Tag Archives: sam evans

Key Trends in Innovation (Part 6)

This article is the fifth in a series on key forces shaping the insurance industry. Parts One, Two, Three and Four/Five can be found here, here, here and here.

Trend #6: Delivering on the customer promise is the key

The ability to dynamically innovate (new risk pools, new segments, new channels) and deliver on the customer promise will become the most important competitive advantage as known risks continue to get commoditized and move to the direct channels.

One of the key forces driving the growth of insurtech is the current lack of engagement and, in some instances, the lack of trust between consumers and the industry. In our view, the ability to combine innovation with a model that improves the way individuals perceive and interact with insurance is critical in driving value creation.

Claims is at the heart of the customer promise

At the heart of the customer promise is the claims process. In many ways, it’s surprising that innovation in this area has been relatively modest given its economic importance (representing 60% to 70% of the overall cost base) and its importance in driving customer satisfaction. Our analysis has shown that the impact on renewals rates between a poor or positive claims experience is as high as 50%.

See also: Can Insurance Innovate?  

In most cases, claims acceptance rates are very high (often more than 90%). Despite this, individuals are skeptical. This is driven, in part, by the approach taken by the industry. As a minor example, often while you wait for your call to a claims center to be answered, you are reminded of the consequences of making a fraudulent claim. The insurance company seems to imply the most likely scenario is a fraudulent one. The interaction is off to a bad start before it’s even properly begun.

We have positioned claims innovation as one of our four key pillars with a solution built around a customer-managed claims platform called RightIndem. RightIndem allows an inefficient analog process to be converted into a digital one, resulting in significant cost savings for the insurer — both in claims handling costs and cost of claim. More importantly, though, the platform significantly enhances customer satisfaction by placing him or her at the heart of the process and by being easy, mobile-enabled, transparent and quick. (As an example, total loss motor claims were settled in a matter of days rather than the 21-day average that exists in the U.K.).

New models, new channels, new risk pools

Customer engagement is another important area of innovation, with several new approaches being tested. It’s important that insurance becomes more relevant and tailored to individuals’ needs and circumstances. As this happens, insurance moves from being a “sell” decision to a “buy” decision. Our earlier article on just-in-time insurance explored some of these trends in more detail.

Innovation is also allowing new ways to interact with customers, and we see potential in solutions that enable insurance at point of sale or point of demand.

In addition, new risk pools that allow niche or tailored solutions make insurance more relevant to individuals.

Finally, there are a number of models that are looking to change the nature of the customer promise. Insure A Thing (IAT), for example, has turned the traditional insurance process on its head. Rather than pay an upfront premium, customers are placed in affinity groups where cost of claims is shared among members, with a safety net provided by an insurance carrier. All parts of the value chain are aligned; IAT only earns fees when it pays claims.

Innovation, if insurers embrace it, will allow them to fundamentally change the customer dynamic and to create a new value proposition that is truly appreciated and valued by the customer.

See also: InsurTech: Golden Opportunity to Innovate  

We hope you enjoy these insights, and we look forward to collaborating with you as we create a new insurance future.

Next article in the series: Trend #7: Internal innovation, incubation and maturing of capabilities will no longer be the optimal option; dynamic innovation will require aggressive external partnerships and acquisitions.

Key Trends in Innovation (Parts 4, 5)

This article is part of a series on key forces shaping the insurance industry. Parts One, Two and Three can be found herehere and here.

Trend #4 and #5: Innovation in commercial lines

Solutions will continue to evolve from protection to behavioral change, then to prevention — even across complex commercial insurance. Although proliferation of data and increasing transparency of both the buyer and seller will cause disintermediation for simple covers, it will also create opportunities for brokers and intermediaries to innovate solutions and channels for their B2C (non-standard risk pools, retirees/older generation, healthcare gaps) and B2B (emerging and unknown risks, cyber, global supply chains, cross-border liability, terrorism).

We believe the potential for innovation in commercial lines is actually larger than personal lines. Because of the complexity of the commercial insurance ecosystem and new emerging risks, however, the level of innovation seen so far has been relatively modest.

See also: 3 Ways to Leverage Digital Innovation  

Demand and supply of commercial insurance solutions is evolving, driven by:

  • developing markets looking for new solutions
  • the digital economy driving a move away from property risks (which are decreasing as a proportion of the overall economy) to casualty
  • increasing demand for catastrophe insurance (driven, in part, by increasing concentration)
  • macro trends creating emerging and “uninsurable” risk classes
  • new sources of structured and unstructured external data that are changing how commercial insurance is sourced, bought, underwritten/priced and serviced

The competitive landscape is also changing with large global conglomerates setting up captives to self-insure emerging market champions and the continued involvement of alternative sources of capital. Excess underwriting capacity is placing strain on profitability.

In addition, new entrants and primary distributors are seeking to take greater control of the value chain, including pricing and risk selection. This impact is further enhanced by primary carriers retaining more risk as a result of global scale and balance sheet strength providing diversification and increased understanding of their own risk from solvency modeling.

Many incumbents are already starting to respond.

In the London market, a key component of the modernization program being driven by Lloyds is PPL, a new platform where face-to-face negotiation is supported and facilitated by electronic risk capture, placing, signing and closing. Brokers are also aggressively evolving their risk analytics capabilities through the creation of open architecture platforms that deliver a two-way information flow while leveraging knowledge to shape future risk transfer solutions for evolving needs.

Many carriers are piloting monitoring technology in property (partnerships with security, pest control and energy companies) as well as casualty (sensors and wearables) to drive improvements in risk selection and risk mitigation.

How innovation will drive value creation

Risk monitoring, mitigation and prevention

One of the key trends driving change is the move from risk transfer to risk monitoring, mitigation and prevention.

Organizations are looking for risk prevention and mitigation solutions as they move away from traditional risk transfer mechanisms.

We see three main areas:

  • Telematics for commercial lines (for example in property and marine);
  • Real-time, contextual data capture and AI for risk selection, risk mitigation and monitoring, client on-boarding as well as re-underwriting; and
  • Use of preventive technologies (health tech, slip and fall, work place safety) to mitigate lost time injury and workers’ compensation losses.

Insurance sourcing, buying and selling

As businesses gain greater transparency into their risks, they will continue to optimize their risk management solutions. While direct SME cover, self-insurance and use of captives will continue to grow, emerging risks will provide opportunities for intermediaries and brokers to carve out and source new solutions for their customers. Examples of these will include global supply chains, cross border liability, cyber, catastrophe and terrorism.

Operating model improvements

The commercial market has always been very strong around product innovation, but the operating model has largely stagnated. In some parts of the market, the underlying process hasn’t really changed for more than a hundred years. System limitations further reduce the ability to leverage the data that is captured. There are significant opportunities to enhance operational efficiency in many of the basic functions, including payments and regulation and also in automating underwriting and claims.

Application of technology and data to enable digitalization

There are a number of risk classes where there is significant potential to harness technology and data to improve underwriting, risk selection and pricing, as well as to help businesses understand and then manage their exposure. These include cyber, flood and SME.

Platform-based solutions

Platform-based solutions (rather than point solutions) have the greatest potential to create value, and incumbents will need to assess how to incorporate innovative solutions based on a build, buy or partner strategy.

See also: Q&A With Google on Innovation, Risk  

We hope you enjoy these insights, and we look forward to collaborating with you as we create a new insurance future.

Next article in the series will be about Trend #6. The ability to dynamically innovate (new risk pools, new segments, new channels) and deliver on the customer promise will become the most important competitive advantage (as known risks continue to get commoditized and moved to the direct channels).

Key Trends in Innovation (Part 3)

This article is the third in a series on key forces shaping the insurance industry. Parts One and Two can be found here and here.

Trend #3: Just in time: The majority of the simple covers will be bought in standard units through a marketplace/exchange, permitting just-in-time, need and exposure-based protection through mobile access.

Why can’t insurance work in the same way as Amazon, easy, seamless, one-click, no hassle, managed through your mobile and regular updates?

Actually, this is starting to become a reality. Insurers and start-ups have already taken up this challenge and significant progress is being made.

Aviva, for example, are piloting a home insurance product where customers won’t need to answer any questions and Digital Fineprint will autofill your insurance policy application form for you by using your social media information.

See also: 10 Trends at Heart of Insurtech Revolution  

Data availability and technology are enabling ‘blind rating’ of risks by insurance companies, providing guaranteed acceptance and prices to customer through direct or broker-assisted channels.

Insurance still has many consumer challenges to overcome, from a lack of understanding, lack of trust and lack of perceived benefits. If it’s considered at all, it’s often as a grudge purchase. The comment that insurance is sold not bought remains true in many instances.

As the digital economy evolves, the opportunity to change this dynamic will multiply.

The key drivers of this change are:

  • Ability to interact with the customer through their mobile in real time
  • Ability to offer insurance at the point of sale or time of need
  • Ability to tailor the offering to the individual’s specific circumstances (location, time, activity, risk)
  • Ability to leverage available information to simplify the process

Innovative start-ups like Insure-A-Thing (IAT)are reinventing the insurance ecosystem by improving customer trust & transparency, and encouraging improved behavior through retrospective premium payments, based on actual claims.

Democrance is revolutionizing the distribution and servicing of micro-insurance products at POS through telcos and Uber-like shared economy technologies.

Other examples of where this is already happening include, Kasko which enables consumers to purchase insurance at the point of sale/demand – it’s relevant, it’s easy and it’s digital. Similarly, Spixii, an insurance focused chatbot knows if you’re in a ski resort and willout and let you know that your travel insurance doesn’t cover extreme sports and then allow you to purchase the additional protection – again it’s relevant, it’s easy and it’s digital.

Our view is that many relatively simple personal lines products will evolve over time to these types of interactive model. Rather than standard policies covering fixed periods of time, these new products will switch on and off for the period they are needed and will cover the specific circumstances/risk. This will encourage adoption at more affordable prices and importantly demonstrate that insurance is providing real value when it’s most needed.

The sharing economy is a further example of how innovative insurance solutions are being developed to meet new and emerging consumer needs. Start-ups like Slice and Oula.la are looking to provide tailored insurance protection for Airbnb property owners that switch on and off to cover the period when the property is rented.

See also: Insurance Coverage Porn  

We also expect to see market place or exchange platforms being developed to help facilitate the process. Again, this is already happening. As an example, Asset Vault allows customers to log their physical and financial assets in a secure online repository and can then help customers find and tailor optimal insurance coverage based on their specific circumstances.

We hope you enjoy these insights, and look forward to collaborating with you as we create a new insurance future.

Next article in the series: Trend #4: Solutions will continue to evolve from protection to behavioral change then to prevention – even across complex commercial insurance

Key Trends in Innovation (Part 2)

This article is the second in a series on key forces shaping the insurance industry. Here is Part One.

Trend #2: Data: External data and contextual information will become increasingly more important than historical internal data for predicting risk and pricing.

The insurance industry tends to look backwards to understand the future. Underwriting and pricing are based on historical data using proxy factors.

However, the explosion of information from IoT devices, wearables, genomics, bionomics and health tech is driving a fundamental change in the approach to pricing, risk selection and underwriting across all lines of business.

It is now possible to base underwriting decisions on real time detailed information specific to the individual risk and monitor and update those decisions over the life of the policy.

See also: 10 Trends at Heart of Insurtech Revolution

How different product lines will accommodate external and contextual information

P&C personal Lines – personal lines products, particularly motor and home, are already seeing positive momentum in the use of data. For example, insurance propositions leveraging smart home devices. Data from these devices can help prevent accidents (for example, responding to a burst pipe) and can help inform and assess the risk profile of the policy in real time (for example, the period each day when the property is empty). Similarly, in motor the data from telematics devices can be used to determine the relative quality of the driver. Going forward it will be possible to adapt pricing based on the length and nature of a journey (for example, motorway versus city centre, weather conditions and weight of traffic).

“Real time pricing of motor and home based on an actual risk profile”

Commercial lines – the dynamic in commercial lines is slightly different and likely to drive commercial insurers and brokers more towards risk mitigation and risk management rather than traditional risk transfer solutions. For example, as the quality of monitoring devices and technology significantly reduces the chances of a piece of machinery going wrong the need for insurance falls. To remain relevant insurers therefore need to help their customers better manage their risk profile whilst providing protection in the event of a catastrophe. Also, IoT devices can supply detailed information about a risk during the life of the policy, presenting the opportunity to change the pricing or more likely allow the insurer to manage their reinsurance program in real time and provide valuable support to their client to help reduce accidents.

“Commercial lines insurance will become increasingly about risk mitigation rather than risk transfer”

Life and Health – in life and health, initial moves have seen insurers adopt wellness programs to help encourage policyholders to live more healthy lives. This is the tip of the iceberg. Over the next few years the quality and quantity of information about an individual is going to increase exponentially and can be used to identify potential health issues much earlier than traditional means thereby allowing intervention and increased likelihood of a successful outcome. Information will also be able to tell us a lot more about the relative health of the individual and susceptibility to certain diseases. In this environment, insurance is about prevention and providing access to the technology rather than simply protection after something has happened.

“Leading tech companies believe that historical underwriting factors in life insurance are completely irrelevant”

Where next?

The problem is that whilst the velocity of data is going to increase exponentially the ability of the vast majority of insurers to capture and use this new information is very limited due to the legacy IT environment.

Insurers cannot respond with their current systems and that creates the opportunity for insurtech companies, particularly those who can provide an end to end solution that both engages the customer and facilitates the capturing, processing and use of the information.

See also: 10 Predictions for Insurtech in 2017  

We hope you enjoy these insights, and look forward to collaborating with you as we create a new insurance future.

Next article in the series: Trend #3: Majority of the simple covers will be bought in standard units through a ‘marketplace/ exchange’, permitting just-in-time, need and exposure based protection through mobile access

This article was written by Sam Evans, Carl Bauer- Schlichtegroll, and Jonathan Kalman

Key Trends in Innovation (Part 1)

This article is the first in a series on key forces shaping the insurance industry.

Trend #1: In the future, insurance will be bought, sold, underwritten and serviced in a fundamentally different way, and that creates opportunities for industry leaders and problems for industry laggards.

We are still in the initial stages of what Gartner terms the Hype Cycle, with an ever-increasing amount of noise and expectation without clear impact and results.

Have we reached the peak of inflated expectations? We expect not. Certainly, valuations continue to rise with relatively new businesses still at the effectively pre-revenue stage commanding valuations in the tens of millions. Hard to justify on any fundamental level.

However, at the core of insurtech, we continue to see a huge opportunity to innovate in a sector that is ripe for change – lack of customer engagement, lack of customer trust, outdated and legacy infrastructure combined with traditional and unpopular products all highlight the need for change and the underlying potential.

Ignore Insurtech at Your Own Risk

Eos has talked with dozens of insurance companies, and there is a wide range of responses from the insurance community about when, where, if and how to engage with insurtech.

The top insurance companies have, for the most part, followed a two-phased approach combining an innovation team with a corporate venture initiative. These carriers see the impending disruption clearly and want to be able to shape and influence the impact. The results so far have been mixed, as some large incumbents have found it difficult to circumvent legacy mindsets, governance, organizational structures and technology.

See also: 10 Trends at Heart of Insurtech Revolution  

Other carriers have yet to agree/settle on an approach to deal with these disruptive forces.

Eos calculates that the impact of insurtech is at least 40% to the average carrier. We calculate that by looking at a 20% upside, and a 20% downside scenario:

On a conservative basis, insurers may risk losing at least 20% of their business to disruption. On the flip side, for those that embrace innovation there is an opportunity to grow their business by 20%.

Stated another way, the net present value (NPV) of insurtech is $100 million for every $1 billion of premium on the downside and $285 million on the upside, assuming a top-line and profitability improvement.

Timing is also key, as the scale of adoption and impact is not linear. The upside opportunity by investing now in the right opportunities is likely to give an insurer a lead that others can’t catch — essentially a “first-mover” advantage. At the same time, the lost opportunity by delaying is exponential, not linear.

There are many ways to create and capture value

The positive momentum is further driven by the growth of insurtech into all areas of the value chain and across multiple product lines. We see two broad types of innovator: the “enabler” and the “disruptor.”

The enabler is a business that significantly improves an existing part of the value chain driving efficiency, improved customer satisfaction or better customer outcomes. A great example is RightIndem, which is transforming the claims process by creating an end-to-end, customer-managed claims process.

The disruptor is a business that has developed a new approach to fulfilling part, or all, of the value chain. This is illustrated by Insure A Thing, an insurtech startup that has created a way of providing insurance without the need for an upfront premium.

On face value, the disruptors may appear more exciting, but the enablers perhaps better illustrate the underlying potential of insurtech, as there are an abundance of opportunities for most insurance companies to hit “the low-hanging fruit” and do things better, more cheaply and more aligned with the customer.

Insurtech is not an overnight revolution, and there are many ways to create and capture value that combine different elements of the above, for example:

  • Low-hanging fruit — these are mostly your enablers,
  • True differentiators — a combination of enablers and disruptors
  • Measured bets for the future — all pure disruptors

At Eos, we continue to adapt and evolve our investment strategy to take advantage of these opportunities, with an initial focus on our three core platforms:

  • Digital distribution
  • Frictionless claims
  • Artificial intelligence for risk selection, underwriting, pricing and capital optimization

All of the above underpin our first trend and belief that the future of insurance will look very different than today, with all areas of the value chain from distribution, underwriting, products, claims and customer engagement changing fundamentally:

  • Bought differently: As asset ownership (cars, homes, etc.) mobility and crossborder employment evolve with the shared economy, insurance covers (at least personal lines initially) will be bought on a just-in-time, on-demand, needs basis. Greater information transparency on the buyer and seller side will enable direct interaction with lower cost of intermediation/brokerage. We see this starting with simpler personal line covers and gradually evolving to more complex risks.
  • Sold differently: Insurance will be quoted, bound and issued at points of transaction/sales/service enabled by ubiquitous IoT, telematics and external data availability. Selling will become increasingly distributed and linked to companies with strong customer engagement across both B2C and B2B sectors.
  • Serviced differently: End consumers will choose how to be serviced and made whole via a channel, time and a manner of their choice. Servicing, especially claims, will focus on “delivering on the customer promise” as an integral part of the policy.

See also: Industry Trends for 2017  

We hope you enjoy these insights, and look forward to collaborating with you as we create a new insurance future.

Next article in the series: Trend #2: “External data and contextual information will become increasingly more important than historical internal data for predicting risk and pricing.”

This article was written by Sam Evans, Carl Bauer-Schlichtegroll and Jonathan Kalman.