Tag Archives: iot

Tomorrow’s Insurance Is Connected

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

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

Underwriting: Retrospective to Prospective

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

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

See also: Ready for the Fully Connected Future?

Usage-Based Insurance Evolves to Hyper-Personalized Insurance

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

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

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

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

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

Digital Ecosystems: Opportunities Through the Internet of Things 

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

See also: Designing a Digital Insurance Ecosystem

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

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

A Connected Insurance Industry

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

From Risk Transfer to Risk Prevention

Recent developments in technology and the corresponding availability of data can improve risk prevention. A key driver is the Internet of Things (IoT), the growing network of connected devices ranging from consumer wearables to industrial control systems.

According to a recent report by Kaspersky, 61% of enterprises already use IoT applications. So, nearly two-thirds of insurers’ corporate customers can potentially integrate IoT data into insurance services. And a recent study by Aviva revealed that the number of internet-enabled devices in the average U.K. home has increased by 26% in the last three years to over 10.

Insurers can use the newly available data from IoT applications to reduce risks for customers, whether directly – through real-time risk mitigation solutions – or indirectly, by promoting safe behaviors over a longer period.

Prevention services are not new in the insurance industry; for years, insurers have provided consumers with loss prevention advice, and risk-engineering teams advise businesses in commercial lines. Ways to prevent risk, however, are changing. IoT allows risks to be better managed. This can be seen as the very essence of the evolution from pure risk transfer to a “prescribe and prevent” scenario.

See also: The Human Risks in Insurer/Broker M&A

Real-time risk mitigation

Real-time risk mitigation results from the direct use of IoT technology and can either consist of:

  • Automated actions by IoT actuators that affect the risky situation without any human intervention, like autonomous driving systems in cars, or
  • A warning to trigger some kind of human intervention, such as a water leakage alert that activates an emergency repair service.

These risk mitigation actions can be triggered by the detection of three different situations:

  1. Missed safety tasks, such as scheduled inspection or equipment that needs preventive maintenance, or a diabetic patient who has left insulin at home or missed a check of blood sugar level.
  2. A risky situation, such as a frozen pipe; a cold storage door that has been left open; spilled liquids on a supermarket floor; workers without adequate equipment in the workplace; unsafe lifting by an employee; a distracted driver.
  3. The consequences of an event that has already happened, such as a water leak; an unsafe worksite; an injury; or the failure of a patient to adhere to a treatment. A mitigation action is then initiated by the IoT system.

Real-time risk prevention is most mature in commercial lines, driven by the loss control culture present in commercial insurance. Field inspections by engineering teams are well-established, and enhancing this work with new technologies seems like a natural step.

A few personal auto insurers around the world have integrated real-time warnings in their telematics programs. This live feedback – from line departure warnings to alerts about coming risky intersections – influences driving behavior and allows insurers to reduce expected losses.

Water leakage sensors are one of the most cited preventive services in home insurance. However, as of today, insurers have struggled to introduce approaches that generate substantial demand and a sustainable business case. Finding a sustainable business case in the smart home insurance market is challenging, but innovations should make homeowners the ultimate winners.

Figure 1: Leveraging IoT data for multiple use cases

Source: IoT Insurance Observatory & The Geneva Association

Bundling risk prevention with other customer services, such as security, has been the most successful approach to date. The sustainable business case is built on a bundle of different services – some sold after the purchase – and on the reduced churn rates built through customer engagement.

Life and health is the least mature field for real-time risk mitigation services. There have been many insurance pilots over the past few years around early detection, care optimization and medication adherence, but only a few examples have scaled to market level. Reasons for the slow adoption include: 

  • Health costs in most countries are not fully covered by insurers but by a public health system. 
  • Entering into the medical device space would mean entering into the medical regulatory field. 
  • Medical advice comes with significant responsibility and requires deep and specialist knowledge.
  • Execution at scale needs insurers to deal with many different medical service providers. 

Real-time risk prevention services and approaches to them are very heterogeneous. The only common denominator is that all successful services are based on a multi-year journey. 

Promoting less risky behavior

The second way to prevent risk is to encourage less risky behavior. Insurers have a role to play in creating a positive safety culture and raising awareness in society.

We can distill a three-pillar concept from the successful examples: 

  • Pillar one: Create awareness of the current risk level
  • Pillar two: Suggest a change in behavior
  • Pillar three: Offer incentives for changes in behavior

The sustainable adoption of safer habits for the benefit of all stakeholders can only happen when all three pillars are successfully implemented. 

The first two pillars are closely linked and depend on feedback to customers. Awareness of the current level of risk leads to the question: What change will make the activity safer? Before changing our behavior, we need to be aware of our current behavior.

Raising awareness of risky behavior and identifying ways to change it are not enough. There is a need to encourage people to instigate real and sustainable changes in their behavior through rewards.

The customer’s perception of the value of the rewards, their cultural context and frequency and the intersection with behavioral economics are all integral. Changes in human behavior are also instinctive; A combination of behavioral economics and gamification to engage individuals is therefore needed to help to drive behavioral change.

The most mature business line is life and health. Fully individualized suggestions and challenges are provided to customers based on the number of steps registered by their mobile phone or physical activity data from wearables.

In personal auto telematics, customers often receive a detailed analysis of their driving style via a dashboard in a mobile app. Many insurers also automatically display tips for improving the driving score, or introduce contests on specific issues – so-called leaderboards. 

See also: Despite COVID, Tech Investment Continues

In commercial lines, IoT data is being used to enhance the activities of the loss control teams and to provide periodic safety insights to risk managers and supervisors of the insured companies.

The real-life case studies on promoting safer behavior afforded the following key findings:

  • The reward system needs to be set up to reinforce positive behavior. The reachability of the reward is key. 
  • There are cultural aspects to incentives. It is important to find compelling benefits and rewards that engage target customers. What works in one country does not necessarily work in another. The rewards must be explicit and tangible. For example, monthly cashback on fuel costs is effective, but a free weekly coffee also materially influences behavior.  
  • Frequency is key. A yearly premium discount is not enough. Positive engagement must be nurtured on a short-term basis. This mechanism gives people a reason to come back to the platform. 

Enablers of prevention services

The integration of technology into prevention services greatly increases complexity. As a result, the enablers for success are the effective business transformation, cultural change and understanding of the corresponding financial management rather than the technology itself.

Figure 2: Complexity of the financial management of IoT-driven prevention services

Source: The Geneva Association

We identified the following as the main success factors:

  • C-level commitment
  • Development of vision and strategy
  • Development of culture and capabilities
  • An effective value-sharing scheme with the customer
  • Management of new and complex financials

Several new elements need to be considered in the financial management of this new paradigm, such as service fees, partner contributions, self-selection effects and net IoT costs, which are harder to integrate into the economics of traditional insurance products.

The full report from which this article is derived is available here.

Insurance and IoT: The Perfect Match

The modern insurance industry isn’t just about processing damage claims—it’s about helping clients avoid them altogether. The Internet of Things (IoT) is reshaping the way insurance companies operate, with huge possibilities for the future, arming insurers with a smarter set of tools to better serve their customers.

In this article, I’ll diving into a few cutting-edge examples of IoT in action within an insurance organization and where I see the industry going.

Usage-based and parametric insurance

Usage-based insurance is already benefiting from the IoT by helping insurtechs offer more accurate and individualized policies based on customers’ behavior and use of the insured object. In the motor industry, Discovery Insure’s innovative Vitality Drive sensor is an example of such use-based insurance. With an integrated, low-power, non-intrusive wireless device attached to the windscreen, connected to a mobile phone app and able to transmit core driving metrics, Vitality Drive tracks driving behavior and allows Discovery Insure to offer incentives and rewards for better driving.

Unsurprisingly, the system has detected a strong correlation between better driving habits and fewer accidents and less severe insurance claims. By encouraging better driving by aligning insurance premiums with the lower probability of accident claims, this type of use-based insurance helps both insurer and customer and improves road safety in general.

Parametric insurance is described by the Center for Insurance Policy and Research as “a type of insurance contract that insures a policyholder against the occurrence of a specific event by paying a set amount based on the magnitude of the event, as opposed to the magnitude of losses in a traditional indemnity policy.” In other words, a parametric insurance policy insures against an event, rather than against loss or damage of assets. This helps to bypass – or at least greatly simplify – the process of calculating potential losses and making policy adjustments after a claim; meaning that parametric insurance claims are processed and compensated much faster than indemnity claims.

The advent and growth of parametric insurance has close links to the IoT, with more sophisticated devices and better connectivity allowing providers to both calculate and compensate more effectively. This is especially true in the case of natural disasters, which have long been notoriously tricky for insurers.

Wakam (former La Parisienne Assurances), another insurtech, makes full use of the IoT to improve customization and automation. Both tailoring parametric policies to their customers’ needs and automating the claims process benefit from the capabilities of these smart devices. Wakam has gone further and has introduced a private blockchain platform to process and manage parametric claims. The combination of IoT and blockchain technology allows parametric policies to be generated and managed intelligently, based on global, connected event data, rather than isolated public or private events.

See also: Despite COVID, Tech Investment Continues

Avoid damage claims with IoT

Today’s insurance industry isn’t just about processing damage claims. It’s about helping clients avoid them altogether. Insurers can use the power of data to create a more secure, connected world. The next generation of IoT-based smart security solutions overcomes the shortfalls of earlier technology to provide connectivity at a cost-efficient price.

The potential of modern IoT is almost limitless: protect homes and businesses with security alarms that aren’t susceptible to jamming; recover stolen vehicles with powerful, reliable tracking systems; and react quickly to emergencies in the home or business with connected smoke detectors and real-time water leak detection. The overlap with insurance is obvious – IoT data provides a smarter set of tools for the modern insurance landscape.

Discovery Insure, for example, uses IoT to tackle a major problem in South Africa, where 48,306 vehicles were stolen in 2019. Only one in five stolen vehicles were recovered. The process was usually slow enough that thieves had time to dismantle stolen cars or ship them to the other side of the world. Even if the car was found, insurers might refuse to compensate the victim if there was no physical evidence of a break-in. But IoT sensors allow cars to be found even when they are hidden in enclosed or underground locations.

The future of IoT in insurance

From 2019 to 2024, the IoT insurance market is expected to grow 60%. The number of use cases for IoT devices within insurance will grow along with it, with more electronic devices entering the consumer and business marketplaces year on year. Traditional insurers are looking to the future and working on digitizing their offerings to move forward faster and with greater agility. According to the Global Insurtech Market report published in 2020, the pandemic has accelerated the digital transformation of industry, a driving force in the commercial introduction of IoT. Thanks to this IoT, insurance companies are being given more opportunities to revolutionize and grow than ever – but taking advantage of them will require forward thinking and adaptability.

Pioneering Use Cases for IoT in Insurance

We are living in a hyperconnected world, and the presence of IoT devices has already been more pervasive than many of us have realized. Mobile phones in our pockets are full of sensors. Their software is updated over the air. And, when we lose them, we can remotely track their position. Meanwhile, restaurants are using simple QR-codes to comply with COVID safety measures, warehouses are employing robots to automate certain manual activities, etc. The spread of the IOT continues.

Although IoT has not yet been systematically addressed by the large majority of insurers, several early adopters have already concretely demonstrated the potential of using this technology. I have had the privilege to directly support many of these players through the activity of the IoT Insurance Observatory, an insurance think tank that has aggregated almost 60 insurers, reinsurers and tech players between North America and Europe.

Today, there are international insurance companies with millions of policies priced with telematics in their auto portfolios, millions of customers using an IoT-enabled wellbeing reward systems in their life insurance portfolios and thousands of workers protected with real-time risk mitigation solutions in their workers’ compensation portfolios. The level of maturity is higher on insurance personal lines; however, a new wave of IoT-based initiatives is occurring in commercial lines.   

These successful player journeys show IoT’s extraordinary potential to generate value for insurers, policyholders and even the entire society. Indeed, IoT allows an insurer to connect with its clients and their risks, providing benefits on four axes:

  1. Improving customer experience by enhancing proximity and frequency of interaction with them, therefore moving beyond the traditional risk transfer. Many players are selling additional services for a monthly fee; others have found new ways to sell insurance coverages thanks to IoT; 
  2. Enhancing core insurance activities (assessing, managing and transferring risks) by using IoT solutions for continuous underwriting, claims management and risk reduction. Using the insight generated by the analysis of the flow of IoT data has promoted less risky behaviors in real time; 
  3. Generating knowledge about policyholders and their risks, to insure them in a different way, to enable up- and cross-selling and to insure new risks;
  4. Providing positive externalities to society.

Unfortunately, many players in different markets have not understood the strategic nature of this innovation. They have considered IoT adoption as an IT project or the creation of a product. Instead, best practices show that IoT adoption is a strategic choice that requires a multi-year commitment to develop needed, specialized IoT competencies and leadership competencies. 

Each of the successful pioneers has designed its vision and strategy for IoT usage within its business processes.

A common mistake is to focus on the “thing,” such as a smart device. However, IoT is about data, not things. Even a focus on data is a mistake. What really matters is the usage of the data. The transformation of the business processes – through data usage – has been the secret sauce of any successful IoT insurance program. 

Some international success stories – from auto telematics to property insurance for smart commercial buildings – have already shown robust ROI. However, there is not much low-hanging fruit where a single use case generates enough value to cover all the emerging IoT costs. Typically, IoT insurance programs need deep functional competencies and a multi-functional approach to have multiple use cases that contribute to the return on the technology investment.

The opportunities for using IoT data in the insurance sector are summarized by the following framework, which has been developed within the IoT Insurance Observatory over the last five years.  

See also: 4 Connectivity Trends to Watch in 2021

Each of these use cases has been successfully implemented by tens of pioneers in different international markets and in different insurance business lines. 

These use cases don’t change the nature of the insurance business, but they allow insurers to do their job better. However, this paradigm requires moving beyond the traditional insurance economics (premiums, claim costs, administrative costs) integrating service fees, partners contributions, benefits generated by the usage of IoT data, IoT costs and value-sharing with policyholders (cashback, discounts, etc.). 

Insurance IoT is a new way of thinking about the activity of assessing, managing and transferring risks that fits with a world that is going to be more and more hyperconnected, a trend that insurers can neither stop or ignore.  

This article was originally published by Technology Magazine – IoT Edition

The Intersection of IoT and Ecosystems

Traditional, end-to-end business models are breaking down in every industry, including insurance. In the digital era, it is increasingly difficult for any single firm to deliver the seamless experience that customers expect. More insurers are leveraging digital ecosystems to reinvent their products and services, providing better risk management, reduced claim cost and new sources of revenue.

However, rooted in legacy systems and siloed business structures, most insurers even lack the foundations to successfully execute insurance ecosystems. Insurance organizations will likely struggle in moving from traditional insurance offerings to tailored, ecosystem-driven customer experiences.

Nonetheless, insurers should have a plan for incorporating ecosystems into their business models. It’s time for all insurers to become insurtechs.

As opposed to the traditional business model, where insurers create and distribute end-to-end products and services, an ecosystem model is characterized by unified/digital platforms that incorporate third-party products and services and collaborate with segment-focused distribution partners. Carriers must either bundle value from others with their products (e.g., providing IoT-based real-time risk mitigation services) or provide value to a bundle that someone else is creating (e.g., insuring the performance delivered by an IoT service provider).

Based on research from the IoT Insurance Observatory — a think tank focused on North America and Europe with almost 60 members, including many of the largest insurance and reinsurance groups and prestigious tech players like ValueMomentum — the adoption of IoT requires a robust set of capabilities, as represented in the following figure. 

Source: IoT Insurance Observatory

See also: The New IoT Wave: Small Commercial

Any insurance IoT program is a multi-year journey that requires overcoming functional silos, coordinating the different stakeholders and developing a collective intelligence. Insurers can achieve four kinds of goals:

  1. Improving core insurance activities (assessing, managing and transferring risks) by using IoT products and services for continuous underwriting, claims management and risk reduction. This goal was investigated in depth in our previous article, “Chloe and Insurance: A Love Affair.” 
  2. Providing positive externalities to society, a topic more and more relevant due to the current focus on ESG investments (environment, social and governance);
  3. Generating knowledge about policyholders and their risks. This knowledge has allowed carriers to insure current risks in a different way, enable up- and cross-selling actions and insure new risks;
  4. Improving customer experience by interacting with them more intimately and frequently, moving beyond the traditional risk transfer. Many players are selling additional services for a monthly fee; others have found new ways to sell insurance coverages thanks to IoT.

Partnerships are a key differentiator. Some insurers have recently announced bold initiatives to use an ecosystem to expand their reach. One such insurer is Nationwide, which recently disclosed its partnership portal, where it exposes its services and protection products – including auto usage-based insurance (UBI) and connected homeowner insurance – to partners. 

With more than half of insurers delivering on their core systems modernization projects in recent years, it’s time insurers leverage data coming from their core systems to grow their business. By integrating IoT devices data to the core system data and leveraging this data fusion, insurers will have the opportunity to build a more holistic view and understanding of their customers and their risks. Insurers will be able to build a sort of digital twin of the customer, then tailor their services and offerings and improve the customer experience. Insurers will also overcome business lines silos, enabling upselling and cross-selling. 

Many senior insurance executives acknowledge that the world will be more and more connected, but, even with ecosystems as a topic on the agenda, IoT has not been exploited in business processes in a meaningful way. To lead an IoT-based business transformation, a clear vision and a structured and well-communicated plan are necessary. 

Technology is one of the key enablers of this transformation. However, insurers will have to carefully investigate, determine, prioritize and experiment with a range of IoT business use cases to develop an IoT-based business model. Many insurers are exploring a range of scenarios beyond connected cars, including connected homes, health and lives, infrastructure, factories and transportation. A comprehensive approach to help insurers build out the required capabilities for IoT is below. This insurtech approach takes insurers from business model definition to vendor partner strategy, to platform implementation and finally to IoT insights across the insurance value chain.

Application

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A main challenge for insurers is building the technology architecture to aggregate, normalize and analyze data to make it available for the IoT platform. A big question for many is: How do I get started? An effective way to develop your architecture is by leveraging frameworks.

The framework below breaks down the broad portfolio of technology components, services and capabilities. The components are arranged in three layers – Edge, Fog and Cloud computing – addressing where data should be stored and processed for speed, cost and effectiveness, depending on the type of data and purpose of the data. 

The collection of managed and platform services shown in the framework, across Edge and Cloud computing layers, connects, monitors and controls IoT assets and the processes that generate data for insights and analytics. These services work together across multiple layers that include the IoT ecosystem — such as sensors, devices and industrial sensors — and connect to the computing infrastructure at Edge, Fog or Cloud, persistently or intermittently. 

Data collected by the IoT ecosystem is then processed and analyzed at the Cloud layer, along with enterprise data sets such as on customers, policies, claims and billing. All of this data forms the inputs to the digital twin, which can then be turned into actionable outcomes using the latest computing techniques. 

For insurers that are currently investing in IoT, and for many more that are considering doing so, this framework can help guide your approach and provide a strong architectural foundation.

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

As new waves of technology or sudden social shifts bring disruptions or opportunities to the industry — similar to telematics or digitalization — insurers must capture opportunities rapidly. Insurers that can reinvent themselves by leveraging data, including from the IoT, and form ecosystems will win.  

After all, the digital economy is a “made for me” economy, and the digital twins allow insurers to tailor insurance experiences. Customers will reward organizations that understand their needs and provide them personalized value. 

There are already examples of successful insurers – in different business lines and different geographies – that have effectively integrated IoT. Their stories mastering usage of IoT is an achievable target without investing hundreds of millions of dollars, but instead by leveraging the right partnerships.