Tag Archives: satellites

Future of P&C Tech Comes Into Focus

In a 2017 report titled “Drones: Reporting for Work,” Goldman Sachs estimated the addressable market opportunity for drones globally between 2016 and 2020 to be $100 billion, of which the insurance claims drone market was estimated to be $1.4 billion.

And the report did not address the wider opportunities in personal and commercial property insurance: underwriting, pricing, risk prevention, traditional and virtual claims management, fraud detection and product marketing. The report also didn’t cover the use of images from satellites and fixed-wing aircraft, including streaming video.

Whatever the actual size of the total insurance market opportunity, the impact of aerial and drone images in insurance will be enormous.

Industry observers are just beginning to recognize the transformation in property insurance underwriting and claims that is emerging through advanced analytics, artificial intelligence and machine learning tied to neural networks and integrated with data from aerial and drone images.

Property claims investigation costs the industry an average of about 11% of premiums – automated inspection can reduce that expense substantially. And automated property inspection cycle times can average two to three days, compared with 10 to 15 days using traditional methods – lowering costs and increasing customer satisfaction.

Providers will transform the property insurance industry through the convergence of these sources of better images, expanding numbers and types of connected home technologies, customer self-service and aggregated property risk data (historic and real-time).

Follow the money

Venture and private equity investment activity in emerging technologies is a good indicator of potential growth opportunities – these professionals typically engage subject matter experts and conduct deep market research and diligence in a highly disciplined and proven evaluation process prior to investing. Since 2012, almost $2 billion has been invested in more than 370 drone company deals, and the current run rate is more than $500 million in announced deals annually, according to CB Insights research, which states that ”19 of the 24 smart money venture investors have backed at least one drone company since 2012.”

See also: How Technology Drives a ‘New Normal’  

Within just the past two months, four such insurance-related transactions were announced;

  • Nationwide Ventures made an investment in Betterview, a machine learning insurtech startup focused on analyzing data from drones, satellite and other aerial imagery for commercial and residential property insurers and reinsurers. This follows a September 2017 seed round funding of $2 million.
  • DroneDeploy, the world’s largest commercial drone platform, raised $25 million of Series C venture capital, bringing total funding to $56 million.
  • Cape Analytics raised $17 million to grow its AI and aerial imagery platform for insurance companies, led by XL Innovate.
  • Clearlake Capital Group acquired a significant interest in EagleView Technologies alongside Vista Equity Partners, which had purchased EagleView in 2015. (Vista also owns the majority of Solera, parent of property and auto insurance claims services and information providers Enservio and Audatex.)

In 2017, Genpact, a global professional services and insurance claims solutions provider, acquired OnSource, which provides 24/7/365 full service on-demand drone property inspection claims and settlement services across the U.S. Earlier that year, Genpact acquired BrightClaim and National Vendor, providers of integrated claims solutions to the U.S. property insurance market

In 2016, Airware, a global enterprise drone analytics company, closed a Series C round of $30 million to bring its total funding to $110 million. Early in 2016, Verisk Analytics formed the Geomni business unit to specialize in image sourcing and analysis and has since acquired a number of U.S.-based aerial survey companies and their aircraft fleets. Verisk also owns Xactware, the dominant industry provider of property insurance claims solutions and third party products. The Geomni fleet is expected to include more than 125 fixed-wing aircraft and helicopters by the end of 2018, operating from 15 hubs located throughout the U.S. Verisk expects to invest approximately $100 million in Geomni through 2018.

Competition and differentiation

The space has attracted a large number of participants in the past two years, and there are no signs of slowing. Competitors are taking innovative paths to differentiation, including: drone manufacturing, drone operating software for use by field staff and contractors, ground-based roof and wall measurement technologies and full-service, virtual property inspection and property damage reports using drones.

Insurance industry adoption and barriers

The insurance industry’s use of images from satellite and fixed-wing aircraft is fairly well-established, particularly in catastrophe response planning and claims. The North American property/casualty insurance industry has been cautious and conservative in its testing and adoption of drone use for property claims and in using aerial images for underwriting.

Until recently, FAA rules had made it onerous for carriers and industry vendors to obtain licenses and permission to use drones for property inspections. However, after extensive industry lobbying efforts, assisted by more pro-business policies, that obstacle has eased significantly, and several carriers have trained staff and hired contractors to use drones for property claims inspections. Obstacles remain, including restrictions on use near airfield perimeters and outside of operators’ line of sight.

Carriers are split into two roughly equal camps (by market share) on more recently introduced third party services that provide virtual property inspections: those that do not believe that drone image and damage identification technology is sufficiently accurate as yet to manage claims leakage as effectively as their own staff field adjusters – and those that do. Both groups acknowledge that drones are not appropriate for all property claims. Furthermore, customer satisfaction and therefore retention is thought to be higher when insurance company staff visit the property and the homeowner in person.

The future of property insurance

For claims, virtual methods of inspection will include not only drones but claims reporting that involves customers. Claim self-service, including smartphone images and video, which has seen impressive adoption and results in auto claims, is beginning to penetrate property insurance claims, particularly for reporting home interior and exterior wall damage. New, accurate 3D smartphone image measurement technology combined with higher image resolution and the expected expanded availability of much faster 5G wireless broadband will drive adoption.

See also: Secret to Finding Top Technology Talent  

Other methods of property inspection, particularly following extreme wind or hail events and catastrophes, will most certainly incorporate the use of drones, whether operated by insurance staff, managed repair network contractors or third-party inspection services. Also, autonomous drones performing roof inspections not requiring an operator on site may be expected soon.

Finally, on the property underwriting side, we expect high-resolution geospatial image data from multiple sources, artificial intelligence and machine learning to transform that process. Real-time feeds of comprehensive property attributes such as measurements and condition of roofs and other property on the target site will enable instant and more accurate pricing, quoting and binding/renewal of property insurance.

Aerial imagery, mobile technologies, artificial intelligence and computer vision will continue to transform property insurance products and processes, leading to better pricing accuracy, more profitable operations and, above all, better customer experience for policyholders.

Transforming Claims for the Digital Era

As insurers undertake digital transformation programs, many rightly turn to the claims function. Claims is a very good candidate for such initiatives because of its importance to the relationship between customers and their insurers. Claimants and insurers both want speedy and fair resolution, based on clear lanes of direct and personalized service. A data-driven, analytics-enabled claims process can satisfy the objectives of all parties.

Continuous improvement to customer experience in claims is critical to any strategy. After all, claims are a real “moment of truth” for insurers, with meaningful impacts on outcomes and customer loyalty. Insurers that craft the right strategies and deploy the right mix of digital technologies will be able to turn their claims operations into a source of competitive advantage, market differentiation and brand perception. While advanced technologies such as robotic process automation (RPA) and artificial intelligence (AI) are very much part of the long-term transformation story, there is much insurers can do that will generate immediate benefits.

What matters to claimants — and how to deliver

EY’s insurance consumer research confirms that speed, efficiency and transparency are among the most important characteristics of a quality claims experience. Better data and analysis can help streamline steps in the claims process, setting the foundation for an enhanced experience. Those analytics also set the foundation for the future where many claims will be resolved via “no-touch” processes.

See also: 4 Ways That Digital Fuels Growth  

Insurers seeking to automate their claims processes or to achieve straight-through processing for basic claims have multiple options, including:

  • Advanced telematics data (including video imagery) can be instantaneously captured during an automobile accident and downloaded from the cloud to automatically trigger a first notification of loss (FNOL) entry. Underwriters can “score” the data to determine the extent of loss relative to the automobile’s current value.
  • Drones and satellites can survey damage and collect information about property damage to initiate claims before a homeowner makes contact.
  • Via intuitive apps or other interfaces, insureds can submit photos of damage to their homes or vehicles to initiate the claims process, provided there is no sign of fraudulent behavior (which analytics programs can evaluate).
  • Property and casualty (P&C) insurers may use historical repair data to dramatically decrease estimating times for different types of vehicles and homes. They may also better manage repair costs and quality based on deeper analysis of these data sets.
  • AI may be used in combination with social media and other data to scan claims for the likelihood of fraudulent behavior.

Insurers also have good options when it comes to personalizing service, which include:

  • Voice analytics that can assess customer sentiment during phone calls, with appropriate classification and prioritization of resolution.
  • Behavioral analytics that can be applied to model likely customer needs and identify high-value policyholders or those likely to dispute a claim.
  • Analyses of customer records that can identify claimants facing renewal as well as good candidates for purchasing additional products.

A redesigned claims experience can pay immediate dividends (e.g., lower processing costs, improving claims resolutions or higher renewal rates). In all of them, insurers can engage at key points during the claims life cycle, with accurate and consistent information delivered on a timely and transparent basis. At the same time, claims teams can focus on high-value interactions, high-risk claims and other exceptions.

The path toward a better claims experience

No matter where insurers fall on the maturity curve today, there is much they can do to transform the claims process. The path to success begins with a series of well-thought-out steps designed to produce useful learning and incremental value. Huge investments in new technology or large teams of data scientists are not required for substantial improvements. Organizational and cultural factors are also part of the claims transformation equation.

Insurers should endeavor to integrate third-party data (such as medical claims, consumer credit and weather data) with existing records. They also have the opportunity to pilot the use of automated notifications via chatbots and to encourage customers to submit photos of damage. While taking these initial tactical steps, they can begin building the business case for, and perhaps even pilot, more advanced capabilities, such as “no-touch” claims handling for specific products, regions, claims types or payments.

Insurers in the intermediate phases of their digital transformation journey should consider expanding automated claims handling to more claims types and larger amounts, broaden their use of chatbots for communication and seek to integrate more external data sources. They can also deploy drones as “adjusters” and establish analytics Centers of Excellence in claims.

More mature organizations will look to leverage new data storage and management technologies as the basis for advanced analytics and real-time visualization. They may also strengthen antifraud efforts by implementing machine learning. The most forward-looking insurers may build out data science teams to probe large and diverse data sets stored in analytics ecosystems. Similarly, they may expand claims volumes handled via RPA-enabled straight-through processing and evaluate medical treatments or repair effectiveness against leading practices.

See also: Digital Transformation: How the CEO Thinks  

As claims organizations become more digital, the benefits of additional data and more effective analytics should extend beyond the customer experience. Machine learning and visualization techniques can help assess and predict claims risk with greater accuracy and certainty. They also provide a consistent claims handling approach relative to unbiased reserving, litigation, subrogation and other claims processes.

It is worth noting that technology enhancements alone will not produce a claims organization for the digital era. A cultural willingness to embrace change also matters. Many insurers must overcome risk-averse cultures to encourage experimentation and “fast failures” in the spirit of learning what works best for their culture and customers.

How do they do that? Test-and-learn approaches are a good start for insurers with limited digital capabilities. Pilot programs for automated claims processing and bot-driven notification systems are an ideal place for many organizations to start.

Customer experience is everywhere

In the digital era, where customers have been trained to expect real-time access to data and personalized service, the stakes for the claimant customer experience have been raised. Insurers must learn to deliver what customers want and expect — and deliver it efficiently, accurately and quickly. Digital transformation makes it possible, while offering insurers significant upside in terms of lower costs, increased customer loyalty and reduced risk of fraud.

It’s Time to Accelerate Digital Change

For global insurers, digital transformation and disruptive innovation have gone from being vague futuristic concepts to immediate action items on senior leaders’ strategic agendas. New competitive threats, continuing cost pressures, aging technology, increasing regulatory requirements and generally lackluster financial performance are among the forces that demand significant change and entirely new business models.

Other external developments — the steady progress toward driverless cars, the rapid emergence of the Internet of Things (IoT) and profound demographic shifts — are placing further pressure on insurers. A common fear is that new market entrants will do to insurance what Uber has done to ride hailing, Amazon has done to retail and robo advisers are doing to investment and wealth management.

Yes, “digital transformation” has become an overused term beloved by industry analysts, consultants and pundits in the business press. Yes, it can mean different things to different companies. However, nearly every insurer on the planet — no matter its size, structure or particular circumstances — should undertake digital transformation immediately. This is true because of ever-rising consumer expectations and the insurance sector’s lagging position in terms of embracing digital.

The good news is that many early adopters and fast followers have already demonstrated the potential to generate value by embedding digital capabilities deeply and directly into their business models. Even successful pilot programs have been of limited scope. By addressing narrowly defined problems or one specific part of the business, they have delivered limited value. Formidable cultural barriers also remain; most insurers are simply not accustomed or equipped to move at the speed of digital. Similarly, few, if any, insurers have the talent or workforce they need to thrive in the industry’s next era.

Because the value proposition for digital transformation programs reaches every dimension of the business, it can drive breakthrough performance both internally (through increased efficiency and process automation) and externally (through increased speed to market and richer consumer and agent experiences). Therefore, insurers must move boldly to devise enterprise-scale digital strategies (even if they are composed of many linked functional processes and applications) and “industrialize” their digital capabilities — that is, deploy them at scale across the business.

This paper will explore a range of specific use cases that can produce the breakthrough performance gains and ROI insurers need.

From core transformation to digital transformation

Recognizing the need to innovate and the limitations of existing technology, many insurers undertook core transformation programs. These investments were meant to help insurers set foot in the digital age, yet represented a very first step or foundation so insurers could use basic digital communications, paperless documents, online data entry, mobile apps and the like. These were necessary steps, as the latest EY insurance consumer research shows that more than 80% of customers are willing to use digital and remote contact channels (including web chat, email, mobile apps, video or phone) in place of interacting with insurers via agents or brokers.

More advanced technologies, which can enable major efficiency gains and cost improvements for basic service tasks, also require stronger and more flexible core systems. Chatbot technology, for instance, can deliver considerable value in stand-alone deployments (i.e., without being fully integrated with core claims platforms). However, the full ROI cannot be achieved without integration.

For many insurers, core transformation programs are still underway, even as insurers recognize a need to do more. Linking digital transformation programs to core transformation can help insurers use resources more effectively and strengthen the business case. Waiting for core transformation programs to be completed and then taking up the digital transformation would likely result in many missed performance improvement and innovation opportunities, as well as higher implementation costs.

One key challenge is the industry’s lack of standardized methodologies and metrics to assess digital maturity. With unclear visibility, insurance leaders will have a difficult time knowing where to prioritize investments or recognizing the most compelling parts of the business case for digital transformation.

But, because digital transformation is a long journey, most insurers are best served by a phased or progressive approach. This is not to suggest that culturally risk-averse insurers be even more cautious. Rather, it is to acknowledge that complete digital transformation at one go can’t be managed; there are simply too many contingencies, dependencies and risks that must be accounted for.

See also: The Key to Digital Innovation Success  

Insurers must be focused and bold within their progressive approach to digital transformation, as it is the way to generate quick wins and create near-term value that can be invested in the next steps. Each step along the digital maturity curve enables future gains. Rather than waiting to be disrupted, truly digital insurers move boldly, testing and learning in pursuit of innovation and redesigning operations, engaging customers in new ways and seeking out new partners.

Digital transformation across the insurance value chain: a path to maturity and value creation

Digital transformation delivers tangible and intangible value across the insurance value chain, with specific benefits in six key areas:

It’s important to emphasize speed and agility as essential attributes of the digital insurer. Even the most innovative firms must move quickly if they are to fully capitalize on their innovations — a concept that applies across the entire value chain. The idea is to launch microservices faster and embrace modernized technology where possible. For instance, deploying cloud infrastructures will enable some parts of the business to scale up and scale down faster, without disrupting other parts of the business with “big dig” implementations.

The dependencies and limitations of legacy technology are also worth reiterating. Insurers that can integrate process innovations and new tools with existing systems — and do so efficiently and without introducing operational risk — will gain a sustainable competitive advantage.

The following digital transformation scorecards reflect how the benefits apply to different technologies and initiatives.

Omni-channel

Today’s consumers are naturally omni-channel, researching products online, recommending and talking about them with friends and contacts on social media and then buying them via mobile apps or at brick-and-mortar retail locations. Basically, they want a wide range of options — text, email, web chat, phone and sometimes in-person. A better omni-channel environment may also enable insurers to place new products in front of potential customers sooner and more directly than in the past.

Insurers must look beyond merely supporting multiple channels and find the means to allow customers to move seamlessly between channels, or even within channels (such as when they move from chatting with a bot to chatting with a human agent). It is difficult to overstate how challenging it is to create the capabilities (both technological and organizational) to recognize customers and what they are seeking to do, without forcing them to re-enter their passwords or repeat their questions.

There are many other subtleties to master, including context. For example, a customer trying to connect via social media to voice concerns is not likely to respond well to a default ad or up-sell offering. Omni-channel is increasingly a baseline capability that insurers must establish to achieve digital maturity.

Big data analytics

The application of advanced analytical techniques to large and ever-expanding data sets is also foundational for digital insurers. For instance, predictive analytics can identify suitable products for customers in particular regions and demographic cohorts that go far beyond the rudimentary cross-selling and up-selling approaches used by many insurers. Big data analytics also hold the key for creating personalized user experiences.

Analytics that “listen” to customer inputs and recognize patterns can identify opportunities for new products that can be launched quickly to seize market openings. Deep analysis of the customer base may make clear which distribution channels (including individual agents and brokers) are the best fit for certain types of leads, leading to increased sales productivity.

The back-office value proposition for big data analytics can also be built on superior recognition of fraudulent claims, which are estimated to be around 10% of all submitted claims, with an impact of approximately $40 billion in the U.S. alone. Reducing that number is an example of how digital transformation efforts can be self-funding. Plus, the analytics capabilities established in anti-fraud units can be extended into other areas of the business.

Big data is also reshaping the risk and compliance space in important ways. As insurers move toward more precise risk evaluations (including the use of data from social channels), they must also be cognizant of shifting regulations regarding data security and consumer privacy. It won’t be easy ground to navigate.

Internet of Things (IoT)

The onset of smart homes gives insurers a unique opportunity to adopt more advanced and effective risk mitigation techniques. For instance, intelligent sensors can monitor the flow of water running through pipes to protect against losses caused by a broken water pipe. Similar technology can be used to monitor for fire or flood conditions or break-ins at both private homes and commercial properties.

The IoT clearly illustrates the new competitive fronts and partnership opportunities for insurers; leading technology and consumer electronics providers have a head start in engaging consumers via smart appliances and thermostats. Consumers, therefore, may not wish to share the same or additional data with their insurers. Insurers may also be confronted by the data capture and management challenges related to IoT and other connected devices.

Telematics

Sometimes grouped with IoT, data from sensors and telematics devices have applications across the full range of insurance lines:

  • Real-time driver behavior data for automotive insurance
  • Smart appliances — including thermostats and security alarms — within homeowners insurance
  • Fitness trackers for life and health insurance
  • Warehouse monitors and fleet management in commercial insurance

The data streams from these devices are invaluable for more precise underwriting and more responsive claims management, as well as product innovation. Telematics data provides the foundation for usage-based insurance (UBI), which is sometimes called “pay-as-you-drive” or “pay-as-you-live.” Premium pricing could be based on actual usage and driving habits, with discounts linked to miles driven, slow or moderate speeds and safe braking patterns, for instance.

Consider, too, how in-vehicle devices enable a fully automated claims process:

  • Telematics data registers an automobile accident and automatically triggers a first notice of loss (FNOL) entry.
  • Claims information is updated through text-based interactions with drivers or fleet managers.
  • Claimants could be offered the opportunity to close claims in 60 minutes or less.

Such data could also be used to combat claims fraud, with analysis of the links between severity of the medical condition and the impact of the accident. Some insurers are already realizing the benefits of safe driving discounts and more effective fraud prevention. These telematics-driven processes will likely become standard operating procedure for all insurers in the near future.

Voice biometrics and analysis

Audio and voice data may be the most unstructured data of all, but it too offers considerable potential value to those insurers that can learn to harness it. A first step is to use voice biometrics to identify customers when they call into contact centers, saving customers the inconvenience of entering policy numbers and passwords, information that may not be readily at hand.

Other insurers seeking to better understand their customers may convert analog voice data from call center interactions into digital formats that can be scanned and analyzed to identify customer emotions and adjust service delivery or renewal and cross-selling offers accordingly. The manual quality control process checks for less than 1% of the recordings, which is insufficient. Through automation, the entire recording can be assessed to identify improvement areas.

See also: 4 Rules for Digital Transformation  

Drones and satellites

Early-adopting insurers are already using drones and satellites to handle critical tasks in underwriting and claims. In commercial insurance, for instance, drones can conduct site inspections, capturing thermal imagery of facilities or work sites. Their reviews can be as specific as looking for roof cracks, old or damaged boilers and other physical plan defects that can pose claims risks.

Within homeowners lines, satellites can capture data to analyze roofs, chimneys and surrounding terrain so that insurers can determine which homeowner they want to add to underwrite, as well as calculate competitive and profitable premiums. When linked to digital communications tools, drone and satellite data can even trigger notifications to customers of new price options or policy adjustments.

Within claims, drones and satellites can handle many tasks previously handled by human adjustors across all lines of business. Such remote assessments can reduce claims processing time by a considerable degree. This method is particularly effective in situations such as after floods, fires and natural disasters, where direct assessment is not possible.

While many transformation programs that use drones and satellites remain in the experimental stages due to operational challenges, it is possible that they can improve the efficiency and accuracy of underwriting and claims information gathering by 40%.

Blockchain

Blockchain provides a foundation for entirely new business models and product offerings, such as peer-to-peer insurance, thanks to its ability to provide virtual assistance for quoting, claims handling and other tasks. It also provides a new level of information transparency, accuracy and currency, with easier access for all parties and stakeholders in an insurance contract. With higher levels of autonomy and attribution, blockchain’s architectural properties provide a strong digital foundation to drive use of mobile-to-mobile transactions and swifter, secure payment models, improved data transparency and reduced risk of duplication or exposure management.

Insurance companies are interested in converting selected policies from an existing book to a peer-to-peer market. A blockchain network is developed as a mechanism for integrating this peer-to-peer market with a distributed transaction ledger, transparent auditability and “smart” executable policy.

E-aggregators are another emerging business model that is likely to gain traction, because it is appealing to both insurers and the customers. Insurers can offer better pricing due to reduced commissions compared with a traditional agent-based distribution model, while customers gain freedom to compare different policies based on better information. Of course, e-aggregators (whether fully independent or built through an existing technology platform) will require a sophisticated and robust digital platform for gathering information from different insurance companies to present it to consumers in the context of a clear, intuitive experience. It is also important for insurance companies to transfer information to e-aggregators rapidly; otherwise, there is the risk they will miss out on sales opportunities. This is why blockchain is the right technology for connecting e-aggregators and insurers.

To see the full report from EY, click here.

A New World Full of Opportunity

The primary drivers of disruption in insurance – notably, fintech (and more specifically, insurtech) – are coming from outside the industry. However, while the pace of change and market disruption has been daunting for most incumbents, the growing presence of insurtech companies is not a threat, but rather is creating real opportunities for the industry.

We see a combination of market and organizational priorities that open the door for these new opportunities.

  • External opportunities primarily relate to social and technological trends and pertain to the shift in customer needs and expectations (which digital technology has facilitated). Insurers have been taking action in these areas to stay relevant in the market and at least maintain their market position. For many companies, focusing on these opportunities remains critical, but this is not enough for them to gain a truly competitive advantage.
  • Internal opportunities relate to using technology to enhance operations and business function execution. For example, some insurers have used artificial intelligence (AI) technology to enhance internal operations, which has improved efficiencies and automated existing customer-facing, underwriting and claims processes.

To take full advantage of these opportunities, insurers need to determine their innovation needs and make meaningful connections with innovators. Doing so will help them balance their innovation mix – in other words, where they can make incremental innovations (the ones that keep them in the game) and where they can strive for real breakthroughs with disruptive and radical innovation (the ones that position them as market leaders).

An effective enterprise innovation model (EIM) will take into account the different ways to meet an organization’s various needs and help it make innovative breakthroughs. The model or combination of models that is most suitable for an organization will depend on its innovation appetite, the type of partnerships it desires and the capabilities it needs. EIMs feature three primary approaches to support corporate strategy:

  • Partner – Innovation centers (also known as hubs or labs) are the most common of the three EIM approaches. Their main purpose is to connect insurers to the InsurTech ecosystem and create new channels for bringing an outside-in view of innovation to the business units.
  • Build – Incubators are a common and effective way to build innovative capabilities and accelerate change. They can be internal, but most companies have preferred to establish them externally and then bring their ideas back into the company.
  • Buy – In this case, an insurer typically will establish a strategic corporate ventures division that sources ideas from outside the company. The company provides funding and support for equity, while the venture explores, identifies and evaluates solutions, and participates in new ventures.

Companies can select elements from each of the above models based on their need for external innovation, the availability of talent, their ability to execute and the amount of investment the organization is willing to commit.

See also: Innovation — or Just Innovative Thinking?  

Insurance leaders’ innovation agenda should include:

  • Scenario planning – What are potential future scenarios and their implications?
  • Real-time monitoring and analysis of the insurtech landscape – What’s out there that can help us now, and what do we want that may not exist yet?
  • Determining how to promote enterprise innovation, including which combination of approaches will most effectively accelerate and enable execution – What’s the best approach for us to stimulate and take advantage of innovation?
  • Augmenting the organization with new and different types of talent – Where are the innovators we need, and how can we best attract and employ them?
  • Cyber security and regulation – Are we prepared for the operational challenges that new technology can present, and have we and our real and potential partners considered the compliance ramifications of what we’re doing or considering?

Typical Exploration Topics

Some of the typical exploration topics across lines of business are:

  • Personal lines: usage-based insurance, shared and on-demand economies, peer-to-peer, direct-to-consumer, ADAS & autonomous cars.
  • Commercial lines: direct to small business, drones and satellite imagery, internet of things, alternative risk transfer, emerging risks.
  • Life and retirement: robo-advice, personalized insurance, medical advances, automated underwriting, decreasing morbidity and mortality risk.

Opportunities for insurers

As part of PwC’s Future of Insurance initiative, we have interviewed many industry executives and identified six key insurtech business opportunities. We see a combination of market and organizational priorities, which open the door for both external and internal opportunities.

External opportunities primarily relate to social and technological trends and pertain to the shift in customer needs and expectations (which digital technology has facilitated). Insurers have been taking action in these areas to stay relevant in the market and at least maintain their market position. For many companies, focusing on these opportunities remains critical, but this is not enough for them to gain a truly competitive advantage.

External opportunities:

  • Are mainly driven by customer expectations and needs and enabled by technology.
  • Offer front runners the opportunity to gain market relevance and position themselves.
  • Also offer fast followers opportunity because value propositions can be quickly replicated.

Internal opportunities relate to using technology to enhance operations and business function execution. For example, some insurers have used artificial intelligence (AI) technology to enhance internal operations, which has improved efficiencies and automated existing customer-facing, underwriting and claims processes.

Internal opportunities are:

  • Mainly driven by technological advancements.
  • A source of competitive advantage but demand deeper change.
  • An opportunity to set the foundation for how the company understands and manages risk.

To take full advantage of these opportunities, insurers need to determine their innovation needs and make meaningful connections with innovators. Doing so will help them balance their innovation mix – in other words, where they can make incremental innovations (the ones that keep them in the game) and where they can strive for real breakthroughs with disruptive and radical innovation (the ones that position them as market leaders).

See also: 10 Predictions for Insurtech in 2017  

Some examples of change are:

  • Incremental: Omni-channel integration, leveraging mobile and social media solutions and experiences to follow existing trends in customer and partner interaction;
  • Disruptive: Usage-based and personalized insurance that leverages technology and data to develop new risk models based on behavioral factors. This also has the potential to drive radical change.
  • Radical: Crop insurance, where data from different sources (such as weather and soil sensors) is leveraged to optimize and predict yield. As a result of this deterministic model, claims are paid up-front at harvest time.

There is no single perfect innovation mix. It depends on a company’s strategic goals and willingness to invest. Insurers should take into account current insurtech trends and determine long-term potential market scenarios based in part on current indicators and emerging trends. A short-term view will not foster the change that leads to breakthrough innovation.

As a starting point, the following questions can help you evaluate how prepared your organization is to drive innovation.

  • Corporate structure
    • Which parts of your organization drive innovation? Does the push for innovation occur at the corporate or business unit level (or both)?
    • How is the board engaged on decisions about the organization’s innovation mix?
    • What is the organization doing to make innovation a part of its culture?
    • What are the main challenges your organization faces when driving innovation?

  • Strategy, ideation and design
    • How does your organization become familiar with new trends and their implications?
    • To what extent has your organization used an “outside-in” view to inform your innovation model?
    • Which potential future scenarios have you identified and shared across the organization?
    • To what extent have you aligned your innovation portfolio strategy with potential future scenarios?
    • How does your organization approach ideation through execution?
    • Which capabilities are you leveraging to enable and accelerate the execution of new ideas?
  • External participation
    • What investments has your organization made in innovation?
    • In which areas is your organization participating (e.g., autonomous cars, connected economies, shared economies)
    • What structures (potentially in specific locations) has your organization created to support external participation?
    • To what extent has your organization managed to attract talent and partners?

Fast prototyping is key to quickly creating minimally viable products/solutions (MVP) and bringing ideas to life. Early stage start-ups develop and deploy full functioning prototypes in near-real time and go-to-market with solutions that are designed to evolve with market feedback. In this scenario, the development cycle is shortened, which allows startups to quickly deliver solutions and tailor future releases based on usage trends and feedback and to accommodate more diverse needs.

Incumbents can follow the same approach and align appropriate capabilities and resources to develop their own prototypes. They also can partner with existing startups that have a minimally viable product (MVP) to help them to move to the next stage, scaling. For this, they have to take into consideration several factors, including operational capacity, cyber risk and regulation (among others) to deploy the MVP in an “open” market. As opposed to controlled pilots or proofs of concept that are controlled environments, this “open” market is driven by demand. Lack of proper resources and the inability to scale the startup will severely compromise or actually prevent successful innovation.

See also: 7 Predictions for IoT Impact on Insurance  

The ways to accomplish all of this vary based on how the organization plans to source new opportunities and ideas, how it plans on executing innovation and how it plans to deploy new products and services. The following graphic provides examples of enterprise innovation operating models by primary function.

Final thoughts

In a fast-paced digital age, insurers are balancing insurtech opportunities with the challenge of altering long-standing business processes. While most insurers have embraced change to support incremental innovation, bigger breakthroughs are necessary to compete with the new technologies and business models that are disrupting the industry.

This article was written by Stephen O’Hearn, Jamie Yoder and Javier Baixas.