeding and scaling innovation
  • Analytical, technical and creative abilities
  • A collaborative style – someone who is a motivator and a networker
  • Digital native instincts and intuition
  • Links to P&L performance
  • A sense of urgency

This profile is a tall order. To find your marketing superhero:

Define what marketing means in your business. Marketing can be the high-impact discipline that connects your company’s brand with customers to create growth. If you have defined marketing as the advertising, promotions and research function, my definition proposes a much-expanded view with implications for the broader team, goals and metrics and alignment. Being clear on the function’s role is the basis for picking the must-have CMO qualities.

Maximize the CMO’s potential by envisioning a function that can:

  • Be immersed in customers’ lives and be the internal advocate for their needs
  • Surface, synthesize and apply market insight and data – pushing beyond demographics to a segment-based understanding of attitudinal, behavioral and cross-cultural attributes
  • Create experiences that attract customers and strengthen relationships
  • Test and learn – acquiring and applying data to get better
  • Have a P&L focus – connecting customer behavior to financial outcomes
  • Be a collaborator with colleagues, especially technologists and data scientists

Look to the CMO to adapt the mature methodologies that matter, and meld these with what technology and data now make possible. Segmentation, A/B testing and positioning methodologies work and are essential in an environment of channel proliferation and media fragmentation. Apply these alongside customer journey mapping, machine learning capabilities and the best social, mobile, community and other connection tactics to motivate customer engagement.

Hold the CMO accountable for metrics that make sense. The best metrics focus on the drivers of prospect and customer behavior that marketing can affect. While awareness, intent to buy and volume of qualified leads are on the list, more rigorous metrics linked to P&L outcomes also belong on the marketing scorecard – accounts opened, sales closed, evidence of loyalty such as repeat purchase and recommendation to others. Be aware of the dependencies beyond marketing, across a multi-functional business, to move these levers.

Provide sponsorship. Marketing will continue to transform irrespective of the size or stage of maturity of the business. The function’s success increases in a culture of customer commitment and insight, where leaders keep the customer at the center of decisions.

Chances are your CMO will be mortal. So, how will she succeed? Whether digital migrant, native or newbie, data-driven or intuitive, CMOs will rise to superhero status when they: 

  • Operate with a relentless customer focus.
  • Achieve differentiation that matters to your target.
  • Build and motivate a diverse team – creating, in effect, the composite superhero marketer.
  • Lead with openness, trust and collaboration, self-awareness and humility, clarity of vision and connection to execution.

This post also appears in Amy’s regular column on Huffington Post, Medium.com and LinkedIn.

How Analytics Can Prevent Fraud

What is common between Uber, Amazon, EE, Vodafone, Netflix and Progressive? All these companies have recently faced issues because of fraud.

In insurance, ghost brokers often target young drivers who want to cut the cost of their car insurance. Even though it is the ghost brokers who commit the fraud, the customers lose their cash and also risk a criminal record. And fraudulent claims from customers is a much bigger concern for insurers.

How big is insurance fraud?

The Coalition Against Insurance Fraud, America’s anti-fraud watchdog, estimates that nearly $80 billion in fraudulent claims are made in the U.S. annually. Fraud increases insurance premiums, raises the cost of goods and services and boosts spending on investigation and fraud-prevention programs by insurers.

Fraud is one among the many business challenges that insurance industry is facing, as I have outlined in my previous blog. IDC estimates that insurers spend approximately $100 billion on IT, of which $3.3 billion is spent on information security and to counter financial crimes. Four of the five biggest property & casualty (P&C) insurers have formal anti-fraud programs.

Analytics to detect insurance fraud

Though application fraud, underwriting fraud and premium fraud are also significant threats for insurance business, claims fraud has been the industry’s main focus. Major insurers started deploying new platforms to transform their claims management and minimize fraud. There is a spectrum of vendors from big IT players to niche analytics players that is providing claims fraud detection solutions. Zurich’s UK general insurance business recently deployed end-to-end claims management transformation in association with a major insurance vendor, which minimizes losses associated with fraud.

Manual detection of fraud is next to impossible in the insurance industry, as it is costly and the sheer volume of claims is too high to handle for any insurance company. Also, the velocity, the variety and the veracity of data generated in the claims handling process made the use of statistical models based on sampling methods obsolete.

Because analytics integrates data from diversified channels and combines internal data with third-party data, effective fraud detection can be made possible. Many insurers have started using analytics techniques such as reporting, descriptive analytics, predictive analytics and prescriptive analytics to detect fraud. For example, CNA, the 8th-largest commercial P&C insurer, implemented analytics and predictive modeling to identify claims fraud. In two years of implementation, CNA reportedly saved $6.4 million, attributed to recovered or prevented fraudulent claims.

In this post, we will see how insurers have started adopting innovative technologies along with analytics to detect insurance fraud, beyond traditional analytics techniques.

Social network analysis

A recent AM Best survey found that more than half of the companies surveyed use social media. Life insurance companies appear to be most likely to use social media (65%). Company size is also a driving factor for social media. The larger the company, the more likely it is to use social media. Insurers have also started using social media data of policyholders to investigate and detect claims fraud. For example, if a non-smoker applicant lights up even occasionally and if his social pages has the traces of that information, it can be detected via social network analysis (SNA) tools. SNA tools scan large amounts of data from business rules, statistical methods, pattern analysis and network linkage analyses to uncover possibilities for fraud.


Insuring drones and wearables is going to be difficult for insurers, as there are a multitude of insurance liability and coverage issues. However, insurers have started using drones for their benefit by adopting them in claims adjusting. USAA appointed its first drone pilot for claims handling. With drones in place for claims handling, insurers would no longer need to climb dangerous chimney or to visit catastrophe sites. Also, the data analysis from drones is used to detect insurance fraud. A British company, Air & Space Evidence, detected a fraud case after Hurricane Katrina with the help of drones. A couple who claimed that their home in New Orleans was severely damaged by wind and water was found to be committing fraud when aerial photos showed that the house was intact.


One third of the insurers surveyed are already using wearables for customer engagement, according to Accenture’s 2015 technology vision report. We all know that disruptive technologies such as telematics and wearables (Oscar’s Misfit, Fitbit and the Apple Watch) have also begun to be used for calculating customized premiums. What’s new is, in Canada, data from a Fitbit wristband was used by a personal injury lawyer to support his client’s case. Soon, these technologies will also be used to detect insurance fraud as the data collected from these devices will become fodder for criminal and civil litigation. Insurers now have many reasons to turn to innovative technologies and analytics to protect themselves against fraud.

Please share your thoughts on how you have seen innovative technologies and analytics helping insurers to combat fraud and transforming the insurance industry. In the next few blogs, I will try to explore analytics’ role in the insurance industry in further detail.

Insurance and the Internet of Things

Depending on the day of the week, one of three buzz words seems to fill every column inch, to be used in the marketing of every new product or service and to be cited in every press release. To me, these are, digital (insert anything here), big data and the Internet of Things (IoT). It’s no surprise that the IoT is at the peak of Inflated Expectations in Gartner’s Hype Cycle.


In this post, I want to explore IoT a little further, specifically with the insurance world in mind.

Like any self-respecting early adopter (technology geek/gadget magpie), I personally see the IoT as a game-changing disruptor, regardless of industry. My kids won’t know a world without almost every conceivable thing being connected to the Internet. Depending on which report you read, there will be anything from 100 to 500 sensors in every home and a market for the IoT worth $7.1 trillion by 2020 (IDC), with more than 4.9 billion connected things by 2015 (Gartner). Very few of the technology giants are not investing heavily in this secto. The IoT is not a fad.

So what is the IoT?

It’s simply the ability to interact with a network of physical objects that feature an IP address (directly or indirectly) and can connect device to device or device to human. Today, you can connect lots of things to the Internet, some of which you would never expect. Examples include:

  • Homes and commercial buildings — Smart buildings with smart sensors and smart utilities, security systems, environment monitoring, smart carpet, etc.
  • Automobiles — tracking when, how and where you drive. Transport vehicles of any kind, including driverless cars, could be connected, as could individual items/packages on a cargo ship.
  • Livestock — WiFi sheep; see here from the BBC on why sheep are being fitted with WiFi sensors,
  • Human beings — the latest in wearables allows companies such as Vitality Health Insurance to reward healthy behavior, reducing your premium for the more active and healthy you are.
  • Smart cities — where everything is truly connected. Libelium has 50 great examples here. Have you walked down Regent Street in London recently? It’s an interesting experience. We live in a truly context-aware world.

As Ben Evans said in his great piece, “Mobile is Eating the World,” “Sensors profoundly change what a computer can know.”

Perhaps an easier question to ask is: What can you not connect to the Internet these days? This is a rapidly diminishing list. Look back 12 months or so to the Top 25 weird things to connect to the Internet; all of a sudden they don’t seem so weird. What will happen in the next 12 months? For fans of contactless payment cards, how do you feel when you can’t use it, as a retailer hasn’t yet adopted the technology? Inconvenienced? These are the sorts of simple things that give me time back and are simple and convenient.

Ultimately, it’s all about automated data collection from the source itself. As insurers, our success depends on this. It’s what drives our very industry, right from the very first research, through to quote, bind and every event thereafter that drives our risk, pricing and actuarial teams. Getting this data and monitoring this directly from its source has huge potential in today’s traditional insurance business model.

Another example of positive uses is from Uber, whose data is now supporting city planners with urban transport. As insurers, we could use the same data to avoid accident black spots, congestion and much more. Traffic systems would be linked directly to the flow, density, type and vehicles themselves. Basic data such as time of day, postal code or gender is simply not enough anymore. IoT connected services can change everything.


The cost of connecting things today has becoming almost insignificant, and, importantly, the desire for things that are not connected is diminishing at a greater pace. Ten years ago, you would test drive a car and, nine times out of 10, focus on the driving experience. The first thing people do today is check the “infotainment,” how your smart phone can connect, what you can control via an app. It’s not just cars; I recently moved house and, when looking at new house alarms, a key consideration was what can I control and monitor via my phone or an app. Manufacturers are quick to jump on the bandwagon. Have a look at ADT Pulse (unfortunately not yet available in the UK, but many others are).

It seems there are lots of options, but they are still working on old-fashioned business models. When will alarm monitoring be undertaken by your crowd sourced/handpicked local community as opposed to the centralized service center, which then calls the police? With IoT, who needs middlemen? The first notice of loss (FNOL) or claim process becomes automated (we have talked about this for years). The level of fraud can be dramatically reduced. Everything you can interact with or monitor, you can now predict better than ever.

How does the IoT affect the carrier, agent or broker? Have a look at the infographic below — which of these “things” did you expect to monitor? (The site for the infographic is here.) As the local city administration, can you reduce accidents or claims from understanding smart roads, pothole damage and more? Reduce health costs by understanding pollution?


We as insurers typically struggle because customers rarely want to speak to their insurers. In the new economy, we have the opportunity to be connected all the time to each other. This brings a vast number of possibilities and new potential business models to us, based on this new wealth of data.

Insurers now have the ability to know in advance of an event, ultimately improving their customers’ and potential customers’ experience, security and well-being.

With everything connected, what could go wrong?

However, the IoT has to come with a health warning, too. For me, three of the key things to consider here as insurance organization are:

  1. You are now really competing on data, nothing more. We never produced any products, anyway; now it’s even more transparent. Make sure you know your data, can process it efficiently and effectively, understand it and most importantly use it. How we use information to enrich our world will be key. Don’t drown; the volume is about to explode. As an example, every minute, OCTO stores more than 118.000 data points from drivers around the world. How will you stand out from the crowd? I wrote recently here on how brand will be critical. Ownership of the data will also be key. BMW recently announced that it would not share any of its connected car data. It does, however, have a significant partnership with a large global insurer already.
  2. Another key risk is from cyber security. There are already stories of usage-based insurance (UBI) car devices potentially being hacked. What happens if your driverless car gets hacked and then crashes, causing serious damage or, worse, a fatality? Who will carry the risk?
  3. You must see how the IoT can drive new business models, based on customer demand. Ray Wang recently said that we are now supporting mass personalization for a market segment of one. What can you now insure that you never could previously for individuals and organizations? New business models don’t mean we have to go alone, either. New partnerships will drive innovation and, importantly, convenience for the end user. Be careful not to miss out on the output, as British Gas has with Hive and nPower has with Nest. Ignore the Hive and Nest connected devices; the data they collect is what matters.

For once, the insurance industry could be as quick to adopt as everyone else to adopt, or ahead. We are on the forefront of data enrichment and much more. We can better price, engage and interact with our customers and prospects. We can interact with each and every stage of the insurance life cycle; we can join and automate the dots faster and better than ever before.

It’s an exciting time, and while it may be a while before the legacy oil tanker turns, we had better be ready and at the wheel if we are to own the opportunity.