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‘Smart Homes’? Not Just Yet

Having seen more than a little hype in my decades writing about technology, I have for years asked anyone and everyone associated with “smart homes” whether they could make an economic argument for the devices that can protect homes. Would deploying the devices widely cost less than the damage they would prevent?

I finally have an answer. And the answer is… no.

Not, at least, when it comes to a major focus of the “smart home”: devices that detect water leaks.

The lack of an economic argument doesn’t mean “smart homes” won’t eventually happen as detection devices get cheaper. But the economic issues certainly present a hill for advocates to climb, and, with auto telematics, we’ve seen for more than two decades that a technologically appealing idea doesn’t guarantee broad adoption.

My chance to look at a real economic argument finally came courtesy of a LexisNexis analysis of Flo by Moen, which can detect a leak and notify the homeowner or even automatically shut off the water to the house to prevent what can be extensive damage. The analysis reported that installation of the devices in 2,306 homes reduced the number of claims by 96%, in comparison with claims in a control group of 1.3 million homes in similar areas and of similar size and value. The severity of the claims that still occurred fell by 72%.

Sounds impressive, right? But let’s take out a proverbial envelope and do some calculations on the back.

Each device is about an $800 proposition — roughly $500 for the device and $300 to have a plumber install it in a home. Multiply that $800 by 2,306 homes, and it costs you $1.85 million to install the devices. Assume even a modest interest cost for that $1.85 million, and you’re adding perhaps $50,000 a year to the expense of the installation.

LexisNexis didn’t provide the raw data about the number of claims that still occurred, so I made a couple of educated guesses and estimated that those $1.85 million of devices saved the 2,306 homeowners and their insurers about $240,000 a year. That would mean it would take a decade to earn back the cost of installation — $1.85 million plus $50,000 a year for 10 years equals $2.35 million, or almost exactly the $240,000 a year of saving times 10. The payback takes longer, of course, if the devices need any maintenance or, heaven forbid, don’t last at least a decade.

(For those of you who, like me, are numbers geeks, I’ll explain my reasoning on the savings. The rest of you should just skip to the next paragraph. I began with the 96% number, which meant that 24 out of 25 claims that could have been expected did not, in fact, happen. That meant that either 25 claims was the expected baseline (roughly 1% of the homeowners with Flo installed) or that 50 was the expected baseline (roughly 2%). Our friends at the Insurance Information Institute report that 2% of U.S. homeowners each year file claims related to “water damage and freezing,” while the LexisNexis report specified that the claims that were prevented were for “non-weather-related water damage.” I don’t know exactly how the definitions map to each other, but I assume the LexisNexis definition is a subset of the III figure, so I used the smaller of the two possible baselines. If I’m right, then the devices prevented 24 claims. LexisNexis said those claims average $9,700. Do the math, and you get savings of $232,800. The one claim that still happened was 72% smaller than the $9,700 average, according to the report, so it was reduced by nearly $7,000. Add the two savings, and you’re a shade under $240,000.)

Some insurers seem to hope that customers will buy the leak detection devices on their own, but that seems unlikely, at least in any numbers. Perhaps someone will be so scarred by a major loss related to a water leak that he or she will invest in a device. But, if you assume a deductible of $1,000 on a homeowners policy, you’re asking people to spend $800 up front to avoid a one-in-100 annual chance of paying $1,000. That math doesn’t work for me.

Insurers could subsidize the devices, but who can make a rational argument for an investment with a 10-year return (or even with a five-year return, if I picked an unfairly pessimistic scenario on the number of claims prevented)?

Dan Davis, director of IoT and emerging markets for LexisNexis Risk Solutions, cautioned that the size of the sample for the Flo by Moen study was still pretty small, even though it dwarfed anything I’ve seen elsewhere. If there was noise in this study, and the actual results turn out to be a 99% reduction in claims, rather than 96%, then you’ve tripled the savings and brought the economic argument into at least the realm of possibility. (Of course, if that 96% turns out to be 90%, you’ve got a real problem.)

He said insurers should also be looking at how subsidies for leak-prevention devices might improve customers’ feelings about an insurer. How much of a subsidy might a company be willing to offer for a major increase in Net Promoter Score or in the number of years the company can keep a client?

Auto telematics, with their two decades of feeble adoption, have shown the need to think broadly about benefits: Insurers focused on offering discounts to good drivers, only to find that customers often cared more about other, less costly benefits such as free roadside assistance.

The good news for advocates of smart homes is that customers seem genuinely interested, according to other LexisNexis research, and are, despite some privacy concerns, generally willing to share information with insurers in return for some kind of benefit. (My 20-something daughters warn that their generation may be scarred by a 1999 Disney movie, “Smart House,” about a smart home that goes berserk and imprisons a family — the story is Disney-ified, but it’s still basically HAL from “2001: A Space Odyssey.”)

I keep thinking that Roost will build momentum for smart homes based on its intelligent batteries for smoke detectors. The cost of the battery is minuscule, just slightly higher than for a regular nine-volt battery, and there is no cost for installation — you just get on a ladder and swap out your old battery for a Roost battery that alerts your phone any time your smoke alarm goes off. But I have to assume the economic argument doesn’t quite work for Roost, either, or someone would have made that argument after years of my asking.

And if a clear case can’t be made on preventing fires or water damage, two of the biggest perils for homeowners, then the whole “smart home” movement rests on a shaky economic foundation.

Yes, people will keep buying “smart” devices that help manage energy consumption or that tell you who’s at the door (or who’s stealing the packages left there), but it seems that the broader revolution will have to wait a bit.

Stay safe.

Paul

P.S. Here are the Six Things I’d like to highlight from the past week:

COVID-19’s Once-in-a-Lifetime Opportunity

If insurers innovate aggressively, they have a once-in-a-lifetime opportunity to educate potential buyers on the value of insurance.

Managing Risk in a Pandemic

Amid the chaos, there are clever ways to introduce incentives for both businesses and individuals to be smart.

Retrenchment on Technology Plans? Not Yet

Many insurers report no changes to their plans, with some reshaping and a few accelerating but very few pausing or retrenching.

Will COVID-19 Spur Life Insurance Sales?

It may be that COVID-19 will eventually help drive demand for life insurance, but the data says it hasn’t just yet.

COVID-19 May Mean Big Changes for LTD

The recession may bring changes to the long-term disability industry that require strategic agility during evolving economic conditions.

Parametric Insurance: 12 Firms to Know

These companies are worth considering as examples of how parametric insurance works, and what the future might look like.

Future of Claims: Automation, Empathy

The advance of automation in the auto insurance industry could have come at the expense of the personal touch that consumers expect. But recent research shows that auto insurance carriers are succeeding in striking a balance.

A 2018 survey of 24 of the top senior-level auto insurance executives combined with 1,755 auto insurance customers by LexisNexis Risk Solutions found that carriers are increasingly using automation to be more efficient, reduce costs and improve their competitive edge through better customer service. Consumers are enjoying the gains of automation, as well. They now expect the carriers they do business with to offer easy digital access to products and services, but while also providing a personal touch, including being empathetic.

Much innovation is taking place across the claims automation continuum – from traditional to touchless handling. For example, the research found that carriers are:

  • Continuing to embrace virtual claims options with 95% of respondents using or considering virtual claims processes.
  • Touchless claims is growing in popularity as well, with 79% of carriers surveyed saying they are considering or are open to the idea.
  • And carriers already using claims automation are reporting a reduction in touches, faster cycle times, increased employee productivity, lower loss adjustment expense (LAE) and higher customer satisfaction.

On the consumer side:

  • 57% of consumers indicate they are fairly or very comfortable with automated processes.
  • Customers with prior claim experience quickly become dissatisfied when they have to talk with more than one person.
  • One in five consumers prefers claim self-service options, mostly driven by the younger generations, but complain that the self-service first notice of loss (FNOL) process asks too many questions.
  • Customers prefer fewer touches and expect fast cycle times, as they have become accustomed to the speed of digital service in other industries.
  • Even the consumers who are the most supportive of automated processes still want a personal touch when they need it (for example, first-time claimants).

See also: 21st Century Claims: Boosting Efficiency  

These findings suggest that carriers need to carefully align their automation strategies with customers’ needs. Automation adoption can be accelerated by matching data and technology solutions to consumer needs and sharing information with consumers. Done correctly, carriers can extend automation for greater mutual benefit ― as long as they maintain an empathic, personal touch with their customers through the communication method of their customers’ choosing.

Yet, while many carriers said their automated processes have increased significantly over the past three to five years, that doesn’t mean they’re using a broader array of automation. Rather, it’s most common to see automation in the form of rules-based logic and software-driven photo estimation for non-complex claims at specific parts of the claims process. For example, some carriers are employing automation to simplify and accelerate documentation gathering, enabling customers to upload digital documents and photos via an app, text or website and using automated tools to pull other relevant external documents like police reports. Similarly, automation is being used by some carriers to improve the customer experience to quickly automate claims payments based on a rules-based system (such as those with low dollar value or who use a direct repair program shop).

The Need to Simplify Self-Service

The study also found that as carriers make small advances toward virtual claims handling, they are also becoming more receptive to touchless claims handling in the quest to fully automate claims. This includes deploying automation solutions such as data prefill to make self-service options easier for customers.

However, they need to keep in mind that full automation doesn’t suit everyone. The demand from consumers for self-service options is growing but overall still low and tied mostly to millennials and the younger generations. Until these generations compose a larger portion of the customer base, cost reduction and improving the customer experience will likely remain the key drivers behind further automation. The findings also suggest that low customer demand for self-service is related to customer dissatisfaction with the vast number of questions asked at FNOL and carriers’ failure to fully integrate data upfront in the claims process to simplify self-service for customers. Carriers need to rectify these issues before investing too deeply in touchless claims handling.

Though consumers are receptive about increased automation, they still want support in the form of a real person ― particularly if they’ve never filed a claim before and are uncertain about the process. Even millennials don’t want self-service for every situation; they also want human interaction easily available when they need it. It’s critical that customers still get the human touch they want at the relevant parts of the claims process.

Remaining Challenges

As carriers adopt greater automation capabilities, they’re finding that integrating more data earlier in the claims process leads to more efficient handling. Carriers need to integrate more data prefill solutions that leverage external data sources into the claims process so that self-service options are as easy and painless as possible for customers.

The study found that carriers that use a data prefill solution at FNOL experienced a 14% improvement in days-to-pay for bodily injury claims, a 10% reduction in severity as compared with the industry and a 15% improvement in their shopping-rate ratio as compared with the industry.

Additionally, while automation progresses in the industry, the research uncovered reluctance to automate. This reluctance is driven by the concern that it will introduce more error and a higher risk of fraud into the non-complex claims process. Carriers are not fully confident that systems are mature enough to counterbalance these types of situations.

It is a concern shared by consumers, as well. Consumers’ reluctance ranges from the fear of making a mistake to potential glitches or technology issues that could hurt their claim. These concerns are significantly higher among those who have not had a claim than respondents who have recently filed a claim. Perhaps there is an opportunity for carriers to share more testimonials of customers who have had a positive experience with automated claims processing.

See also: Claims Technology: One Size Won’t Fit All  

Final Thoughts: Balancing Automation With Empathy

The research shows carriers and consumers are largely in sync when it comes to automated claims processing. Even though improving the customer experience may not have been the first or
top motivation for embracing automation, the good news is that they’ve achieved it anyway.

To retain those customers, they will need to employ a soft variable ― empathy. While consumers, especially younger consumers, increasingly demand self-service and digital access, there are times their biggest desire is a human touch.

In summary, automation can help carriers deliver this human touch by freeing representatives to be available when a customer needs personal attention. Carriers must also find ways to customize how they integrate the human touch into the claims experience. Tailoring the claims approach with a blend of automation and human touch to meet the customers’ preference will help carriers do a better job of personalizing the claims process. While the human element of treating others with empathy may be more difficult to improve upon than adding more automation, data and analytics can be deeply incorporated into the claims process to improve accuracy and efficiency. Those factors affect how customers feel about their claims experience.

The Connected World: How It Changes Claims

Automation is transforming claims processing in myriad ways. Damage appraisals that are completed in only a few hours are becoming the norm―shaving days off cycle time and making the claims process easier than ever before. Insurance customers are getting comfortable with snapping a few photos of their damaged vehicle and sending them to their insurer via a simple mobile claim app. Drones are often dispatched to inspect storm damage on a home, allowing property adjusters to complete virtual damage inspections. Data delivered electronically early in the claims process is revolutionizing the claims workflow, simplifying claim reporting and providing a wealth of actionable data to expedite claim settlements.

What do customers think about the advent of claims automation? How can insurers leverage today’s technology and real time data to wow their customers? These are just a sample of the questions we wanted to answer with our Future of Claims panel of experts at the LexisNexis Customer Advisory Meeting on Sept. 11, 2018, in Scottsdale, AZ. This session, which I moderated, included experts Dave Pieffer (P&C practice lead with J. D. Power & Associates), Jimmy Spears (AVP auto experience with USAA) and Lily Wray (VP emerging technology operationalization with Liberty Mutual).

See also: 3 Techs to Personalize Claims Processing  

Data from the 2018 J. D. Power Claims Customer Service Survey, presented by Dave Pieffer, informed our discussion around the following four themes (with the customer perspective for the themes shown in quotes):

  • Show Empathy―“Listen to Me”
  • Streamline Customer Communications―“Simplify for Me”
  • Improve Service Speed―“Prioritize Me”
  • Optimize and Balance Self-Service Options―“Empower Me”

Show Empathy

The survey found that showing empathy (“Listen to Me”) ―expressed as “ensuring the customer feels more at ease”―scores low, with an industry average of 66%. Pieffer shared that the only empathy category scoring lower was “taking the loss report in 15 minutes or less”―with an average of 59%. The panel explained the importance of listening to customers as a first priority and improving FNOL scripts to be more natural and conversational versus impersonal (such as simply providing a list of questions). Jimmy Spears emphasized the importance of adopting a user-friendly self-service claims reporting process. He introduced the term “digital hug”―an immediate digital response to a customer’s electronic claim report or message. Spears shared that often customers who report electronically will immediately also call to ask, “Did you get my report?” Providing a digital hug gives customers the assurance that they have been heard and action is underway. The panel audience participated in the session by answering real time electronic polling questions from their phones, and in this case responded that simplifying the FNOL process with fewer questions was the most important way to increase customer empathy.

Streamline Customer Communications

On the topic of streamlining customer communications (“Simplify for Me”), Spears explained that “pro-active communication is the key to success.” Pieffer shared statistics showing that customers are most satisfied when the insurer updates them with claim status information. The survey results supported this information through scores indicating deteriorating satisfaction when customers find themselves having to call their insurer or repair facility. The panel agreed that getting the claim to the right person quickly and avoiding multiple handoffs was critical to improving customer communications. This was confirmed by survey data that showed consumer ratings drop by 133 points when customers are asked to repeat information during the claims process. The audience’s real-time polling indicated that typically at least three claims employees touch even the simplest claims.

Improve Service Speed

Customers expect their insurance company to make them a priority (“Prioritize Me”) when they have a claim. While we often think this means fast claims service, Pieffer explained that the survey results indicated that setting an accurate customer expectation at loss report was equally important to processing speed. In fact, meeting customer expectations on time-to-settle increases customer satisfaction scores even more than simply providing a fast claim experience. Spears explained how his company has completely redesigned the total loss claims experience by simplifying not only claims processing but also the car purchasing process via USAA Bank services and the USAA car buying service, which allows customers to be in their next car within a few days versus a few weeks (the industry average). Audience polling revealed that the optimal time to pay a simple claim should be within three days. Pieffer noted that the survey indicated today’s industry average is about six days.

Optimize and Balance Self-Service Options

Our final discussion topic (“Empower Me”) focused on the use of self-service technology. Pieffer shared data showing that Gen X and Gen Y customers (younger than age 50) were most comfortable with submitting damage photos via a mobile app and receiving electronic claims updates. While this was not a surprise, it was interesting to learn that satisfaction with digital FNOL was low for all age groups. The panel spoke about the need to simplify the FNOL process to minimize the clicks it takes to complete a digital FNOL. This was validated by audience polling, which overwhelmingly supported simplifying FNOL apps and minimizing clicks. I shared the value of bringing real-time data into FNOL and self-service applications to electronically verify first-party information to minimize additional inquiry. Furthermore, I noted that real-time FNOL data also allows third-party information to be collected immediately and accurately to simplify the FNOL process and make self-service reporting much easier for customers, which should greatly increase customer adoption.

See also: The Missing Piece for Customer Experience  

The panel discussion and audience poll answers confirm that delighting customers at time of claim is all about listening to, simplifying for, prioritizing and empowering them. As the P&C insurance industry continues to advance in claims automation, these four customer expectations should be front and center to ensure greater customer satisfaction and retention.

Connected Car Data: Moving Past the Hype

It is still early in the evolution of collecting and using mobile data from drivers and their vehicles, but many large industries with huge stakes in the outcome are participating and paying close attention.

The Current Conundrum: Many Contestants, Few Prizes

Formed in 1995 as a collaboration between GM, Electronic Data Systems and Hughes Electronics, OnStar was almost certainly the grandfather of the connected car. In 2002, Progressive insurance and General Motors Acceptance Co. partnered to introduce the first usage-based insurance (UBI) program in the U.S. Using GPS and cellular phone tracking capabilities, the Snapshot program offered discounts to low-mileage drivers on the program. What followed – and continues to evolve exponentially – was an explosion of business models, technologies and programs for use in the insurance and commercial fleet industries, with applications ranging from underwriting, claims and fraud to accident management, driver safety and behavioral modification.

While the earlier and still prevalent telematics programs rely on a small communications device connected to the vehicle on-board diagnostic (OBD) port, the proliferation of smartphones has enabled the elimination of these device costs and provided more convenient mobile solutions. In addition, car makers have begun installing software and communications in new-model vehicles, which further simplifies the user experience and expands program capabilities, integrating them into dashboard screen interfaces. By 2020, more than 90% of new cars will transmit telematics data, according to the Auto Care Association. More recently, intermediary technology providers known as telematics service providers (TSPs) have emerged to offer consumers and insurance carriers turnkey connected car programs, and several industry information providers have introduced telematics data exchanges (TDEs), which consolidate drive and vehicle data from a variety of car makers and provide insurers with uniform, normalized data.

This connected car evolution from OBD to embedded to mobile to hybrid is enabling more than just new insurance products; it is transforming the business of auto insurance. Automotive original equipment manufacturers (OEMs), insurers, TSPs, telcos and information providers all seek to monetize the exploding streams of connected car data – but no universal or dominant models have emerged as yet.

Secret to Success: Partnerships

The emergence of insurtechs, with their innovative application of new technologies to solve age-old insurance challenges, along with the implied threat of those solutions to traditional insurers has dramatically changed the way insurance executives think about partnerships. Today, strategic technology-centered partnerships are enabling insurers to transform their core processes and expand into more markets than ever before. In fact, many of the largest carriers have formed or joined dedicated insurtech venture capital funds and accelerators, whose portfolios potentially represent a double win, financially and in process improvement.

In the area of the Internet of Things, of which connected car is a major subset, inter-industry partnerships and alliances are critical – indeed mandatory – for success. Even one-time competitors are seen to collaborate where both parties do better together than separately.

Partnerships between ecosystem participants are inevitable, and desirable – with each segment leveraging its core strengths and expertise in support of mutual business objectives and their common customers. In the case of connected cars, those are the owners, drivers and passengers as well as the policyholders.

See also: 5 Steps to a Connected Car Strategy  

Aligning Interests by Focus on the Common Customer

By focusing on the common customer, each participating segment partner can “win,” defined as achieving their primary strategic objectives. In the case of auto insurers, winning means improving and strengthening the customer experience and relationship while improving underwriting and operating results. For car makers, winning means lowering the total cost of ownership for car buyers – a fundamental strategic objective that has recently emerged – and reinforcing brand loyalty with car buyers and owners. Furthermore, lowering total cost of ownership is a strategic objective that auto insurers embrace, as well.

For intermediaries such as TSPs and TDEs, winning means adding significant value to existing relationships with insurance company clients and adding new customer segments and product revenue streams to their businesses while lifting and reinforcing brand recognition across all segments.

And let’s not forget one more important reality – every connected car program, regardless of the participants, requires acceptance by the same common customer.

Solving the “Many to Many” Challenge

With the increase of advanced driver-assistance systems (ADAS), connected cars and the emergence of autonomous vehicles, data experts, along with OEMs, insurers, brokers and agents, are joining forces to bundle whole-life vehicle costs together to offer new mobility solutions such as car subscriptions, car sharing and other short-term vehicle use models to appeal to changing consumer needs.

The challenge presented by this proliferation lies in the wide range of devices and the variations in hardware and software technologies that are broadcasting data in non-standard structures. This lack of uniformity presents what LexisNexis Risk Solutions calls the “many-to-many” challenge. The torrent of inconsistent data from disparate data sources presents numerous serious impediments to consumer program portability and driver scoring calculations and will eventually impede market confidence and growth of these programs.

How this data is managed and converted from raw driving data into reliable rateable factors for use by auto insurers is crucial in determining how OEMs and insurers will collaborate to support the future of connected car programs for consumers within both insurance and auto industries.

The solution that presents itself is a central hub that is capable of ingesting, cleansing and contextualizing driving data regardless of data source to resolve the many-to-many problem. With access to the entire insurance market for both insurers and OEMs, the potential exists to ultimately transform the mobility-insurance market into one connected ecosystem to the benefit of all participants – including consumers.

Telematics Data Exchanges to the Rescue

As connected car programs continue to evolve, the challenge insurers will increasingly face is that the number of sources and collection methods for telematics data will continue to grow as programs evolve and all of the resulting data will need to be standardized. Telematics data exchanges, such as the LexisNexis Telematics Exchange, are able to help insurers and OEMs navigate evolving technology by providing them with normalized data and advanced insights that are most relevant in growing their business.

To succeed, these telematics data exchanges will have to be developed and managed by trusted, well-established information providers that already do business with a majority of insurers, that have a deep understanding of the automotive industry, that have sophisticated and powerful data processing assets and that have a culture of innovation as well as a corporate commitment to data privacy and security. When you consider all of these qualifications, there are really only small handful of companies that qualify.

See also: Advanced Telematics and AI  

Telematics data exchange providers enable insurers, auto manufacturers and drivers to benefit from the evolution of UBI programs. These platforms provide insurers with driver scores through a single point of entry and leverage existing system integrations, regardless of each customer’s data collection preference. They also enable OEMs to collect and seamlessly integrate vehicle data into insurers’ existing UBI programs. In addition, auto manufacturers can gain valuable insights, improve return on investment (ROI) and access data analytics expertise that provides them speed to market to provide value-added products and services to their customers. OEMs will also have a practical opportunity to encourage safe driving and enhance customer ownership experiences.

Everyone Wins

In summary, professional management of connected car data and the wide variety of telematics solutions will enable consumers to confidently share their driving scores across a range of carriers and maximize the benefits of participation in current and future programs.

In addition, it will allow the claims process to evolve from its current state to instant crash notification, touchless claims and eventually to claims mitigation. Telematics data exchanges will help to build customers’ loyalty to their chosen carrier and OEM brands. Additionally, a telematics exchange will enable participants to innovate and quickly execute by providing the vital ingredients and processes required to fast-track transformation at scale and deliver real value to customers. Successful telematics exchanges will bring together OEMs and insurers for the benefit of consumers in their seamless digital lives.

The authors wrote this article in the run-up to the Connected Claims USA Summit in Chicago, where both spoke this week. 

10 Insurtechs for Dramatic Cost Savings

Winning insurtechs tap into the key challenges that insurance carriers are facing. In this post, the second of seven different flavors of winners in fintech insurance: insurtechs that drive dramatic cost savings.

Although emerging markets are witnessing significant growth, most mature markets are saturated and experience margin pressure. This will show little or no change in the years to come.

Insurers are looking for ways to operate more efficiently in every major part of the costs column: in claims expenses, costs of operations and customer acquisition costs.

Technology purchases and investments by insurance carriers will further explode in these areas. And so will the number of fintech solution providers that want to cater to that need.

Learn from digital pure players

Technology definitely eroded the barriers to entry. Successful pure-play digital insurers know how to leverage technology to defy the conventions related to cost drivers that incumbents still work with. According to McKinsey research, incumbents for instance are not able to operate profitably with fewer than 1 million policies. They hardly seem to benefit from scale economies, and for incumbents the costs of using broker channels barely differ from using digital channels.

“The difference with pure-play digital insurers like InShared could not be bigger,” says Irene van den Brink, director of business development at InShared, the first fully digital insurer player on the Dutch market. In only five years, it achieved 10% market share in online car insurance, the highest NPS score in the market as well as the lowest cost ratio. “We run 500,000 policies with a core team of only 35 FTE [full-time employees]. But the scalability becomes even clearer when I tell you that 1 million policies could be managed by just a few more FTE and not the doubling of FTE you would see in a traditional model. With our digital model, we have proven to run a portfolio of P&C (non-life) at a 10% cost level, where we see that more traditional direct players have a cost level between 20% and 30% and broker models even higher than that. And this is just the beginning: Adding volume to our operations means we can go as low as 75 to 8% expense ratios, leveraging the full potential of a digital model.”

Apart from how digital new entrants leverage technology, we believe that two other factors are essential that explain the difference with incumbents.

First, having started from a clean slate, digital new entrants lack the complexity of a wide product portfolio, multichannel operations and having to comply with existing processes and IT infrastructure. Second, they understand this and stick to it. Successful digital new entrants are complexity-averse by nature. That is why they succeed in scale economies where incumbents don’t, and that is why they succeed in keeping their cost base that much lower. This is where many incumbents go wrong. Van den Brink says: “Virtually every insurance companies has embraced the need for a digital solution. But merely adding a digital channel or an app is not the way forward. In fact, this only adds costs and increases complexity in the IT landscape, it adds databases, systems and the links needed become an even bigger spaghetti.”

This is important to keep in mind when implementing fintech solutions to achieve substantial cost savings. The fintech solutions should address the root cause; they should dramatically reduce the complexity of current operations.

See also: Top 10 Insurtech Trends for 2018  

Go where the money is

Insurers spend between 60 and 80 cents of each euro of premium on claims. This means ample opportunities for fintechs that provide innovative solutions that reduce this amount. Think of solutions for improved claims management and fraud detection. Due to insurance fraud, 60 billion euro is lost each year in Europe and the U.S. alone. Of all fraudulent claims, 65% go undetected. Insurers spend no less than 240 million euro annually to tackle fraud.

10 insurtech solutions that dramatically reduce such costs

Everledger is using the technology behind bitcoin to tackle the diamond industry’s expensive fraud and theft problem. The company provides an immutable ledger for diamond ownership and related transaction history verification for insurance companies, and uses blockchain technology to continuously track objects. Everledger has partnered with different institutions across the diamond value chain, including insurers, law enforcement agencies and diamond certification houses across the world. Through Everledger’s API, each of them can access and supply data around the status of a stone, including police reports and insurance claims.

OutShared recently launched the CynoSure digital insurance platform, a complete head-to-tail digital insurer-in-the-box. CynoSure is a SaaS solution that covers the back-office system-of-record to all front-end web and app interfaces. For instance, with CynoClaim (one of CynoSure’s key modules) more than 60% of all claims can be managed automatically, resulting in lower costs as well as increased customer satisfaction. The platform can be used for both new market offerings and the renovation of established operations migrated to the platform. Results of the first implementations are promising: as much as a 50% decrease in costs and 40% increase in customer satisfaction. CynoSure takes six to nine months to implement, whether it is new or a migration – quite spectacular in the insurance industry, as well. (InShared is powered by OutShared)

EagleView Technologies provides aerial imagery, data analytics and geographic information solutions. Thanks to a fleet of 73 aircraft (and drones) that capture images on a year-round basis, EagleView’s library contains more than 250 million images spanning 12 years. This provides the most comprehensive current and historical view of properties available. Insurers use the library, data and visualization tools for instance to identify pre-existing conditions and estimate storm damage to roofs, leading to better decision-making in claims adjusting. In most cases, it is not necessary anymore to visit the site. In addition to these cost reductions, faster closing of claims leads to increased customer satisfaction

Enservio software uses demographic and other information to estimate the value of contents in a home. The software is, for instance, used to settle claims. Imagine a house being destroyed by a hurricane. The software allows the insurance company to reduce time-consuming negotiations, to eliminate discussions and to pay the claim three times faster.

Lexmark health insurance solutions provide carriers with the tools to expedite claims processing, simplify communications and reduce costs. The solutions extract data from claims forms with an accuracy rate of 90% or more, eliminating most manual data entry and boosting straight-through processing. Specific content management solutions integrate with legacy systems to provide health insurance document management for unstructured content in any form – paper, email, web forms, faxes, print streams and industry-standard formats – giving instant access to for instance claim adjusters.

AdviceRobo solutions use a machine-learning platform that combines data from structured and unstructured sources to score and predict risk behavior of consumers. AdviceRobo, for instance, provides insurers with preventive solutions applying big behavioral data and machine learning to generate the best predictions on default, bad debt, prepayments and customer churn. Predictions are actionable because they are on an individual level.

Shift Technology leverages data science to detect and model weak and strong signals of fraud, including fraud by organized gangs.
Shift Technology has developed algorithms to model data analysis of insurance policies and insurance claims, and external data while integrating the expertise of insurers. To be implemented and configured, the solution requires limited technical or financial investment. The solution is provided in a SaaS model and charged based on the volume of claims processed. The platform is used by general insurance companies as well as other actors in the insurance ecosystem, such as expert networks.

Not really insurtech, but too interesting not to include: PartsTrader is an online car parts marketplace that U.S. insurer State Farm is using to dramatically improve the repair process.

Repair delays caused by parts ordering issues result in millions of dollars in rental vehicle expenses daily across the industry, and high parts costs are reducing the number of vehicles that can be repaired. Using PartsTrader addresses both problems. The objective is to improve parts availability, quality, order accuracy, competitive pricing and process efficiency.

The LexisNexis Intelligence Exchange data platform allows insurers, among others, to review an incoming claim, for instance against claims made with other insurers, resulting in faster settlement of genuine claims and coordinated investigations of suspicious claims. The platform also detects potential insurance fraud; e.g. misrepresentation and non-disclosure of relevant facts, and lapsing of a policy in the second or third year due to, for instance, deliberate churning by an agent.

QuanTemplate is a cloud platform to analyze, report and communicate bespoke insurance information between parties. The software is built for the complex, collaborative world of the wholesale reinsurance markets. The users can manage their whole workflow within one app.

The platform reduces time and cost spent on reporting and analytics, while increasing speed and transparency.

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

The Internet of Things potentially has a huge impact on claims – by preventing an incident or by warning so that the damage doesn’t get worse. Connected devices provided by companies like Nest deploy sensors and Wi-Fi technologies to detect and report things like a leak under the sink before a pipe burst or to automatically shut off the stove when someone leaves home – so that house owners can handle burning toast before it becomes a burning toaster and insurers can avoid hefty claims later. Liberty Mutual and American Family Insurance already teamed up with Nest to decrease costs.

Similar preventive measures are promoted in ever-more-connected cars.

VitalHealth Software develops cloud-based eHealth solutions in particular for people with chronic diseases such as diabetes, cancer and Alzheimer’s. The company was founded 10 years ago by, among others, Mayo Clinic. The impact is huge because chronic diseases account for the majority of healthcare costs. VitalHealth Software features include care providers participating and collaborating in health networks, gaining web-based access to shared, protocol-driven disease management support based on established clinical guidelines, seamlessly integrated to and accessed from within existing electronic health records. Clients and partners of VitalHealth Software include top five health insurance carriers in Latam, Europe and China, eager to improve patient care and health costs management simultaneously.

All solutions that we featured in this blog have one thing in common: On the one hand, they contribute to significant cost savings, but on the other hand they improve customer engagement. Combining the two should be a leading design principle in digital transformation efforts.

Nest, OutShared, Everledger, AdviceRobo and VitalHealth Software are among the insurtechs that will showcase their innovative solutions at DIA Barcelona.

In our next post, we will focus on the third flavor of winners in fintech insurance: insurtechs that play new roles in the value chain. So stay tuned!

You can find the article originally published here.