Tag Archives: Matteo Carbone

Global Trend Map No. 18: Europe (Part 2)

In Part I of our profile for Europe, we reviewed our statistics for the region, which we gathered in the course of our Global Trend Map (download the full thing here), and outlined a number of qualitative themes, exploring the first two of these:

  1. Growth opportunities in a relatively saturated market
  2. The European consumer and Europe’s early adopter status
  3. How European insurers can deliver on their customer promise with new tech
  4. Dynamic, real-time insurance and IoT
  5. Progress on developing connected insurance models across the continent

Here we explore themes three to five in discussion with two in-region influencers:

  • Switzerland-based venture capitalist Spiros Margaris, VC (InsureScan.net, moneymeets and kapilendo)
  • Charlotte Halkett, former general manager of communications at U.K.-based telematics provider Insure The Box (now MD of Buzzvault at Buzzmove)

Delivering on the Customer Promise

In Part I, we posited that Europe holds a slight innovation lead over our other major regions, finding this borne out in the more disrupted distribution landscape (with affiliate, aggregator and direct-to-customer channels all relatively well established).

However, embracing innovative distribution methods is only part of the story for European insurers seeking to engage digitally savvy and ever-more-demanding consumers; another key aspect is to incorporate a greater level of personalization into products.

“The consumer is used to a really personal experience now, and that is exactly the same as when they’re buying a pair of shoes online,” comments Charlotte Halkett, formerly of Insure the Box (and now at Buzzmove). “They’re used to being able to get something if they want it, where they want it and at the cost they want, including complete information like the exact half hour it’s going to turn up in their house and what color it is.

“That’s the same for the £1,000 insurance they’re going to buy, they want to have that real personalized experience to get the cover they want, how they want it, and to be able to influence the price that they’re going to pay. The big, overwhelming message is that the insurance industry is going to need to be flexible and innovative, because consumers are becoming ever-more-demanding, and the base level of their expectations is rising all the time.”

Personalization in insurance extends from offering positive customer service across channels to customizing policy prices on an individual basis (UBI). Halkett believes that the U.K. market in particular has been a leader in this sense:

“The complexity of pricing has always been at the cutting edge in the U.K.,” she says. “From developing general linearized modeling through to telematics, the initial development has occurred within the U.K. And it’s partly to do with this being a worldwide center of insurance, that’s true, but it’s also to do with the consumer. It’s very consumer-led: consumers are very willing to adopt, consumers are very willing to try new things.”

Halkett believes that the U.K. has served as a guinea pig for in-car telematics and that the models developed here can benefit a wide range of insurance markets. This impression fits in with our product-development stats for Europe overall: Auto was indeed one of the lines respondents identified as driving the most product innovation in the region, the other being health (see our earlier post on product development). We explore UBI models, especially as they relate to the auto line, as our next theme.

“It is important to listen to your customers and speak their language in order to influence your top and bottom line. If you want to satisfy your customers, you have to know what they want and need, what they’re saying about you, and how they feel about your products, services and brand.” — Monika Schulze, global head of marketing at Zurich Insurance

All these customer initiatives, if they are to be more than just good intentions, require far-reaching back-office transformation; investment is required in new technologies and solid digital capabilities (such as analytics), and these in turn need to be grounded in well-conceived strategies if they are to truly take root and flourish at an organizational level. Let’s look now at what European insurers are doing practically to deliver on their customer promises.

Encouragingly, a large majority of European respondents acknowledged having formal digital, mobile and cross-platform strategies, so digitization appears to be well underway among European (re)insurers, consistent with our other regions (see our earlier post on digital innovation). We also found a strong increase in analytics focus/investment among our European respondents, as well as a reasonable level of coordination of analytics across their organizations (see our earlier post on analytics and AI).

Analytical and machine-learning models have plenty to get their teeth into with what customer data has been captured directly by insurers, but they can additionally be supplied with external data from third parties. We found this practice to be widespread in Europe, as indeed were formal data-governance strategies.

“The one who is doing similar business to you should be considered as a chance and not as a risk – being connected via Open APIs based on your open insurance ecosystem. You will win because your processes and technologies are faster, cheaper and more customer-oriented than others, because you are open.” — Oliver Lauer, formerly head of architecture/head of IT innovation at Zurich

One major hurdle for the implementation of more data-driven, customer-centric systems is the presence of legacy, and this is just as present in Europe as anywhere else. Legacy systems came in second place among the internal challenges for Europe (in line with the global trend), and was additionally identified by our European contributors Halkett and Margaris as a serious challenge for the region. Margaris highlights a couple of particular pain points as far as legacy systems go:

“If you have legacy systems, it’s difficult to put cutting-edge technology on top of them,” he says. “Legacy systems make it so much harder for incumbents to innovate and to comply with regulations.”

Taking Insurance into the Real World, Real-Time

In Part I of our profile on Europe, we tentatively identified Europe as an early adopter, and we saw this tendency manifested in the prevalence of new-age distribution channels and personalized, customer-centric products.

Here, we extend this line of inquiry by turning to the vanguard of personalization in insurance, namely the Internet of Things, and exploring the progress it has made within European insurance. IoT is the final frontier of customer-centricity in the sense that it takes insurance into the real world on a real-time basis, placing the customer literally, and not just figuratively, at the center.

If Europe is marginally further along the journey of customer-driven disruption than our other regions, as we have suggested, then we would expect IoT to be marginally ahead, as well. And while the technology is making strides the world over, our stats do place Europe above trend on the IoT-for-insurance adoption curve, at least in terms of current platform implementation (more details in our dedicated Internet of Things section), and the pre-eminence of the continent in this field is borne out by much of our broader research.

While Internet of Things was not a priority area that Europe led on in our insurer priorities section (it came second behind Asia-Pacific), Europe did achieve top spot for mobile, customer-centricity and claims – which form a constellation very auspicious for IoT-enabled business models and innovation.

Margaris tends to agree on the importance of IoT for European insurers, and Halkett, as we have already mentioned, credits the U.K. market as having fostered the development of in-car telematics.

“The IoT development (expected to reach $20.8 billion by 2020, according to Gartner Inc forecast) should help a new insurance to emerge, increasing customer-centricity and decreasing costs. An example of IoT impact on insurance is wearable tech, a passive way to monitor health and wellbeing, in real time and for everything. By identifying those who seem to be looking after themselves, insurers can drive premiums down for them.” — Minh Q Tran, general partner at AXA Strategic Ventures

The real opportunity consists not just in personalized experience à la retail but in personalized pricing, so that the price customers pay reflects their real-world usage as captured by connected devices.

It is thus that personalization and premium-price reductions actually go hand in hand; rather than requiring two strategic thrusts, they can be part of one IoT-enabled customer-centric approach. These two Ps – price and personalization – are the two main advantages enjoyed by insurtechs, so insurers looking to the future, and to future-proof themselves, should definitely be taking an interest in IoT.

See also: Global Trend Map No. 15: Products  

While still only a minority of insurers in Europe have a strategy on usage-based insurance (UBI), this is in line with our other key regions; we expect to see this percentage rise dramatically across the board over the coming years. Auto, home and health are the leading lines across all our regions in terms of the expected IoT benefits, though the benefits of sensor networks in other lines should not be ignored.

Auto is an example of a line that has already been extensively transformed by IoT in the form of telematics. This area is home to solutions of varying sophistication, from smartphone apps to “black boxes” built into cars. Depending on the richness of data coming from in-car sensors, a variety of insurance use cases and business models are enabled.

The one that most immediately jumps to mind is UBI, incorporating dynamic pricing and driving behavior modifications. By making customers’ premiums dependent on how they drive, insurers both encourage better driving (which is good for everybody) and lower the cost of premiums, which helps to get more people, more affordably, on the road.

“The joy of all insurance is the same: the financial desire of the insurance company is completely aligned with customers’ needs. So nobody wants to have crashes! The consumer doesn’t want to have crashes, and the insurance company would like to reduce the risk on their books,” Halkett says. “With telematics, you really get to do that; it’s not only that you get to understand the risk of the individual consumer, it’s that you get to influence that risk, so the risk that you write does not have to be the risk that you keep.”

Even if premium prices remain the same, a premium with the potential for reduction is an infinitely more saleable proposition than the fixed-price alternative. And it is not solely up to drivers to educate themselves – insurers can take a much broader tutelary role by communicating tips and advice on a continuing basis. In this way, companies like Insure The Box are much more than just providers of telematics.

“We take customers, and then we make them safer drivers,” Halkett says, “and we do that via communications, online portals and via direct messages to the consumers, all the time rewarding safer driving behaviors.”

From language courses to money-saving apps, gamification has proven itself time and time again to be a powerful force for bringing about positive outcomes, and the case with telematics is no different. The key is to engage the customer via whichever touchpoints are the most natural and offer the highest level of trust and engagement.

Insurers should not therefore conceive IoT solely in terms of inbound traffic (data traveling from customer devices to their back office) but also as a means of achieving higher engagement for their outbound messaging (from insurers to customers). Halkett points out the potential of connected home devices, such as the voice-enabled Amazon Alexa, for initiating contact with consumers in a world where “mobile” refers to much more than portable telephones.

“Automated data capture through IoT does not just help insurers preempt claims, it also helps mitigate losses and improve customer service when claim events do occur, by rooting out fraudulent or inflated claims and enabling faster turnaround of legitimate ones. Provided customer privacy concerns form part of the discussion, there is no reason why connected claims cannot be a win-win for everyone.” — Mariana Dumont, head of new projects at Insurance Nexus

Beyond facilitating UBI models and continuous customer engagement, IoT solutions also give insurers detailed insight into what is actually happening on the ground on a second-by-second basis. Admittedly, this requires a lot of data and sophisticated models and, in telematics for example, is certainly a lot more than just detecting high G-forces.

Indeed, Halkett recounts an example from the early days of Insure The Box, where a spike in G-forces triggered an accident alert but actually turned out to be nothing more than the forceful slamming of one of the car doors. Nowadays, though, the company can reliably detect the telltale signs of accidents and other claim events from the incoming stream of black-box data in real time and react accordingly. With motor accidents, speed is of the essence, so being able to dispatch an ambulance instantaneously to the scene can be the difference between life and death: the ultimate in claims loss mitigation.

This data is also useful in the inverse case, where insurers want to demonstrate that an accident has not in fact occurred (and that, therefore, an associated claim is fraudulent).

The business case for IoT in claims is self-evident; as we recall from our Internet of Things post, a majority of our respondents selected claims as one of the areas best-placed to benefit from IoT. Further still, in our stats on claims, a majority of respondents believed that IoT would affect the claims department, and a majority also acknowledged having a high level of focus on claims loss mitigation.

The immediate access that IoT gives to data, which does not have to be sought out and gathered but simply ends up in insurers’ back-end systems as a matter of course, is driving the development of automated, or straight-through, claims-handling. We found a reasonable incidence of automated claims-handling among our European respondents, whose claims departments also expressed a strong focus on customer experience.

In the context of continually expanding horizons, we asked ourselves what the next stage of dynamic real-time insurance might be. Continuing this section’s particular focus on the auto line, we of course cannot ignore the amount of chatter around autonomous driving and what it means for the insurance industry.

While some believe that autonomous driving may eliminate the auto line, the truth of the matter is that human error is not the sole source of catastrophic events on the road.

“You don’t just eliminate all risks by making your vehicles autonomous,” Halkett points out.

“And that’s before you even start to think about what you’d need to do to have an entirely autonomous ecosystem. The environment is going to have to have so many significant changes before it can support current autonomous functionality, and the journey between now and 100% autonomous – even if that does happen, and it’s not certain it will – is not straightforward at all, and there will be lots of different forms of mobility between now and then.”

Halkett underlines rural and city driving as two key hurdles to be overcome on the way to full autonomy. For now and the immediate future, she believes there is food for thought enough in the intermediate stages between today’s conventional cars and the putative point of total autonomy in the future:

“We’re going to have multiple different vehicles, some with ADAS systems, some with minor help for driving in there and some with barely more than a glorified cruise control, up to fully autonomous vehicles, all on the road at the same time with drivers behind the wheel with very differing levels of experience and expectations for that driving, too.

“And what they are going to want from their insurance is a seamless product that just covers them for whatever they’re going to do – that is the reality of what the insurance industry is facing over the next 10-20 years.”

Instead of focusing exclusively on different degrees of autonomy within what is essentially a private ownership paradigm, Halkett believes insurers should also be looking laterally, at emerging mobility formats:

“I would be looking at things like ride-sharing, things like shared ownership and different forms of vehicles, before we ever got to the point of complete autonomy,” she concludes.

Driving Connected Insurance Models Across the Continent

Our exploration of Insurance IoT and telematics has so far leaned toward the U.K. But what sort of progress have new-age insurance models made across the continent as a whole?

Another country that currently boasts plenty of IoT buzz is Italy. Our influencer Matteo Carbone, of the Connected Insurance Observatory, draws attention to the telematics leadership shown by the Italian market, citing the nation’s 2.4 million connected cars (as of the start of 2016), compared with 3.3 million in the U.S. and 0.6 million in the U.K.

However, to compare IoT progress in blanket fashion across different national markets and insurance lines can be like comparing apples and oranges with pears and plums, given the uncategorizable variety of the problems IoT solves and the sheer number of different business models it enables.

In Italy, for example, telematics boxes have been mandatory in all new cars for several years now, as a result of legislation aimed at reducing fraudulent whiplash claims. Such legislation does not currently exist in the U.K., but, as we have pointed out, the U.K. telematics market could be considered a front-runner in other respects.

“Italy is recognized as the most advanced auto insurance market at the global level for telematics. Leveraging the experience of the auto business, the country is affirming its position as a laboratory for the adoption of this new paradigm by other business lines.” — Matteo Carbone, founder and director at Connected Insurance Observatory

Leaving aside the question of who leads and who trails, one thing is certain: that IoT-based solutions for insurance, both within the auto line and beyond, are only going to become more prevalent as the unit cost of sensors comes down and the demonstrable savings from the technology rise further.

“The cost of technology is coming down all the time, and customer understanding is going up,” Halkett says. “So the business model becomes easier and easier for a wider portion of the market. Consumers in other countries will more readily adopt these sorts of technology-led products, and insurance markets are becoming more sophisticated, as well.”

To continue with our auto focus, we can see how the advantages of in-car telematics – whether we are talking road safety, lower premiums or counter-fraud – are advantages for people of every age in every market, so there is no fundamental limit on the applicability of the technology.

“At some point in time, everyone is going to get connected. People will feel more empowered as they have a greater control on preventing risk events. This will be the origin of the new business model. In some countries, insurers don’t have a high level of trust because they are establishing conditions and changing prices, and the relationship is only one way. This is going to change, because in the future clients will have their data as an asset.” — Cecilia Sevillano, head of partnerships, Smart Homes, at Swiss Re

This is not to say that the specific use cases will be the same everywhere. Halkett believes that the technology will bring about a bigger quantum leap, from a road-safety and world-health point of view, in those countries where infrastructure currently lags.

“I think when you stand back and start looking at the benefits of telematics, there’s an awful lot that could be used in different markets for very different reasons,” she says.

“For example, if you look at the accident alert service and it tells you when someone has had a serious road accident – that would be so useful in rural areas in poorer countries which perhaps do not have the same infrastructure or the same emergency services as we do in the U.K. And to have that pinpointed alert would be even more valuable in countries where not everyone has a mobile phone and hospitals are perhaps less accessible.”

This is a classic case of high-end technology bringing the full benefits of insurance to the lower-end market, a recurring theme across our other regional profiles, as well; underdeveloped markets, especially when they lack the burden of legacy systems, have a chance to catch up with and even leapfrog more established markets.

Margaris believes that this will be the case, not just for IoT adoption but for innovation more generally, in those parts of Europe that are currently less developed.

“The truth of the matter is that in less affluent countries you will see a faster adoption of insurtech because it’s cheaper and more personalized than what the incumbent insurance players offer,” he says. “Furthermore, I believe that the richer the countries, the less there is a need by consumers to adopt the cheaper business models that are offered by fintech and insurtech startups. So, therefore, I would say, the more developed the country, the longer it will take for innovative technology and business models to be adopted.”

Looking beyond Europe for other emerging markets with leapfrogging potential, Margaris points to Africa as a ready-made example, referring specifically to mobile technology:

“Look at Africa, where with a normal phone – not even a smartphone – you can already transfer money, you can do anything,” he comments. “Because with low incomes, you will find a greater need for innovation.”

This forms an unfavorable contrast with some established markets, and Margaris sees his native Switzerland as a case in point:

“In Switzerland, where I live, there is a lesser need for innovative business models because people have enough money. Not everyone is well-off, of course, but in general, there’s such a comfort level that people say, the status quo works well, so we don’t need to go for fintech or insurtech solutions that are or might be cheaper or better.”

Margaris picks out insurtech and AI as two growth areas towards which sizeable investments are currently flowing, with London and Berlin being the premier European hubs. As for how the insurer-insurtech confrontation will play out, he points to the case of fintech – which has a couple of years’ lead on insurtech – as a likely indicator of how things will go here as well.

See also: Global Trend Map No. 16: Regions  

“If we look at fintech, which is in a more advanced phase than insurtech, you see a clear trend of cooperation, meaning partnership or outright buying by incumbents. I think this will also happen to the insurtech space,” he explains.

While this prognosis (cooperation winning out over competition) is generally positive for insurers, Margaris believes that in some ways insurers have it more difficult than banks:

“Banking has the same issues, but banks are much more experienced with customer interaction on a daily basis, while, with insurance, usually you talk to an insurance agency once a year, like when you have a claim. So legacy technology and the insurtech industry as a whole is worrisome for the insurance industry, but it’s also an opportunity.”

“Insurtech will offer new ways to harness IoT potential, with use of AI and machine learning. Through partnerships with these startups, incumbents can definitely accelerate their modernization. And this is a win-win situation as insurtechs have technological expertise and, in return, insurance leaders can provide them the one resource which they lack: money.” — Minh Q Tran, general partner at AXA Strategic Ventures

This compromise between incumbents and new entrants, at least for now, stems from the fact that neither has all the ingredients to win outright. While we pointed out the two trump cards of insurtechs in Part I our our Europe profile (price and personalization), let’s now examine the advantages enjoyed by incumbent insurers.

“Insurers have the customers, they have the money and they have the brand,” Margaris says. “They can adapt quickly and say: OK, let’s take the cutting-edge technology, and we can make it happen.”

He gives the pharma industry by way of an analogy:

“The pharma industry spends billions on R&D and innovation. At the end, most of them – the big pharma players – who have much more experience in this field of innovation, they buy biotech companies and integrate. Because what the big guys do well is selling and distribution. If you give an insurance company a great product, they know how to make the most out of the potential. Incumbents and insurtech startups have to play to each other’s strengths.’

Halkett agrees that traditional insurers have plenty to offer as part of any insurance model of the future, in particular the sheer volume of data, insights and expertise that they have at their disposal. However, she questions whether today’s incumbents are structured in such a way as to make the most out of these assets.

There may need to be a move away from a centralized model toward more of an ecosystem play, with the insurer overseeing different components of a technology stack. Insure the Box is itself an example of this, being owned as it is by Aioi Nissay Dowa Insurance Europe, which is the ultimate bearer of risk and also has a long-standing partnership with automotive OEM Toyota.

“The insurtech discussion all too often centers on the premise that shiny new startups will win at the expense of the tired old incumbents. Many see the battleground between them being at the distribution end of the customer journey. For me, the insurtech opportunity extends all the way along the value chain.” — Nick Martin, fund manager at Polar Capital Global Insurance Fund

At the end of the day, it is not a case of either/or with the partnership and insurtech-domination models, and we are likely to see some insurtechs eventually make it big alongside insurer-insurtech tie-ups.

“It will happen. We’ve seen the Googles, Amazons, Facebooks of this world, and we’ll see the same thing occur in insurtech, whereby some will become huge players. However, I believe we will see more partnerships or acquisitions because it’s very hard to scale,” Margaris concludes.

As ever, you can read ahead straight away and gain access to all our global trends, key themes and regional profiles, by downloading your complimentary copy of the full Trend Map whenever you like.

Global Trend Map No. 7: Internet of Things

In our earlier post on Analytics and AI, we pointed to the growing volume and exploitation of (big) data at every point in the insurance value chain. But where is all of this data coming from? The old data sources and data-gathering methods have not gone away, but they cannot on their own explain the continuing boom in the data-analytics industry. The critical factor is the recent mass proliferation of sensors in the real world, capturing data on millions of connected objects, from toothbrushes to oil tankers. The Internet of Things (IoT) has arrived, and insurers are taking notice.

The possibilities of the IoT for insurance are boundless, from turbocharging underwriting models and using sensor data for preventative messaging to usage-based products and dynamic pricing. In this installment, we explore:

  • where IoT technologies stand to produce the greatest benefit, both across the insurance lifecycle and across different insurance lines
  • new IoT-enabled models like usage-based insurance (UBI) and insurance-as-a-service
  • IoT platform implementation across different insurance lines and regions

Our stats and perspectives derive from the extensive survey we conducted as part of our Global Trend Map; a full breakdown of our respondents, and details of our methodology, are available as part of the full Trend Map, which you can download for free at any time.

“There is a big shift from today’s protection to tomorrow’s prevention. New technologies using sensors and devices are becoming more widespread and can prevent incidents from happening. Broadly speaking from an industry perspective, it has potential for better risk understanding and creates happier customers.” – Dennis Nilsson, assistant vice president, head of advanced analytics, insurance, at TD Insurance

While other technological advances often represent the optimization of an established insurer capability (as with many applications of analytics, for instance), IoT in theory enables insurers to rewrite the rules of the game by moving from risk protection to risk prevention. For many use cases, this remains hypothetical, and many questions around business/monetization models, as well as the precise role of insurers in the nascent IoT ecosystem, remain unanswered. However, IoT is, in one form or another, increasingly part of carriers’ strategic horizons.

Do you have an IoT strategy?

54% of all respondents had an IoT strategy, and we see that this is fairly uniform across the ecosystem, insurers and brokers and agents scoring 49% apiece, and technology partners 65%. This solid showing by technology partners is not surprising – in many cases, insurers’ IoT platforms are being developed by third-party service providers. Given the upward trend in platform implementation, we expect that the proportion of insurers with formal IoT strategies will sharply rise in this timeframe, as well.

Assessing the Impact of IoT: Insurance Lifecycle

IoT is such an open-ended technology that we further asked our respondents to specify those areas of insurance they thought would benefit the most. The areas that come out on top were analytics (81%), customer-centricity (68%), pricing (64%), digital (61%), claims (60%) and underwriting (59%).

The clear lead for analytics is understandable given the symbiosis in which these two technologies stand. No IoT means limited data for analytical models; no analytics substantially weakens the business case for IoT.

“Drones, which are also IoT devices, are being used by property and casualty companies to examine property damage after catastrophes and storms, saving them a lot of time and money, so people don’t have to climb up on the roofs, which is dangerous and time-consuming.” – Stephen Applebaum, managing partner at Insurance Solutions Group

Before checking out the impact of IoT on different insurance lines, let’s now explore some of these key IoT beneficiaries in a bit more depth and observe how they mesh as part of today’s emerging UBI model: analytics, customer-centricity, pricing, digital, claims and underwriting.

See also: Insurance and the Internet of Things  

IoT does not affect all these areas separately; rather, they are all co-beneficiaries of the paradigm that IoT enables, in which the underwriting and claims components of the insurance lifecycle are increasingly fused.

On the one hand, the massive volume of data being generated by connected devices is feeding analytics and algorithmic models, increasing carriers’ understanding of risk and the accuracy of underwriting models. On the other, this data is not a static mountain; it is accessible in real time. This means that underwriting models can be continuously updated by way of dynamic pricing.

This new model, often called UBI, means that policyholders can be judged on their actual behavior – which they can feel motivated to change – instead of being subjected to the tyranny of averages. So instead of charging high premiums for bad risk and then being hit with the claims bill, insurers can offer incentives for less risky behavior on the part of their policyholders through the prospect of lower premium prices (or benefits in kind) and thereby reduce their claims burden. This model is established in the auto line – with help from in-car telematics – as pay-how-you-drive, and we have also seen similar innovations in health, in particular Discovery Health’s Vitality Program.

“Technology used well can change the current customer proposition. The traditional insurance model has the opportunity to move from post-loss reactive reimbursement to proactively managing down customers’ risks. The latter model is significantly more valuable to the customer and can change insurance from the grudge transaction that many view it as today into an ongoing value-enhancing relationship. Incumbents working with insurtech startups can accelerate this evolution” – Nick Martin, fund manager at Polar Capital Global Insurance Fund

IoT does not just enable insurers to tailor policies to actual behavior; it also allows insurance-as-a-service, with flexible policy spans. Rather than taking out an annual policy, which may overshoot the mark, customers can take out insurance in real time on a case-by-case basis, precisely when they need it the most. In the auto world, this has crystallized as pay-as-you-drive, but the applications are potentially much broader, for example insuring your car against theft for the duration of a trip into town or your airport luggage against loss at the point of check-in.

In the longer term, the ability to sustainably offer lower premiums – which relies on reducing claims costs or premium spans – opens up to carriers segments of the customer base that were hitherto under- or un-insured, expanding the scale at which they can operate.

As we have indicated, IoT innovation can be particularly significant for claims departments, and this is not just by reducing payouts but also by allowing insurers to work out exactly what has happened when a claim event does occur (for instance, with car crashes). To further investigate the impact of IoT on claims, we spoke to Minh Q Tran, general partner at AXA Strategic Ventures:

“IoT could have a huge impact on claims by preventing accidents from happening or warning so that the damage doesn’t get worse.

“In the car industry, the development of connected and autonomous cars should prevent accidents and decrease dramatically linked damages, changing at the same time insurance intervention. Car insurance startups are using auto-tracking devices to teach newer drivers how to stay safe (Marmalade Insurance) and help locate cars if they are stolen (Insure The Box).

“Many insurtechs are being created to more accurately analyze drivers’ attitudes and data, so that insurers can adapt their offer to customers and new ways of driving.”

Stay tuned for our dedicated post on claims, in which we explore further the impact of IoT on claims departments. Or, if you’d prefer to read on immediately and access all 11 key themes, simply download the full Trend Map free of charge here.

However, if it is to be successful, insurance IoT requires more than just devices and back-end analytics: Insurers also need to radically reevaluate the relationship with the customer. In the past, policies were renewed infrequently (in many cases as rarely as once a year); the behavioral science inherent in IoT-empowered models requires more frequent interactions and a larger number of (digital) touchpoints.

Insurance needs to change its perception in the eyes of consumers if it is going to gain firstly their trust and secondly their data, by becoming fundamentally more customer-centric and making its value proposition clearer (we go into these themes in more detail in our later installments on marketing and customer-centricity and distribution – read ahead here). We can see then that IoT is not, and cannot be, a siloed technology for the new-age insurer; it directly affects, and is affected by, all work being done in analytics, customer-centricity, pricing, digital, underwriting and claims.

Assessing the Impact of IoT: Insurance Lines

We didn’t just ask respondents to indicate which aspects of insurance they saw benefiting the most but also which insurance lines. Auto, home and health came out on top, while P&C/general, commercial and life were relatively behind.

“Technology is having an impact. In the P&C space, we are seeing a real focus on IoT and how devices can give better information and be part of an insurance program. Wearables are going to make even more inroads into health and wellness products.” – Cindy Forbes, EVP and chief analytics officer, Manulife Financial

The new UBI model enabled by IoT has clear implications for our three leading lines (and for personal lines, in general). In health, we can point to connected wearables to monitor an individual’s health and to price accordingly; in auto, to in-car telematics that monitor driving behavior; and in home, to smart security devices. We see a whole host of commercialized solutions in these areas already.

We asked Sam Evans, managing director at Eos Venture Partners, for some more detail on the impact of IoT in home insurance:

“There are a multitude of applications ranging across motor, home and health. One key application where we have seen significant progress in insurance is combining smart home technology with a traditional home insurance policy.

“There are multiple benefits for both the insurer and the policyholder. The technology, including smart cameras, motion sensors and water-leak devices, has the potential to significantly reduce claims experience by providing early warning and notification. As an example: In the U.K., where the largest cause of damage is water leakage, a device that allows the water to be shut off when a leak is detected will therefore significantly reduce claims costs and ensure a happy homeowner.

“One of the leaders in this area is a U.K. insurtech called Neos, which is pioneering the move to preventative home insurance leveraging the latest IoT devices.”

As we see in the graph above, there is a substantial gap between our leaders, auto (80%), home (71%) and health (64%), and our stragglers, P&C/general (44%), commercial (33%) and life (29%). However, the current primacy of the personal lines should in no way blind us to the potential of IoT for commercial lines, which, despite not attracting quite the same media attention to date, remains huge.

See also: Coverage Risks From the ‘Internet of Things’  

IoT can transform the insurance proposition attaching to any kind of valuable commercial asset – provided that it can be monitored. For example, opening up data streams from industrial equipment for algorithmic modeling enables preventative maintenance, reducing the burden of failure for both equipment owners and insurers alike, and the same applies to sensitive cargoes in transit. As with UBI for the personal lines, the carrier is transformed from insurer to assurer:

“Connected insurance is a big opportunity in commercial insurance, but it won’t come overnight. It’s the less mature use case today because it’s more difficult to figure out the commercial or industrial process, how to put sensors on that process and how to get at the data. But the opportunity to change the product’s structure, the paradigm you are using to insure that kind of risk, is really large; it’s impressive.” – Matteo Carbone, founder and director at Connected Insurance Observatory

Our stats on implementation (which we examine below) show that commercial & P&C/general currently exhibit a lower level of platform implementation than our other lines. However, in line with the strong all-round potential we have indicated here, we find minimal difference between our different lines when we look forward to anticipated levels of implementation in the near future.

IoT Adoption by Region

It is one thing to establish in which lines and areas of insurance the potential impact of IoT is greatest – but where are we on the adoption curve?

22% of all concerned parties have already implemented IoT platforms; within 12 months, this is set to rise to 47%; and within 24 months we will be at 72% implementation. What this tells us is that we are in the midst of an IoT rush, which will see it become a majority-practical phenomenon within two years for those players today still predominantly at the theoretical stage.

Regionally, we detected a relative lead in implementation for Europe versus the rest of the world, with 30% of respondents having already implemented. However, the scores for these two groups quickly align, as we can see above. You can read more about our notion of Europe as an early adopter in our dedicated Regional Profile, by downloading the full Trend Map below here.

Stay tuned for our next post, in which we look at that all-important field, especially for the success of IoT products: Marketing & Customer-Centricity.

Innovation Executive Video – Leaders in telematics innovation

Leaders in telematics innovation—John Heffernan, Senior Sales Director-Claims for Octo Telematics; Matteo Carbone, Founder and Director of the Connected Insurance Observatory; and Josh Thompson, Vp of Claims and Risk Engineering for State Auto Insurance—join Wayne Allen, CEO of Innovator’s Edge, to discuss innovation and telematics, and where opportunities lie in the future.


View more Insurtech Executive videos

Learn more about Innovator’s Edge

Insurers Will Be Even More Relevant

The insurance sector is now seeing the same dynamics many other sectors have already experienced — startups and other tech firms are innovating one or more steps of the value chain that traditionally belongs to financial institutions. Insurtech has seen extremely important investments in the last years, and the word “disruption” is coming out frequently in insurance debates. But I consider it a joke when an industry conference shows a picture of a newborn and sells it as its last intermediary or its last client to have purchased an insurance policy.

How to start from the strategy looks like

One U.K. insurer, MORE TH>N, addressed claims related to the obesity of the insured dogs. It invented a value proposition that provides the insurance coverage, adding all the preventive treatments a dog needs, a monthly box delivered to your home with the accessories and food that your specific dog needs and a pet tracker to nudge you to make the dog exercise more. Moving to insurance for humans, the South African insurer Discovery demonstrates incredible innovations. Over the last 20 years, the insurer has introduced new ways to improve policyholders’ lives using connected fitness devices to track healthy behaviors, generate discounts and deliver incentives for activities supporting wellness and healthy food purchases.

Insurers were able to imagine and execute these exceptional innovations. For this reason, I’m positive regarding the future of the sector. I’m convinced that insurance companies will still be relevant in the future — or will become even more relevant than they are now — but these companies will have to be insurtechs or players who use technology as the main enablers for reaching their own strategic objectives.

See also: Insurtech: How to Keep Insurance Relevant  

Insurance IoT is one of the first insurtech trends to come of age. Sensors have become a ubiquitous part of everyday life, expanding to include people and businesses around the world — even while they connect us more intimately with those nearby and with ourselves, as well as with our homes, workplaces, possessions and increasingly, insurers. Today, there is more than one connected device per person in the world, and some analysts estimate 50 devices for a family of four by 2022. The insurance sector cannot stop this trend; it can only figure out how to deal with it.

“Connected insurance” — insurance solutions using sensors to collect data on the state of an insured risk and telematics for remote transmission and management of that data — is the name of the game. Auto telematics is the most mature use case, but there are relevant innovative initiatives both on home and health insurance.

Connected insurance is affecting the whole insurance value chain and generating real value for insurance P&L. The five main value creation levers are:

  1. Behavior “steering” programs: leading the client toward less-risky behaviors, therefore reducing their claims;
  2. Value-added services: developing client-tailored ancillary services that allow the insurer to deliver enlarged value propositions;
  3. Loss control: developing a broad approach to reduce claim costs
    –acting in real time on the single situation to mitigating the risk before the damage happens and contain the damage
    –anticipating the claims management and improving reimbursement valuation, improving the efficiency of the claims process
  4. Risk selection: creating value propositions able to attract fewer risky clients, improving the quality of the underwriting process based on the sensors’ data or increasing the efficiency of the underwriting process
  5. Dynamic risk-based pricing: developing insurance policies with pricing linked to client individual risks and behaviors (on one side: reducing premium leakages; and on the other side: offering low-risk individuals lower prices to increase their retention and acquisition)

The connected insurance paradigm is based on the value sharing. In any business lines, insurers can, on one side, use the data from connected devices to generate a value on the insurance P&L, and, on the other side, build value propositions focused on sharing this value through incentives, services and discounts. The value creation equations will become more and more articulated with the diffusion of those approaches on the market, but that scenario will be characterized by relevant value sharing.

You can figure out the level of positive externalities generated by an insurance sector that is able to change behaviors and prevent risks.

I created two Insurance IoT think tanks — one dedicated to the North American market and one to the European one — consisting of more than 50 insurers, reinsurers and tech players and formed to discuss the insurance IoT opportunity and promote a culture of innovation in the insurance sector. From the discussion I have with them weekly, I believe the concrete and actionable five levers mentioned above will allow insurance carrier to exploit the value of the IoT data on their P&L. This approach represents a unique competitive advantage over any other players in the IoT arena. In this way, insurance carriers will stay relevant or become more relevant than ever. The benefits for the insurance sector of adopting this paradigm also include the increased frequency of interaction with the customer — a proven way to garner greater loyalty — and the unique opportunity to increase knowledge about customers and their risks.

See also: The Insurance Renaissance Rolls On  

It is a pity to hear futurologists at insurtech conferences imaging insurance IoT use cases as an AI within a connected home, buying insurance via smart contracts when the fridge needs maintenance or as an AI within a wearable watch buying insurance via smart contracts in case you are injured playing basketball.

This will not be insurance — there isn’t risk transfer or randomness (accidental and unintentional loss).

Instead, the business model and the role of insurance companies are enlarged by this technology. The essence of the insurance sector — since its origin in 1347 — has been assessing, managing and transferring risks — but the direct results of the technology adoption are “superpowers” to do the same things much better.

UBI Has Failed, but Telematics…Wow!

Insurance telematics has been out there for more than 20 years. Many insurers have tried to play with the technology, but few have succeeded in using the data available from connected telematics devices. The potential of this technology was misunderstood, and best practices have remained almost unknown, as it was not common in the insurance sector to look for innovation in other geographies, such as Italy, where progress has been made.

But the insurance sector is being overtaken by a desire to change, and it’s becoming more common to see innovation scouting taking place on an international level. In the last two years, billions of dollars have been invested in insurance startups; innovation labs and accelerators have popped up; and many insurance carriers have created internal innovation units.

On the other hand, I’m starting to hear a new wave of disillusion about the lack of traction of insurtech initiatives, the failure of some of them, or insurtech startups radically changing from their original business models.

In a world that tends toward hyperconnectivity and the infiltration of technology into all aspects of society, I’m firmly convinced all insurance players will be insurtech—meaning they all will be organizations where technology will prevail as the key enabler for the achievement of strategic goals.

See also: Telematics Has 2 Key Lessons for Insurtechs  

Starting from this premise, I’d like to focus on two main points:

  1. The ability of the insurance sector to innovate is incredibly higher than the image commonly perceived.
  2. While not all insurtech innovations will work, a few of them will change the sector.

In support of the first point, consider the trajectory of digital insurance distribution. The German Post Office first experimented with remote insurance sales at the beginning of the 1980s in Berlin and Düsseldorf using Bildschirmtext (data transmitted through the telephone network and the content displayed on a television set). Almost 60% of auto insurance coverage is now sold online in the U.K., and comparison websites are the “normal” way to purchase an auto insurance policy. In few other sectors is one able to see comparable penetration of digital distribution.

In the health insurance sector, the South African insurer Discovery demonstrates incredible innovation, as well. Over the last 20 years, the insurer has introduced new ways to improve policyholders’ lives using connected fitness devices to track healthy behaviors, generate discounts and deliver incentives for activities supporting wellness and even healthy food purchases. Discovery has been able to replicate this “Vitality” model in different geographies and different business lines and to exploit more and more usage of connected devices in its model each month. Vitalitydrive by Discovery rewards drivers for driving knowledge, driving course attendance and behavior on the road with as much as 50% back on fuel purchases at certain stations.

More than 12 months ago, I published my four Ps approach for selecting the most interesting initiatives within the crowded insurtech space. I believe initiatives will have a better chance to win if they can improve:

  • Productivity (generate more sales).
  • Profitability (improve loss or cost ratios).
  • Proximity (improve customer relationships through numerous customer touchpoints).
  • Persistency (account retention, renewal rate increase).

Those insurtech initiatives will make the insurance sector stronger and more able to achieve its strategic goal: to protect the way people live.

One trend able to generate a concrete impact on all four Ps is connected insurance. This is a broad set of solutions based on sensors for collecting data on the state of an insured risk and on telematics for remote transmission and management of the collected data.

In a survey of ACORD members by the North American Connected Insurance Observatory, 93% of respondents stated this trend will be relevant for the North American insurance sector. It’s easy to understand why. We live in a time of connected cars, connected homes and connected health. Today, there is more than one connected device per person in the world, and by some estimates the figure will reach seven devices per person by 2020. (Cisco Internet Business Solutions Group, “The Internet of Things: How the Next Evolution of The Internet Is Changing Everything,” April 2011, estimates seven per person; AIG/CEA, 2015, estimates five per person.) Others put the number at 50 devices for a family of four by 2022, up from 10 in 2014. The insurance sector cannot stop this trend; it can only figure out how to deal with it.

Moving to the concrete insurance usage of connected devices, the common perception of UBI is not positive at all. This is the current mood after years of exploring the usage of dongles within customer acquisition use cases, where the customer installs a piece of hardware in the car for a few months and the insurer proposes a discount based on the analysis of trips. This partially (only for a few months) connected car approach is based on the usage of data to identify good drivers, with the aim of keeping them as clients through a competitive price offer. In 2015, around 3.3 million cars in the U.S. sent in data to an insurance company in some way, representing less than 1.5% of the market.

In contrast, another market used telematics in a completely different way—and it succeeded. Almost 20% of auto insurance policies sold and renewed in the last quarter of 2016 in Italy had a telematics device provided by an insurer based on the IVASS data. The European Connected Insurance Observatory—the European chapter of the insurance think tank I created, consisting of more than 30 European insurers, reinsurers and tech players with an active presence in the discussion from their Italian branches—estimated that 6.3 million Italian customers had a telematics policy at the end of 2016.

Some insurers in this market were able to use the telematics data to create value and share it with customers. The most successful product with the largest traction is based on three elements:

  • A hardware device provided by the insurer with auto liability coverage, self-installed by the customer on the battery under the car’s hood.
  • A 20% upfront flat discount on annual auto liability premium.
  • A suite of services that goes beyond support in the case of a crash to many other different use cases—stolen vehicle recovery, car finder, weather alerts—with a service fee around €50 charged to the customer.

This approach is not introducing any usage-based insurance elements but is an approach clearly able to satisfy the most relevant needs of a customer:

  • Saving money on a compulsory product. Research shows that pricing is relevant in customer choice.
  • Receiving support and convenience at the moment of truth—the claims moment. Insurers are providing a better customer experience after a crash using the telematics data. Just think of how much information can be gathered directly from telematics data without having to question the client.
  • Receiving services other than insurance. That’s something roughly 60% of insurance customers look forward to and value, according to Bain’s research on net promoter scores published last year.

Let’s analyze this approach from an economic perspective:

  • The fee to the customer is close to the annual technology cost for the hardware and services. The €50 mentioned above represents more than 5% of the insurance premium for the risky clients paying an annual premium higher than €1,000. This cluster represents less than 5% of the Italian telematics market. The fee is more than 10% of the premium for the customers paying less than €400. This cluster represents more than 40% of the Italian telematics market.
  • The product is a constant, daily presence in the car, with the driver, with no possibility of turning it off. While the product ensures support in case of a crash, it is also a tremendous deterrent for anyone tempted to make a fraudulent claim, as well as for drivers engaging in risky behavior otherwise hidden from the insurer.
  • The telematics portfolio has shown on average 20% lower claims frequency on a risk-adjusted basis than the non-telematics portfolio, based on the analysis done by the Italian Association of Insurers.
  • Insurer best practices have achieved additional savings on the average cost of claims by introducing a claims management approach as soon as a crash happens and by using the objective reconstruction of the crash dynamic to support the claim handler’s decisions.
  • A suite of telematics services is delivered to the customer, along with a 25% upfront discount on the auto liability premium.

So, best practices allowed carriers to maximize return on investment in telematics technology by using the same data coming from the black box to activate three different value creation levers: value-added services paid for by the customer, risk selection and loss control. The value created was shared with the customer through the upfront discount. The successful players obtained a telematics penetration larger than 20% and experienced continuous growth of their telematics portfolios.

See also: Telematics: Moving Out of the Dark Ages?  

These insurers were able to orchestrate an ecosystem of partners to deliver a “customer-centric” auto insurance value proposition, satisfying the three main needs of customers—or at least those of “good” customers. Compared with many approaches currently being experimented with in different business lines around the world, where the insurance value proposition is simply enlarged by adding some services, this insurtech approach is also leveraging the insurers’ unique competitive advantage—the insurance technical P&L—to create a virtuous value-sharing mechanism based on the telematics data.

The story of the Italian auto telematics market shows how insurtech adoption will make the insurance sector stronger and better able to achieve its strategic goals: to protect the ways in which people live and organizations work

This article originally appeared on Carrier Management.