Tag Archives: smart homes

Winning With Smart IoT in P&C

Insurance companies long for a way to attract and interact with customers, rather than just hitting customers’ bank accounts every quarter for a premium payment or re-upping a contract at the end of the year. What if I told you that insurers could attract customers with smart home devices that generate interaction seven to 10 times A DAY — and that customers would initiate those interactions? What if that level of involvement in customers’ lives led to a Net Promoter Score (NPS) above 50 for the insurers? 

Those numbers are in fact possible, both with homeowners and with small businesses, through an approach that incorporates IoT to help people avoid P&C risks while fitting easily into their home and work lives.

We know because we’ve seen these sorts of numbers at Notion, which we began with a Kickstarter campaign and grew through insurance partnerships with Hippo, Nationwide and others before being acquired by Comcast this year. 

While Notion partners with insurers to provide homeowners and owners of small businesses technology to monitor for water leaks, fire, theft and more, there are a variety of ways to win with smart IoT in the property/casualty world. 

In our experience, there are two keys to winning strategies: customer-centric technology and a comprehensive economic case for investment.

First, the technology should deliver benefits, such as “peace of mind,” that customers value highly even though the benefits would be hard to quantify. In our case, customers interact so frequently with the Notion app because they’re checking their system to see if the front door opened around the time their child was supposed to be getting back from school, that it is a comfortable temperature across their home, etc. Those benefits don’t show up in losses averted or claims reduced but can do an awful lot to increase installation rates, to bolster loyalty toward an insurer, to boost NPS and to create opportunities for cross-selling other services.

Every company that has led with a “prevent water damage” message has seen very little interest among consumers. Even if insurers provide water sensors for free, the installation rate can be low if that is the only use case. But technology and messages related to broader home coverage and security resonate with consumers.

Let’s walk through Notion as an example of the trajectory that the “smart home” (and “smart” small business) can take. Auto telematics long required a device to be professionally installed and focused just on discounted premiums for good drivers, and had a slow uptake, so we took a different approach: We’ve focused on a do-it-yourself (DIY) approach and on making that more-than-economic argument for insurers.

We built an affordable system where consumers can monitor their home or small business from anywhere and easily grow to fit their needs. The Notion sensors monitor for water leaks, temperature changes, opening doors and windows, and sounding smoke and carbon monoxide monitors. All the information is collected wirelessly and is made available to the user through an app on their smartphone.

Most homes and small businesses can have key areas covered with just five sensors — total price for a five-sensor Notion Starter Kit is $199. 

Which leads us to the second key to winning strategies: a reasonable economic case for the IoT investment. Many technologies and programs aren’t there yet. For instance, a water shutoff valve that requires a professional installation may not pay for itself for 10 years — the initial cost is a high barrier. 

So, we started from scratch and came up with a program design that produces full ROI in just under two years — the kind of ROI that any business can appreciate. Just looking at water damage, there are about $10 million in claims each year per 50,000 homeowners policies. By investing in an $85 smart monitoring kit and program for customers, insurers can practically cut their water claims in half.

The ROI looks even better when you consider the other benefits to insurers outside water claim reduction: customer acquisition, customer loyalty, data insights and the potential for selling other services.

The large returns our insurer partners generate by preventing claims allows them to offer a kit at a discount plus offer discounts of roughly 3% to 15% on premiums to help drive adoption. Our partners say discounts could grow substantially as they gather data on losses prevented. (The high end of the discounts goes to those who fully outfit a house or small business, who have professional monitoring and whose setups can be verified by the insurer to make sure they’re actually being used.) 

While the discounts alone aren’t enough to generate full adoption even of free sensors, a curated flow of customer communication with a “what’s in it for me” message drives installation way up. (The same was true in telematics: Once messaging switched from discounts to security issues such as driving behavior, adoption finally picked up.)

While regulators were initially careful about what could be given away and what bundles should be allowed, they have become more comfortable with the IoT and understand that we’re all working together to benefit consumers. 

They have thus cleared a path for far greater adoption of the IoT, at a time when all trends were already pointing in that direction. According to Statista, the number of homes in the U.S. using smart security systems will nearly triple from 12.8 million in 2017 to 36.7 million by 2023 — meaning that more than a quarter of U.S. homes will have them. Revenue from smart home devices is expected to grow 17% annually for the foreseeable future. 

The trend is very much toward DIY: 47% of security system owners report self-installing their system in 2019, an increase from 27% in 2014, according to Park Associates.

The pandemic seems to even be accelerating the trends, both toward the use of IoT (because people are spending more time in their homes) and toward DIY (because people have more time, without their daily commutes, because people want to keep strangers’ potential infections out of their homes and because videos and chat capabilities on smartphones make “telemaintenance” easier). 

A platform like Notion can become the hub for all kinds of services that can be bundled with hardware or sold separately to make the lives of homeowners easier — for example, connecting a homeowner with a plumber when they have a water leak. With Notion, we have taken this one step further and created a direct integration in our app with HomeAdvisor. Once a leak has been detected, the homeowner can connect to HomeAdvisor’s network of certified professionals with one click. 

But that kind of service is just the beginning. In the same way that Tesla bundles insurance with its cars, I can imagine lots of maintenance-related services that could fit nicely into an IoT-based “protect my property” platform. When I say good night to my Google Home, it may remind me to do certain things around the house; why couldn’t insurers help inform homeowners and small business owners? 

Now there are winning structures for insurers to leverage IoT smart devices to connect and provide value to their customers — a win for customers and for P&C insurers.

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‘Smart Homes’? Not Just Yet

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Stay safe.

Paul

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

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

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

Managing Risk in a Pandemic

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

Retrenchment on Technology Plans? Not Yet

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

Will COVID-19 Spur Life Insurance Sales?

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

COVID-19 May Mean Big Changes for LTD

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

Parametric Insurance: 12 Firms to Know

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

Perspectives of a ‘Smart Home’ Owner

There are so many great advances in the area of “smart homes” and buildings that it makes me wonder what the actual impact has been, or what I might have had to deal with, without all the smart features. The “smart” concept is to be able to secure a building with sensors that can provide safety features and collect information to reduce the risk of water damage, fire damage or other hazards.

I had a second home built and made it smart and connected in as many ways as possible. And my experience has been that I am generally more aware of all aspects of my home. I receive mobile alerts when there is motion on my front porch. I know the temperature in all areas of the house. Water sensor devices provide peace of mind in knowing that there have been no water leaks – if there is a leak, the sensors are connected to the auto shut-off valve in the basement. The SimpliSafe security system is connected to fire and police through the connected security system and fire alarm. In essence, I know the health of my home at all times – which has been very handy to the owner of a second home.

See also: Smart Home = Smart Insurer!  

From the homeowner’s viewpoint, I can see the value for an insurance carrier. My insurer worked with me by providing a discount. The process was interesting. To obtain the discount, we correlated the capabilities of new devices we installed to the older discount program that was in already place.

A connected home can be considered an asset both in the sense that it has early detection and prevention capabilities and also that it is being actively managed. However, several barriers need to be overcome. The property owner needs education and access to the combination of devices that can assist with the management of the home or building. To address these issues, many insurers have ventured into partnerships with companies such as Amazon (Travelers) and Roost (Aviva and Erie), to name a few. But there are big challenges involved here: How do you increase the knowledge of millions of policy holders or commercial property owners? And, how do you make available the key connected devices that can, at a minimum, detect water and fire to mitigate the risk of each?

See also: How Smart Is a ‘Smart’ Home, Really?  

In our most recent report, Smart Homes and Buildings: Ten Strategic Considerations for Insurers, we discuss the key considerations for insurers when developing the best value propositions, including the need to develop a deep understanding of specific customer segments, their needs and their adoption of smart devices. For some, it may still be a few years away; for other insurers and customer segments, the time to engage in this area is now. For example, insurers that focus on segments such as second homes, vacant homes or specific types of commercial properties should be developing strategies now. But every insurer that writes property insurance must be engaged and following the developments in the smart home/property area. And they must maintain a conversation with agents and policyholders about their needs.

4 Ways Connectivity Is Revolutionary

The Internet of Things (IoT) is predicted to support more than 20 billion devices by 2020, according to Gartner. This is a market that covers 60% of consumers worldwide, creating huge opportunities for industries to connect and engage with their customers.

Connecting with consumers hasn’t always been easy. Contact typically took place at points of sale, during claims and during renewal periods. Now, with the use of wearables, smart homes and telematics, insurers are connecting with customers on a continual basis and providing valuable feedback – and prices – based on activity levels. The business of insurance is complex, with core factors such as risk evaluation, long-term contracts and unpredictable settlements. However, the benefits of insurtech and the unlimited availability of new sources of data that can be exploited in real time have fundamentally altered how consumers interact with their insurance providers.

IoT devices are helping consumers and insurers get smarter with each passing day as these technologies bring promising results in helping insurers reshape how they assess, price and limit risks and enhance customer experience.

See also: Industry 4.0: What It Means for Insurance  

Connectivity and Opportunities

Numerous technologies have shown how improved connectivity can generate opportunities in the insurance industry beyond personalized premium rates. If implemented properly, IoT applications could possibly boost the industry’s customarily low growth rates. It may help insurers break free from traditional product marketing and competition primarily based on price to shift toward customer service and differentiation in coverage.

Several technology trends that are increasing connectivity in insurance include:

Extended Reality (XR) — XR technologies are altering the way consumers connect with society, information and each other. Extended reality is achieved through virtual reality (VR) and augmented reality (AR), which aim to “relocate” people in time and space. Eighty-five percent of insurance executives in Accenture’s Technology Vision 2018 survey believe it is important to leverage XR solutions to close the gap of physical distance when engaging with employees and customers.

Wearable Sensors — Reports indicate that the average consumer now owns 3.6 wearable devices. These technologies can mitigate claims fraud and also transmit real-time data to warn the insured of possible dangers. For example, socks and shoes with IoT apps can alert diabetics on possible odd joint angles, foot ulcers and excessive pressure, thus helping in avoiding costly disability and medical claims and even worst-case scenarios such as life-changing amputations.

Commercial Infrastructure and Smart Home Sensors — These sensors can be embedded in commercial and private buildings to help in monitoring, detecting and preventing or mitigating safety breaches such as toxic fumes, pipe leakage, fire, smoke and mold. This increases the possibility of saving insurers from large claims and homeowners from substantial inconveniences such as lost property or valuables. Savings can be passed to insureds who use these sensors.

Usage-Based Insurance (UBI) Model — Cellular machine-to-machine (M2M) connectivity and telematics link drivers and automobiles in entirely new ways. Traditionally, auto insurance has relied on broad demographic features such as gender and the driver’s age, plus a credit score, to set premiums. Now, through IoT devices, insurers can not only offer reward-based premiums but can provide a connected car experience to customers with feedback on weather, traffic conditions or driving habits.

See also: 3 Ways to an Easier Digital Transformation  

Strategy will play an important role in connectivity as insurance carriers transform legacy core systems into digital platforms that support deeper connectivity with their customers. This strategy must address a carrier’s ability to handle, process and analyze the new types of data that will emerge from the use of these technologies. Artificial intelligence will also have a big impact.

According to a recent study, 80% of insurance customers are happier and more content when they can connect with their insurance providers through various channels such as phone, emails, smartphone apps and online. Through the use of the IoT and connected devices, insurers will improve customer experience by shifting from reaction after an event has occurred to preventing losses digitally.

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.