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Wearable Technology: Benefits for Insurers

Over 50 years ago, Edward Thorp, considered the “father of the wearable computer,” discovered a tiny computerized timing device that could effortlessly beat opponents in a game of roulette. Since then, the popularity of wearable technology has always been on the rise. Today, we have smart devices like Apple smartwatches, Fitbit fitness bands, Google Glass and Nike Fuelbands that could do some pretty cool things to help improve the quality of our life.

Wearable technology refers to tiny electronic gadgets that are worn on the body or clothing. They are capable of monitoring our physical and mental activities and generating stats to help us understand our health and fitness condition better. Whether it’s keeping track of your eating, exercising, or sleeping habits, there is always a smart device to provide you the right data.

Insurance companies are taking wearable device reports seriously. You can get up to a 15% discount on your insurance plan by presenting your wearable report to your insurance agent.

See also: The Case for Connected Wearables

According to The Wearable Future, 20 percent of Americans are using wearables to monitor their day-to-day activities, and the number is expected to grow over the next couple of years. The study suggested that millennials are the biggest users of wearables. It’s estimated that 50 percent of millennials in America will own fitness bands by 2017.

Why is the insurance industry paying attention to wearable technology? Here’s an Infographic that presents some interesting stats and information on how wearable technology is influencing the insurance industry.

Credit: LifeInsurancePost.com

Credit: LifeInsurancePost.com

The Real Powerhouses in Silicon Valley

One of the most important lessons that Silicon Valley learned, that gives it a strategic advantage, is to think bigger than products and business models: It builds platforms.

The fastest-growing and most disruptive powerhouses in history — Google, Amazon, Uber, AirBnb and eBay—aren’t focused on selling products; they are building platforms.

The trend goes beyond tech.  Companies such as Walmart, Nike, John Deere, and GE are also building platforms for their industries. John Deere, for example, is building a hub for agricultural products.

Platforms are becoming increasingly important as all information becomes digitized; as everything becomes an information technology and entire industries get disrupted.

A platform isn’t a new concept; it is simply a way of building something that is open and inclusive and has a strategic focus. Think of the difference between a roadside store and a shopping center. The mall has many advantages in size and scale, and every store benefits from the marketing and promotion done by others.

See Also: Pursue Innovation or Transformation

They share infrastructure and costs. The mall owner could have tried to have it all by building one big store, but it would have missed out on the opportunities to collect rent from everyone and benefit from the diverse crowds that the tenants attract.

Platform businesses bring together producers and consumers in high-value exchanges in which the chief assets are information and interactions. These interactions are the creators of value, the sources of competitive advantage.

The power of platforms is explained in a new book, Platform Revolution: How Networked Markets are Transforming the Economy and How to Make Them Work for You, by Geoffrey Parker, Marshall Van Alstyne and Sangeet Choudary. The authors illustrate how Apple became the most profitable player in the mobile space with the iPhone by leveraging platforms.

As recently as 2007, Nokia, Samsung, Motorola, Sony Ericsson and LG collectively controlled 90% of the industry’s global profits. And then came the iPhone with its beautiful design and marketplaces — iTunes and the App store. With these, by 2015, the iPhone had grabbed 92% of global profits and left the others in the dust.

Nokia Shutterstock

Nokia and the others had classic strategic advantages that should have protected them: strong product differentiation, trusted brands, leading operating systems, excellent logistics, protective regulation, huge R&D budgets and massive scale.

But Apple imagined the iPhone and iOS as more than a product or a conduit for services. They were a way to connect participants in two-sided markets — app developers on one side and app users on the other.

These generated value for both groups and allowed Apple to charge a tax on each transaction. As the number of developers increased, so did the number of users. This created the “network effect” — a process in which the value snowballs as more production attracts more consumption and more consumption leads to more production.

By January 2015. the company’s App Store offered 1.4 million apps and had cumulatively generated $25 billion for developers.

Just as malls have linked consumers and merchants, newspapers have long linked subscribers and advertisers. What has changed is that technology has reduced the need to own infrastructure and assets and made it significantly cheaper to build and scale digital platforms.

Traditional businesses, called “pipelines” by Parker, Van Alstyne and Choudary, create value by controlling a linear series of processes. The inputs at one end of the value chain, materials provided by suppliers, undergo a series of transformations to make them worth more.

pipes

Apple’s handset business was a classic pipeline, but when combined with the App Store, the marketplace that connects developers with users, it became a platform. As a platform, it grew exponentially because of the network effects.

The authors say that the move from pipeline to platform involves three key shifts:

  1. From resource control to orchestration. In the pipeline world, the key assets are tangible — such as mines and real estate. With platforms, the value is in the intellectual property and community. The network generates the ideas and data — the most valuable of all assets in the digital economy.
  2. From internal optimization to external interaction. Pipeline businesses achieve efficiency by optimizing labor and processes. With platforms, the key is to facilitate greater interactions between producers and consumers. To improve effectiveness and efficiency, you must optimize the ecosystem itself.
  3. From the individual to the ecosystem. Rather than focusing on the value of a single customer as traditional businesses do, in the platform world it is all about expanding the total value of an expanding ecosystem in a circular, iterative and feedback-driven process. This means that the metrics for measuring success must themselves change.

But not every industry is ripe for platforms because the underlying technologies and regulations may not be there yet.

See Also: InsurTech: Golden Opportunity to Innovate

In a paper in Harvard Business Review on “transitional business platforms,” Kellogg School of Management professor Robert Wolcott illustrates the problems that Netflix founder Reed Hastings had in 1997 in building a platform.

Hastings had always wanted to provide on-demand video, but the technology infrastructure just wasn’t there when he needed it. So he started by building a DVDs-by-mail business — while he plotted a long-term strategy for today’s platform.

According to Wolcott, Uber has a strategic intent of providing self-driving cars, but while the technology evolves it is managing with human drivers. It has built a platform that enables rapid evolution as technologies, consumer behaviors and regulations change.

Building platforms requires a vision, but does not require predicting the future. What you need is to understand the opportunity to build the mall instead of the store and be flexible in how you get there. Remember that business models now triumph products—and platforms triumph business models.

How to Avoid Commoditization

How can a company liberate itself from the death spiral of product commoditization?

Competing on price is generally a losing proposition—and an exhausting way to run a business. But when a market matures and customers start focusing on price, what’s a business to do?

The answer, as counterintuitive as it may seem, is to deliver a better customer experience.

It’s a proposition some executives reject outright. After all, a better customer experience costs more to deliver, right? How on earth could that be a beneficial strategy for a company that’s facing commoditization pressures?

Go From Commodity to Necessity

There are two ways that a great customer experience can improve price competitiveness, and the first involves simply removing yourself from the price comparison arena.

Consider those companies that have flourished selling products or services that were previously thought to be commodities: Starbucks and coffee, Nike and sneakers, Apple and laptops. They all broke free from the commodity quicksand by creating an experience their target market was willing to pay more for.

They achieved that, in part, by grounding their customer experience in a purpose-driven brand that resonated with their target market.

Nike, for example, didn’t purport to just sell sneakers; it aimed to bring “inspiration and innovation to every athlete in the world.” Starbucks didn’t focus on selling coffee; it sought to create a comfortable “third place” (between work and home) where people could relax and decompress. Apple’s fixation was never on the technology but rather on the design of a simple, effortless user experience.

But these companies also walk the talk by engineering customer experiences that credibly reinforce their brand promise (for example, the carefully curated sights, sounds and aromas in a Starbucks coffee shop or the seamless integration across Apple devices).

The result is that these companies create something of considerable value to their customers. Something that ceases to be a commodity and instead becomes a necessity. Something that people are simply willing to pay more for.

That makes their offerings more price competitive—but not because they’re matching lower-priced competitors. Rather, despite the higher price point, people view these firms as delivering good value, in light of the rational and emotional satisfaction they derive from the companies’ products.

The lesson: Hook customers with both the mind and the heart, and price commoditization quickly can become a thing of the past.

Gain Greater Pricing Latitude

Creating a highly appealing brand experience certainly can help remove a company from the morass of price-based competition. But the reality is that price does matter. While people may pay more for a great customer experience, there are limits to how much more.

And so, even for those companies that succeed in differentiating their customer experience, it remains important to create a competitive cost structure that affords some flexibility in pricing without crimping margins.

At first blush, these might seem like contradictory goals: a better customer experience and a more competitive cost structure. But the surprising truth is that these two business objectives are actually quite compatible.

A great customer experience can actually cost less to deliver, thanks to a fundamental principle that many businesses fail to appreciate: Broken or even just unfulfilling customer experiences inevitably create more work and expense for an organization.

That’s because subpar customer interactions often trigger additional customer contacts that are simply unnecessary. Some examples:

  • An individual receives an explanation of benefits (EOB) from his health insurer for a recent medical procedure. The EOB is difficult to read, let alone interpret. What does the insured do? He calls the insurance company for clarification.
  • A cable TV subscriber purchases an add-on service, but the sales representative fails to fully explain the associated charges. When the subscriber’s next cable bill arrives, she’s unpleasantly surprised and believes an error has been made. She calls the cable company to complain.
  • A mutual fund investor requests a change to his account. The service representative helping him fails to set expectations for a return call. Two days later, having not heard from anyone, what does the investor do? He calls the mutual fund company to follow up on the request.
  • A student researching a computer laptop purchase on the manufacturer’s website can’t understand the difference between two closely related models. To be sure that he orders the right one for his needs, what does he do? He calls the manufacturer.
  • An insurance policyholder receives a contractual amendment to her policy that fails to clearly explain, in plain English, the rationale for the change and its impact on her coverage. What does the insured do? She calls her insurance agent for assistance.

In all of these examples, less-than-ideal customer experiences generate additional calls to centralized service centers or field sales representatives. But the tragedy is that a better experience upstream would eliminate the need for many of these customer contacts.

Every incoming call, email, tweet or letter drives real expense—in service, training and other support resources. Plus, because many of these contacts come from frustrated customers, they often involve escalated case handling and complex problem resolution, which, by embroiling senior staff, managers and executives in the mess, drive the associated expense up considerably.

Studies suggest that at most companies, as many as a third of all customer contacts are unnecessary—generated only because the customer had a failed or unfulfilling prior interaction (with a sales rep, a call center, an account statement, etc.).

In organizations with large customer bases, this easily can translate into hundreds of thousands of expense-inducing (but totally avoidable) transactions.

By inflating a company’s operating expenses, these unnecessary customer contacts make it more difficult to price aggressively without compromising margins.

If, however, you deliver a customer experience that preempts such contacts, you help control (if not reduce) operating expenses, thereby providing greater latitude to achieve competitive pricing.

Putting the Strategy to Work

If your product category is devolving into a commodity (a prospect that doesn’t require much imagination on the part of insurance executives), break from the pack and increase your pricing leverage with these two tactics:

  • Pinpoint what’s really valuable to your customers.

Starbucks tapped into consumers’ desire for a “third place” between home and work—a place for conversation and a sense of community. By shaping the customer experience accordingly (and recognizing that the business was much more than just a purveyor of coffee), Starbucks set itself apart in a crowded, commoditized market.

Insurers should similarly think carefully about what really matters to their clientele and then engineer a product and service experience that capitalizes on those insights. Commercial policyholders, for example, care a lot more about growing their business than insuring it. Help them on both counts, and they’ll be a lot less likely to treat you as a commodity supplier.

  • Figure out why customers contact you.

Apple has long had a skill for understanding how new technologies can frustrate rather than delight customers. The company used that insight to create elegantly designed devices that are intuitive and effortless to use. (Or, to invoke the oft-repeated mantra of Apple co-founder Steve Jobs, “It just works.”)

Make your customer experience just as effortless by drilling into the top 10 reasons customers contact you in the first place. Whether your company handles a thousand customer interactions a year or millions, don’t assume they’re all “sensible” interactions. You’ll likely find some subset that are triggered by customer confusion, ambiguity or annoyance—and could be preempted with upstream experience improvements, such as simpler coverage options, plain language policy documents or proactive claim status notifications.

By eliminating just a portion of these unnecessary, avoidable interactions, you’ll not only make customers happier, you’ll make your whole operation more efficient. That, in turn, means a more competitive cost structure that can support more competitive pricing.

Whether it’s coffee, sneakers, laptops or insurance, every product category eventually matures, and the ugly march toward commoditization begins. In these situations, the smartest companies recognize that the key is not to compete on price but on value.

They focus on continuously refining their brand experience—revealing and addressing unmet customer needs, identifying and preempting unnecessary customer contacts.

As a result, they enjoy reduced price sensitivity among their customers, coupled with a more competitive cost structure. And that’s the perfect recipe for success in a crowded, commoditized market.

This article first appeared on carriermanagement.com.

Where Are the New Wearables Heading?

It’s hard to imagine that Humphrey Bogart became one of the fashion setters of his time by wearing a wristwatch in his films. That made pocket watches a novelty. Since then, wristwatches have been a cool men’s accessory. There were glow-in-the dark watches — until radium was discovered to be dangerous. Other styles have added lunar phases, chronographs, timers and alarms, and don’t forget the trendy but forgotten 1970 Pulsar red LED watch.

Now, is the wristwatch at risk of being replaced by new wearables? The real question in my mind from a risk management perspective relates to our personal habits vs. technological advances. Historically, relying on technology alone to change behavior has been more hope than strategy. People like style, convenience, comfort and practicality, and many old habits are hard to change. How many devices do I need to wear? Will a wearable ever truly be a personal protective device (PPD) in the workplace?

Gadgets like Fitbit or Nike Fuelband do specific health-monitoring tasks that have a cool factor, joining yoga pants and headbands. Well, maybe not headbands anymore, but I’m an Olivia Newton-John fan. Anyway, for my daily walks, I use an app on my iPhone that seems to do very well in tracking my steps.

The real holy grail of wearables would be a simple device that could monitor your blood pressure 24/7 and communicate to you and your medical provider. Now, joining the battle for your wrist, the Apple watch (around $350-plus) is poised for release in April. A companion device with your iPhone, these colorful wrist devices strive to pack all of your wearable potential into one Dick Tracy-like, walkie-talkie-style statement with three colorful base models. Similarly, Android Wear is in the works, with as many as 15 devices packing Google’s wearable tech system anticipated to hit the market by the end of 2015.

Apple admits that users are going to wind up charging the watch daily but has declined to go into specifics. A watch runs on a small battery for a year or more.

Wearables are about to explode into an array of novel, single-function devices. The big question in my mind is something the designers of wearable tech seem to have forgotten: Does the item in question solve a need or make life easier for its user? The fact is that most wrist devices do nothing more complex than that already done on a smart phone.

Look at what happened with Google Glass in 2013 -2015. This $1,500 gizmo fizzled in the social scene although commercial uses, including in medicine, firefighting and manufacturing, seem promising. Besides its nerdiness, Google Glass lost because of legal and privacy issues. The real killer in my mind was when users were dubbed “glassholes.” Google is retooling that invention for another shot at it down the road.

Perhaps the biggest obstacle standing in the way of wearables is complexity. There may very well come a day when people are decked out from head to toe in technology, but it’s not going to happen unless it’s nearly invisible technology. Consumers don’t buy gadgets, as much as they buy experiences. They buy access to content and services they desire. They buy brands that deliver style and status, social acceptance and recognition. Remember the 2001 invention, codenamed Ginger, that was destined to change the world of transportation? It’s called the Segway.

“Disruptive innovation,” a term coined by a Harvard University professor, Clayton Christensen, describes a process by which a product or service takes root initially in simple applications at the bottom of the market and then relentlessly moves up-market, eventually displacing established competitors.

Wearables could bring dramatic improvement  to health monitoring and safety and assistance, but issues like battery life, transparency and simplicity need to be solved before we can expect real disruptive change like the smart phone brought us.

Over half of the world’s 7.2 billion people use mobile phones, with smartphone users growing to 2.5 billion in 2015. Besides communication and computing, think of the incredible photo and video capabilities smartphones bring to our planet’s inhabitants.

What would more wearables give us?

The Need for Speed: It Just Keeps Intensifying

At the recent meeting of the Insurance Accounting & Systems Association, President Bill Clinton said in his keynote speech, “Share the future or fight over it.”

As an industry, we have a history of collaborating, which has benefited all of us, but we need to raise the bar to succeed in this fast-changing world. Other industries and businesses are changing all around us and seeking to encroach on and challenge insurance. So we must embrace open innovation, collaboration, crowdsourcing and ideation with new standards and at higher levels within companies, within the industry and even between industries.

The topics of innovation, change, and emerging technologies were the focus of this year’s IASA “Around the Horn” industry analyst panel. I had the pleasure of representing SMA, and as I prepared for the panel session I found myself taking a step back. I realized that when leveraging the vast base of SMA research and insights and blending that with the broader strategic business implications for the industry, a powerful story emerged. A wave of disruption and innovation has hit our industry with an intensity that we didn’t quite expect.

In the spirit of sharing, for those who did not attend, here is a summary of my rapid-fire responses to the panel questions to help inspire you, challenge you and get you to embrace collaboration as an industry to help you quickly define your future:

–Innovation is happening all around us. We are at the forefront of what is probably the greatest disruption in history: the digital revolution. And it is affecting every industry. This revolution is fueled by the breadth and depth of the new technologies that are changing customer engagement, transforming products and services, redefining business and revenue models, breaking down barriers to new entrants and more – look at the Apple iPhone, introduced 7 years ago, and the resulting destruction and construction of industries and businesses. Today, the bar is set at a new high. Operational excellence is an absolute. Innovation is necessary for future success. And the Next-Gen Insurer is being defined and shaped.

–Insurers must have a strong culture that combines the power of open innovation with an ecosystem that empowers collaboration. If we don’t define our own future as an industry, other industries may try to step in and define it for us.

–We must focus on the constantly connected customer. We all must recognize that, in this digital revolution, the customer is in control and is defining the channels that he or she wants to use – from purchasing through service. As insurers seek to become digital insurers, they must have unified digital strategies that create seamless, consistent and connected customer experiences in an omni-channel environment. Think like Google, Zappos, Apple, Nike, AT&T and others that are the new digital leaders.

–Product development and configuration are key differentiation levers. These capabilities are shaping today’s competitive landscape, with speed to market of paramount importance. The pressure to stay current, deliver new offerings and price accurately is driving many insurers to seek innovative solutions. The average new product implementation timeline is nearly 7.5 months. Less than 2% of insurers can implement in less than 30 days. But some innovative companies have found a way to implement in less than 5 days! Another emerging capability of even greater importance is the enabling of product co-creation – customers can help to configure their own products according to their wants and needs.

–Usage based insurance (UBI) is not just about product; it’s a whole new business model. UBI moves the focus from risk assessment to risk prevention. And its application is much larger than auto insurance. It is about the connected car, the connected home and the connected life. UBI is the precursor of a broader impact of sensors and the Internet of Things that will allow us to connect the dots between data for new customer products, services, outcomes and experiences – providing a real-time view of risk.

–Data is the new currency in the digital world. Data has always been seen as the lifeblood of the industry, but its strategic value is now at the forefront. And big data, business intelligence and analytics continue to take the insurance industry by storm. What is holding insurers back is the lack of a data management strategy and a deficient level of data mastery. Both strategy and mastery will be needed to unlock the full business value of data, whether transactional, unstructured, internal or external.

–Social media is a subset of digital data. Customers are sharing information about all aspects of their lives – social, pictures, online discussions, GPS, sensors, mobile technologies and more – and all this data is in the cloud. People are able to search their recorded memories and use new tools that can influence and shape their lives like never before. New companies are creating digital lockers for data that can be stored and managed by customers to be used in innovative ways. When new solutions like these form around customer logging activities, the question from customers will be: “Is the value of what I’m revealing worth the services I’m receiving in return?” The key issue will be the customers’ control of their data.

–Digitalization is happening and is dramatically destructive. A foundational change is taking place in the way all businesses are approaching value creation. In today’s hyper-connected world, companies are moving from managing value chains to managing ecosystems to power their businesses. The ubiquitous connectivity of people via the Internet and emerging technologies is disrupting traditional business assumptions about how to engage customers, the products and services offered and, ultimately, business and revenue models. Just look at these transformations: from the Yellow Pages to Yelp, hailing a cab to Uber or Lyft, booking a hotel to Airbnb and policemen managing traffic to managing traffic with crowdsourcing Waze. All of these represent the disruption happening all around insurance and point to the imminent disruption that will transpire within insurance.

–Mobile is much broader than the phone and tablet. It includes smartphones, MP3 players, e-readers, in-dash car electronics, cameras, portable consoles, home entertainment, appliances and any device or sensor that connects to the internet to share data. And there is now a continuing evolution of mobile apps from multi-purpose websites or portals to single-purpose apps. This will compel companies to design apps as a service layer within an enterprise technical architecture that will enable seamless integration and connectivity between apps – critically important with the Internet of Things.

–Cloud is increasingly mainstream because that is where the data is moving. Two years ago, it was an option in core system RFPs, whereas today it is increasingly a preferred choice. The future will be the Cloud of Things, a world of distributed data, devices, technology, intelligence, computing, etc. that is highly connected and will enable the creation of products and services.

–The issue is “customer empowerment,” not “customer-centricity.” Customer-centricity is a 1990s/early 2000s term and is only a subset of customer empowerment. We used to shape the customer experience; now it is shaped for us by the rest of the world. Customer empowerment defines new engagement models. As customers gain market power, they are increasingly comfortable with technology, have a stronger voice and use it to demand collaboration. Insurers must view all technology as touching customers, because it influences the customer experience, both directly and indirectly, ultimately shaping and defining the customer relationship.

–As an industry, we are seeing challenges to our long-held assumptions and business models coming at us every day. Technology is now super-connected, creating new experiences, new products and services, new outcomes and new business and revenue models that were not possible a few years ago. Just as the iPhone provided a platform of possibilities, core systems – integrated with an array of new technologies like mobile, social, Internet of Things, cloud, big data, analytics, driverless vehicles, biotechnology and much more – have the potential to transform our industry … and to do it on our own terms.

So be inspired. Be creative. Be collaborative. Be bold. Let’s create and share the future together!