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6 Questions for Stephen Applebaum

As part of this month’s ITL FOCUS on commercial insurance, we spoke with Stephen Applebaum, managing partner, Insurance Solutions Group, about the future impacts of technology in commercial lines.

What is the biggest change you expect to see in commercial lines in the next 12 months?

COVID-19 related claims, notably first-party property business interruption and third-party liability, will proliferate and create new distractions in commercial insurance once the complete extent of losses is tallied in 2021 and beyond, attracting growing attention from media, regulators and other public watchdog groups, further complicating commercial policy renewals and new business and challenging actuaries, underwriters, agents and brokers. Adoption of policy process automation, including automated underwriting workstations, will accelerate as carriers struggle to regain operating efficiency while managing risk more accurately.

Connected auto, home and business insurance models will begin to see meaningful adoption. Telematics program adoption, featuring innovative partnerships will explode in commercial auto insurance for fleets, especially small business, offering more compelling value propositions focused on driver safety/behavior modification, rewards and fleet and asset management benefits. Commercial property will follow this trend.

In the next five years?

Distribution channels will change and multiply dramatically. Changing customer expectations and behavior will drive insurers to develop more robust multi-channel distribution. New and increasing competition will push insurers to develop new digital models and partnerships designed to make the insurance selection and purchase process fully seamless. While agency writers still hold a ~70% commercial P&C market share, the number of independent agencies will continue to decline as new direct distribution channels and channel consolidation grows, both fueled by expanding private equity and venture capital investment. Many exclusive and captive agencies will convert to independent agencies. Also, carriers and brokers will pursue more cross-border and geographic expansion through M&A and partnerships to drive scale.

An increasing percentage of work will be performed by artificial intelligence technologies, including machine learning and robotics process automation. Consequently, concern and public debate will ensue concerning the issues of bias and ethics in the design and use of AI, and governing standards will begin to emerge.

The demand for commercial cyber risk and liability insurance will continue to grow as digitization and mobility further penetrate communications. Insurers will adopt a variety of  growth strategies, including innovative partnerships, alliances and collaborations, new products and enhancements, as well as M&A to achieve growth and presence in the cyber insurance market. The global cyber insurance market size is projected by industry experts to grow by at least 20% annually from $8 billion in 2020 to well over $20 billion by 2025.

In the next decade?

Consolidation of the North American agent and broker channel, will continue unabated as private equity investors seek attractive returns through deployment of historically high levels of “dry powder” as investment fund sizes continue to break records.

Technology will continue to enable innovation and process transformation through 2030, including;

  • completely digital quoting processes for retail agents and brokers
  • deployment of e-signature solutions that will satisfy all compliance concerns and create a standardized process across all lines of business
  • connected vehicle technologies that will alter the commercial auto insurance landscape and give auto makers an important role in insurance sales, distribution and claims
  • connected home and business technologies that will similarly transform the commercial property landscape
  • the commercial insurance claims process will evolve much as did personal lines claims; claims ecosystems and platforms will form that enable much shorter claims cycle times, better outcomes for carriers and customers and greater visibility into claims vendor performance. 

What are the three technologies you think will play the biggest role in driving change — perhaps one for each of the three time periods?

Technologies driving change over the pre-defined time periods:


  • Cross-enterprise digitization
  • AI-enabled process automation
  • Emergence of platforms and open ecosystems



  • Cross-enterprise digitization
  • AI-enabled process automation
  • Emergence of platforms and open ecosystems
  • Connected sensors/devices in workplaces and buildings enabling risk management and ultimately risk avoidance



  • AI-enabled process automation
  • Emergence of platforms and open ecosystems
  • Connected sensors/devices in workplaces and buildings enabling risk management and ultimately risk avoidance
  • Virtualization of everything; workforce, external/internal communications, healthcare, claims reporting and claims management


Please pick a technology mentioned and describe in a bit of detail how that will play out.

Digitization will fuel virtualization much like the conversion of data from analog to digital form enabled all of the many information management solutions. As digitization continues to expand across each operating segment of the insurance enterprise, it will spawn innovation of virtual processes to improve upon and replace formerly manual, stubbornly long, costly, complex and inefficient ones. Ultimately, the commercial insurance industry will sell more profitable, lower-cost, innovative protection products and services such as hyper-personal, parametric and variable interval insurance through seamless, direct-to-customer distribution channels. 

Through these technologies, the industry’s primary selling proposition will pivot from insurance products, risk and claims management to protection services, risk and claims avoidance.

What is the one trend you see people talking about today that you think WON’T pan out, at least within a reasonable period?

Expectations for 100% automated and touchless processes without any human involvement will go unrealized well into the future. A subset of non-routine and catastrophic claims will continue to call for expert human, empathetic handling. However, numerous repetitive processes not requiring human support or judgment will be automated using AI technologies, eliminating a significant number of industry positions – but many of the individuals impacted will be offered retraining and upskilling by their employers –  thereby improving their job satisfaction and compensation levels.

We would like to thank Stephen Applebaum for participating in our ITL FOCUS interview series. To learn more about Stephen and read more of his articles, click here.

This interview is a part of the January 2021 ITL FOCUS: Commercial Insurance article. View the full piece here.

Global Trend Map No. 21: N. America (Part 3)

This post concludes our exploration of Insurance/Insurtech trends in North America as part of our progression through our seven dedicated Regional Profiles. In Part I and Part II of our North America Profile, we reviewed our general statistics for the region (gathered in the course of our Global Trend Map) and identified five qualitative themes, of which we have so far explored 4.

  1. Insurers’ renewed focus on their primary underwriting business in the face of low interest rates and impending Insurtech disruption
  2. The rise of the ‘new consumer’ and how this is changing the insurer-customer relationship
  3. Customer-centricity as the prime mover of distribution and product
  4. The impact of legacy systems and regulation on (re)insurers’ innovation and transformation efforts
  5. How insurers are to unlock new sources of growth in a mature market

Here we present Part III of our Profile on North America, focusing on Themes 5and featuring commentary from our two local influencers:

  • Chicago-based Stephen Applebaum, Managing Partner at Insurance Solutions Group
  • Boston-based Matthew Josefowicz, CEO at Novarica

You can access the full North America Profile whenever you like, with Themes 1-5 explored in order, by downloading the full Trend Map report here (which is totally free of charge)! We hope you enjoy reading …

5. Mature Growth: Where are the Opportunities?

If the current renovation underway at many insurers – complex, expensive and ultimately aimed at creating a lower-price model – is perceived as a cloud, then the silver lining is the greater scale that it will enable.

In absolute terms, even ‘saturated’ insurance markets are under-penetrated …

In Part I of our Regional Profile, we characterised the North American market as being middle-class and relatively saturated, lacking the low-end market opportunities on offer in many parts of the world, like Asia-Pacific, LatAm and Africa to name a few (see our forthcoming dedicated profiles on these regions). While this is a useful designation for understanding how dynamics vary from market to market, it can be misleading: the truth is that, in absolute terms, even ‘saturated’ markets are under-penetrated.

It’s time to densify the pie!

See also: Global Trend Map No. 16: Regions  

Simply by rendering the coverage they offer more fit-for-purpose and intuitive, North American insurance players can bring more customers into play in existing segments and product lines – without having to completely reinvent the wheel. This way, even if it does sometimes appear a race to the bottom, the current convulsion in the industry will ultimately result in a denser pie.

“Advanced analytics, combined with digital and social tools, can provide a much more cost-effective way of reaching clients, and educating them about risk and prevention. We know that clients understand the concept of life insurance but still aren’t familiar with the products themselves. Through analytics tools and possibly AI we can deliver more information to the market, customised to clients, in a proactive way.” — Catherine Bishop, Head of Insurance Strategy and Data at RBC Insurance

Obviously, some products and segments are riper for growth than others, and it is by identifying these early on – as well as the particular customer pain points to be overcome – that insurers can bring much-needed focus to their transformation efforts, which otherwise threaten to become too thinly spread and to do no more than reduplicate the flaws of the legacy business, just in a shinier form.

‘Insurers need to shift their orientation and look at the needs of individual market segments. Instead of starting with the risk, they need to start with the market,’explains Novarica’s Matthew Josefowicz. ‘They need to be asking: what kind of coverage does the market need, how much detail do they want in it and how comprehensive does it need to be in terms of what they need to buy?’

Josefowicz points to several innovative new entrants who are successfully taking this bottom-up approach to insurance.

‘There are innovative companies like Slice that are doing insurance for the gig economy, and there are folks like Trōv who are doing single-item insurance in a scalable way – so there are many ways to approach the different kinds of risk that buyers need insuring,’ he expands.

In many cases – particularly in mature markets like North America – the factor inhibiting growth is not the price or extent of coverage per se but rather insurers’ failure to distribute the product in an appropriate way.

‘I think that for some insurance lines, for example in life insurance, the reliance on traditional distribution and traditional sales processes is actually boxing the industry out of some market segments, who just won’t tolerate that buying process,’comments Josefowicz.

‘Life insurance is very under-penetrated in North America, and I think the opportunity is to use technology to make the buying exercise easier for those under-served segments that have been put off by inefficient and unpleasant buying processes.’

The injunction to double down on the customer – rather than simply redoubling sales efforts on fundamentally outdated products – applies not just to personal lines but also to commercial ones.

The reality of doing business, whatever industry you are in, is changing rapidly, and the palette of risks businesses need protection against would be unrecognisable to the insurers of yesteryear, one conspicuous addition being cyber risk. Josefowicz believes that it’s still early days but that insurers are now moving towards effective product offerings in this challenging area.

“The most progress will likely be made by partnerships between innovative nimble start-ups and incumbents who are skilled at navigating a highly regulated and complicated ecosystem. Insurtech is not a zero-sum game.” — Nick Martin, Fund Manager at Polar Capital Global Insurance Fund

We have touched on the endeavours of Insurtechs Trōv and Slice in creating more fit-for-purpose insurance products, but it is important to bear in mind that the confrontation between insurers and Insurtechs is not a zero-sum game, given that it is happening in the context of an expanding addressable market. We asked our local commentators to go into a bit more detail on how they see this ‘confrontation’ playing out.

As we see in our other regions, there is a trend towards collaboration between incumbent insurers and Insurtechs. While the disruptive intent of some players is clear, many of them, strongly backed by none other than insurers themselves, will end up as components of the overall technology stack. In some cases, the Insurtech start-up is in fact just an incumbent appearing in a nimbler guise.

Insurance Solutions Group’s Stephen Applebaum gives the example of Canadian insurer Economical, which last year created brand-new start-up Sonnet as a way of innovating more quickly than they would be able to in-house.

‘Economical traditionally was an agency distribution model, so all of their insurance was sold through agents,’ clarifies Applebaum. ‘Sonnet is a direct-to-consumer business, so that’s the way Economical is going to walk both sides of the street.’

“There will be an evolution of customer experience. Economical is the first to launch as a coast-to-coast, fully digital service and there is education required in the marketplace, but my expectation is that others may well follow our path and this will be the customer’s expectation.” — Michael Shostak, SVP and Chief Marketing Officer at Economical Insurance

Josefowicz stresses the role of Insurtechs as trailblazers over and above their much-hyped role as predators.

‘A lot of the new entrants are pointing the way. I don’t know how many of them will become significant competitors in and of themselves, but they are clearly demonstrating to insurers that there is an opportunity to engage differently with customers and that customers are hungry for a different type of engagement,’Josefowicz explains.

‘To put it in a capsule, I don’t think Lemonade is going to become the biggest personal insurer in the world, but I do think a lot of personal insurance is going to look like Lemonade in the near future.’

See also: Global Trend Map No. 7: Internet of Things  

Following Insurtechs down this route, be it through imitation, partnership or outright buying, will allow insurers to open up and serve those market segments that have hitherto been cut out of traditional forms of distribution and service – much like prospectors returning to bypassed reserves in mature oilfields – and this is where they should set their sights.

‘I think the most successful Insurtechs will be purchased by insurers, similar to the Allstate purchase of Esurance from the previous generation of e-insurance start-ups,’Josefowicz concludes.

That concludes our Regional Profile on North America. Next week we move on to our Regional Profile on Asia-Pacific, with insights from Steve Tunstall, CEO at Singapore-based Insurtech start-up Inzsure, João Neiva, Head of Innovation, IT and Business Change at Zurich Topas Life in Indonesia, and HK-based David Piesse, Chairman of IIS Ambassadors and Ambassador Asia Pacific at the International Insurance Society (IIS). Key discussion points include:

  • The high-growth, high-competition dynamic inherent in the Asia-Pacific insurance market
  • The new calling for customer-centricity and the related question of disruption
  • Using data and analytics to create more customer-centric products, such as personalised, on-demand insurance
  • APAC distribution landscape and what insurers are doing to ensure scale for their products
  • How to successfully manage back-office digital transformation


Global Trend Map No. 20: N. America (Part 2)

Today, we continue our journey through our dedicated regional profiles, in which we explore key insurance/insurtech trends continent by continent. In Part I of our profile for North America, we reviewed our general statistics for the region, which we gathered in the course of our Global Trend Map (download the full thing here), and identified several qualitative themes (of which we explored the first two):

  1. Insurers’ renewed focus on their primary underwriting business in the face of low interest rates and impending insurtech disruption
  2. The rise of the “new consumer” and how this is changing the insurer-customer relationship
  3. Customer-centricity as the prime mover of distribution and product
  4. The impact of legacy systems and regulation on (re)insurers’ innovation and transformation efforts
  5. How insurers are to unlock new sources of growth in a mature market

Here we explore themes 3 and 4 in discussion with our two in-region influencers:

  • Chicago-based Stephen Applebaum, managing partner at Insurance Solutions Group
  • Boston-based Matthew Josefowicz, CEO at Novarica

3. A ‘New Insurance’ for the ‘New Consumer’

In Part 1,  we identified the rise of the new consumer, who expects and seeks out on-demand digital interactions, as representing both a challenge and an opportunity for incumbent insurers.

It is not enough just to focus on customer-centricity in a broad sense. If, as we have suggested across this content series, distribution disruption is the root of customer disruption, it is on this ground that insurers must stand and fight. This makes distribution into a key axis of insurer response as carriers seek to prevail over their new-age competitors.

It unsurprising, then, that we discern a fresh strategic focus on distribution from our North American correspondents:

“Every major, every top-tier P&C carrier is actively developing multi-channel communication capabilities and multi-channel distribution capabilities,” states Stephen Applebaum, managing partner at Insurance Solutions Group.

This is far easier said than done, given the legacy constraints that insurers find themselves under, which we explore in the next chapter.

“Insurers’ infrastructure, which has been built over literally hundreds of years, never anticipated having multiple channels of communication to support, so insurers are scrambling to learn how to do that,” Applebaum continues.

‘In the past, it was a paper-based business, and the postal service was the method of communication, or the agent was the method of communication. The role of the agent is dwindling, as is that of the post office in P&C insurance.”

There is a risk that insurers attempt to become all things to all people from a distribution perspective, dissipating their energies, and the task of transforming distribution will certainly be a much more manageable one if they can focus their efforts on what really works for their specific customers and products.

“Different segments of the market and different products imply different distribution methodologies – so it’s a matter of dealing with increasing complexity,” summarizes Novarica’s Matthew Josefowicz.

While distribution is arguably the centerpiece, the heightened demands of 21st-century consumers in fact apply to the entire customer journey from start to finish. It is not enough to give customers the option of researching, buying and accessing their products via digital channels in addition to physical ones – the entire interaction must be as frictionless as possible, and all of this irrespective of access device. Applebaum gives us some context around what this means for insurers:

“Whether it’s filing a claim through an app on their phone or receiving a claim payment electronically to an app or to their bank account, or even just exchanging information like adding another vehicle to the policy, today’s consumers don’t want to have to make phone calls, and they don’t want to send emails. They basically just want to exchange digital information as quickly and efficiently as possible.”

Encouragingly, most North American respondents indicated that they had digital, mobile and cross-platform strategies in place (see our earlier post on digital innovation).

“Insurers must focus on removing the friction points customers encounter in their interactions if they wish to meet the needs and expectations of their customers. Processes and customer interactions need to be redesigned from the customer’s point of view.” — Cindy Forbes, EVP and chief analytics officer, Manulife Financial

Friendly interfaces with high usability go some way toward eliminating friction from customer experience, but the greatest improvement is to be wrought at the back end, by achieving transparency and straight-through processing. The analogy of the retail industry (as it moves toward e-commerce) is once again instructive: What matters to retail customers is not always the absolute speed of their order but often their ability to track its progress. Offering this level of immediate insight to customers – as well as satisfaction – generally requires some level of automation.

See also: Global Trend Map No. 9: Distribution  

If we take claims as an example, we see that automation does not imply that the whole process is automated across the board, rather that enough is automated to provide clarity on the status of a given claim.

Some simple claims will be dealt with automatically, while, for more complex claims, customers can be provided with a working estimate for the resolution time – the key point in each case is the clarity and feeling of control that customers are left with. In our post on claims, we registered a moderate degree of automation among North American respondents, in line with our other regions.

In addition to a seamless, zero-friction experience, customers are also demanding personalization, and in the context of insurance this applies first and foremost to range of coverage and premium price. Usage-based insurance (UBI), which we went into in greater depth in our profile on Europe, is a fundamentally new insurance for the new consumer. Formal UBI strategies are only acknowledged by a minority of North American respondents, but this is consistent with our other key regions (for more on UBI, see our earlier posts on Internet of Things and product development).

The premise of UBI is that insurers can leverage real data on individuals’ actual usage (for example of a car) to tailor prices and ultimately reward better risk behaviors. The two key ingredients here are data and analytics.

Analytics was in fact one of the priority areas that North America led on in our insurer priorities section. A majority of North American insurers also reported increasing their investment in this area, and the salience of the chief analytics officer role in the region has already been noted.

“The whole business understands the value of what analytics can help deliver. In traditional businesses, this seems to mean reports, hundreds of them every month that are mostly rearview mirror. Getting intelligence out of that is what many companies should be focusing on and then making use of it.” — Michael Shostak, SVP and chief marketing officer at Economical Insurance

As for data, this is available from a variety of sources. In North America, we find well-established the use of third-party aggregators as a supplement to first-party data, although this data is often neither personal nor in real-time (two key criteria for UBI).

The pre-eminent ingress for UBI data must remain IoT, which appears not to be quite as well-established in North America as in our other regions. Although IoT was not ranked highly as a priority in any of our global regions, it came out lowest in North America with a rank of 13th (compared with 10th in Europe and Asia-Pacific). We also suggested in our Internet of Things section that Europe has the lead in terms of platform implementation.

“With connected devices becoming more and more ubiquitous, the availability of data is increasingly a nonissue. The next hurdle for insurance carriers in North America is finding ways to incentivize customers to adopt IoT solutions and part with their personal data – and this requires careful investment in building customer engagement.” — Emma Sheard, head of strategy at Insurance Nexus

These measures aside, Applebaum is quick to point out that all the familiar consumer devices that enable IoT in insurance have a presence in the North American market, from in-car telematics to smart-home security and connected-health devices, and he even points out a couple of areas that are well ahead of the curve:

“I think IoT is catching up, but there are a couple of specific areas, like water leaks, where it is quickly gaining traction in the U.S. market, both in personal-line and in commercial-line policies,” Josefowicz explains. “IoT devices that control water leakage are becoming very popular.”

Josefowicz points to the strong IoT opportunity for the U.S. market in commercial property and commercial inventory. Applebaum also acknowledges the property opportunity and hints at some of the innovative uses of drones in this area:

“Drones, which are also IoT devices, are being used by property and casualty companies to examine property damage after catastrophes and storms, saving them a lot of time and money, so people don’t have to climb up on the roofs, which is dangerous and time-consuming. So drones, water-leak management and of course telematics are prime examples of IoT where there is adoption.”

Given the strong growth indicators for the next two to three years, it would be foolish to read too much into our depiction of North America as an IoT laggard. Indeed, our stats on IoT platform implementation suggested that our key global markets could be aligned in as little as a year.

One extension of IoT that Applebaum flags as a space that insurers are watching closely is autonomous driving.

“We will have a situation where people don’t drive cars, where software drives cars and cars don’t have many accidents – but when they do, they are going to be extremely serious and will involve large liabilities,” he explains.

“There is a lot of IoT left where there is no adoption as of yet, it’s just being developed, it’s emerging, and that would cover all the other 50 billion sensors that are going to be broadcasting data by 2020,” Applebaum concludes.

Insurers looking to usher in the “new insurance” must, concurrently with expanding their sources of real-time data through IoT, build out their back end so that it can, first, cope with and, second, capitalize on the influx of sensor data; to have the unprecedented volume of data that IoT promises but deficient systems for accommodating it would be like striking oil in a world without refineries.

Fundamentally, front end and back end must be developed in synchrony, given the dependencies that each one has on the other, although we believe that organizations may place a different emphasis on them depending on the point they have reached in their transformation. One hypothesis would be that focus on the back end – which is the foundation of the whole transformation effort – is higher at the outset and that, with the passing of time and the steady expansion of capabilities, the C-suite’s strategic focus shifts toward harvesting the rewards at the front end.

As we pointed out in the table in our priorities post, North America has a substantial lead over Europe in underwriting (by 19 points), risk management (13 points) and product development (5 points); Europe on the other hand leads North America on Internet of Things (by 11 points), pricing (9 points), digital innovation (5 points), customer-centricity (5 points) and claims (3 points).

We feel intuitively that, in the context of emerging UBI models, the priority areas on which Europe leads have more of a front-end flavor, and those on which North America leads more of a back-end flavor.

We suggested in our profile on Europe that the North American market might be marginally behind Europe in terms of customer-led disruption, and it is possible that Europe’s front-end overtone reflects this market having progressed marginally further down that path.

Whatever the blend, every insurer must juggle early-stage and late-stage initiatives all at once, managing their investments across these tranches like they’d manage any other investment portfolio.

“We think it’s very important for insurers to exist in three timelines at the same time,” Josefowicz emphasizes. “They have to mitigate the limitations of their legacy systems, they have to address current business needs – short-term, tactical business needs – and then they have to keep an eye on the future in terms of how technology is going to change their business tomorrow.”

4. How Insurance Must Set its (Digital) House in Order

Standing at the start of the road of digital transformation, incumbent insurers find themselves in an awkward position. In one sense, operating a pre-existing business should represent a headstart over new players. However, their established systems and processes quickly reveal themselves to be less a blessing than a curse, when we consider the rampant dependencies that exist between them. Josefowicz briefly sketches how this becomes problematic for insurers:

“The majority of insurers in the U.S. are working with 20th-century systems that didn’t anticipate 21th-century challenges,” he explains.

“Most of the systems of record or policy-management systems that most insurers have are from the ’90s or before, and they didn’t anticipate this level of digital and this level of analytics, so they aren’t necessarily as flexible as they need to be to bring new products to market quickly.”

It is to the drag of these legacy systems and processes that Applebaum attributes the relative tardiness of the U.S. market, with much of the previous generation of technologies being more entrenched in the U.S. than elsewhere in the world (a good analogy would be with telecoms, whereby cell phones have achieved their highest penetration in precisely those areas where legacy fixed-line infrastructure is missing).

“The CTO or CIO is driving both the ‘cleanup’ of redundant systems and systems that don’t communicate well, but additionally he or she would typically have the responsibility for driving the vision of the future. They need to be finding efficiencies where possible and pinpointing the best investment areas for the future. The CTO must understand the needs of customers, business partners (third parties) and also internal stakeholders such as sales, marketing, actuarial and finance.” — Damon Levine, CFA, CRCMP, ERM practitioner, writer and industry speaker

The ideal solution to legacy would be wholesale system replacement but, given that budgets are limited, (re)insurers are more often than not forced into an uneasy coexistence with systems old and new. The overwhelming challenge North American insurers face today – starting with their back office – is to orchestrate the myriad pieces of the transformation jigsaw, keeping cost, time and adverse business impacts to a minimum, and we will see that there are various approaches that they can take.

“The last decade has really been insurers struggling to make their 20th-century systems meet 21st century business challenges, and replacing them when they can,” Josefowicz says.

“The key considerations for choosing a technology platform include compatibility with existing customer information storage and analysis platforms at your company. Of course, cost and adaptability to a changing data landscape are also of interest. The regulatory landscape, including penalties for data loss, will evolve.” — Damon Levine, CFA, CRCMP, ERM Practitioner, Writer & Industry Speaker

See also: Solving Insurtech’s People Challenge  

Applebaum observes that digital transformation is overwhelming the resources of most insurers, who simply cannot provide all the pieces of the puzzle in-house, and that this is forcing them to look further afield.

“Insurers want to be all things to all people, they want to be available by all channels,” he comments. “If they can’t do it internally, for whatever reason – like they’re not fast enough or the skills don’t exist – then they will partner. And if they can’t partner, they’ll buy. But basically, it’s by any means possible.”

In the longer term, Applebaum believes, many components of the stack, like the management of IoT data streams, will end up as the preserve of large third-party software vendors, which can not only specialize but also operate at a scale far beyond that of even the largest insurance carrier.

This will also work out positively in other ways, like from a cybersecurity perspective, because it will shift the liability from the insurer to a third party that can bring to bear a much wider experience with cyber threats. Incidentally, cybersecurity was one of the priority areas on which North America led our other global regions.

Alongside legacy, we should draw attention to the regulatory environment – at least in the U.S. – as another hurdle that insurers have to get over in their efforts to innovate:

“The regulatory environment in the U.S. is extremely complex, with the insurance industry regulated at the state level, so essentially that’s like operating 50 different insurance companies when you are just one insurance company, because you have to adhere to this never-ending, changing regulatory environment, state by state by state,” Applebaum elaborates.

“That’s not the case of course in the European markets or in the Asian markets, where country markets are regulated by a single national authority. So that’s a real issue for carriers, and they’re trying to deal with it. It’s expensive, it’s complex and it’s a reality.”

Josefowicz agrees that regulation will remain a key factor for North American (re)insurers, though he notes that this applies less to the Canadian market, which does not have the 50 separate regulatory regimes on a state level that the U.S. does. While this framework is indeed onerous, requiring insurers to file for the same product in multiple jurisdictions and potentially structure it differently in each one, insurers at least operate on a level playing field with insurtechs in this respect.

Indeed, Josefowicz believes that incumbent insurers’ established regulatory competence and compliance may be one area where they can convincingly trump new market entrants:

“Most insurance companies that exist are already pretty good at managing the state regulatory process, and in fact they see that as a defensible capability because it’s something that they have a lot of experience in that new entrants struggle with,” he says.

“And you can see what happened with Zenefits, where they ran afoul of the licensing requirements, as either inexperience or a willingness to disregard regulatory challenges a la Uber, which is much more painful in the financial-services world than it is in the taxi world.”

Global Trend Map No. 7: Internet of Things

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

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

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

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

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

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

Do you have an IoT strategy?

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

Assessing the Impact of IoT: Insurance Lifecycle

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

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

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

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

See also: Insurance and the Internet of Things  

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

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

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

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

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

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

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

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

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

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

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

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

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

Assessing the Impact of IoT: Insurance Lines

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

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

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

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

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

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

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

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

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

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

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

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

IoT Adoption by Region

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

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

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

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

Global Trend Map No. 1: Industry Challenges

Welcome to the first post in our new insurance/insurtech content series! Here, we examine the top internal and external challenges facing the insurance industry, as revealed by our Trend Map, for which we gathered more than 1,000 survey responses from insurance players around the world and consulted more than 50 industry thought leaders. You can find a breakdown of our survey respondents, details of our methodology and bios of our contributors by downloading the full Trend Map here.

It’s a tough time for the insurance industry right now, with a complex raft of issues to deal with over the coming years, from regulatory and climatic change through to adverse market factors, legacy systems and the rise of insurtech. Indeed, one of the problems we had surveying the industry was the sheer variety of potential challenges that respondents might name.

For this reason, we drew up a short list based on our periodic research within the insurance community. And, as not all challenges are directly comparable, we split them out into external and internal challenges, creating two separate hierarchies:

  1. External challenges: issues in the wider world that necessitate a response from the industry if the industry is to survive and thrive
  2. Internal challenges: whatever stands in the way of that response’s successful implementation

For example, increased regulation might require changes from insurers and other industry participants (external challenge); however, lack of company-wide dedication to core priorities might prevent these necessary changes from actually happening (internal challenge).

We then asked all our survey respondents – encompassing carriers, intermediaries, solution providers, associations and regulatory bodies – to rank these external and internal challenges in order of importance, giving us an idea of what the industry regards as the biggest hurdles ahead.

External Challenges

Our external challenges table points to technological advancement as by far the greatest external challenge, followed by changing customer expectations and digital channel capabilities.

A quick note on our methodology: Respondents were asked to rank their top three challenges, with three points being awarded for 1st place, two points for 2nd and one point for 3rd. This allowed us to create not just a ranking but a cumulative score for each challenge.

New emerging risks, changing economic conditions, increased regulation and increased competition make up the middle tier. Further down we have new entrants to the market, catastrophe risk, absence of a clear strategy and climate change. Then, comfortably in last position, we find lack of company investment.

“Technology has always been a key enabler within the insurance sector. In today’s highly customer-centric world, organizations that want to thrive will do so through digital excellence; meaning by combining unique customer experiences and omni-channel distribution mechanisms, as well as by reinventing interactions across the insurance value chain, despite legacy constraints.” — Sabine VanderLinden, managing director at Startupbootcamp

So what then is the picture, if any, that we see emerging? The top three challenges, notably, form a clear constellation: Changing consumer behavior patterns, especially the desire for digital channels, certainly underlie insurers’ preoccupation with technological advancement to a considerable extent.

See also: Prospects for Insurers as a Global Industry  

We would therefore say tentatively that the interface between customer and insurer is going to be one of the key battlegrounds going forward, not just in the trivial sense of online portals and chatbots but rather as the ability of insurers and other industry participants to make every part of their operation work for the customer. The mid-tier challenges – essentially market factors – are certainly significant but represent the pointy end of “business as usual” rather than the digital, customer-centric paradigm shift we see coming into focus at the top of the challenges table.

This shift falls broadly under the remit of digital transformation, which we have seen at work in many recent initiatives at major insurers, both internal and external to their organizations. Many insurers have, for instance, like Allianz in November 2015, founded some form of digital transformation unit. Likewise, a number of major players have set up venture-capital arms to foster digital innovation outside of their four walls – like AXA Strategic Ventures.

While insurance was for a time considered the sleepy corner of financial services in terms of digitization, tech and innovation, we now see a host of transformation and innovation projects underway, and the money is flowing. This is borne out by the fact that lack of company investment was, by some way, the lowest-ranked challenge in the industry. Insurers and other industry participants may or may not be successful in their digital transformation – but this will likely be decided by factors other than their willingness to invest in it.

Download your complimentary copy of the full Trend Map here.

Internal Challenges

The results for internal challenges show lack of innovation capabilities and legacy systems neck and neck and leading the pack. Finding and hiring talent and siloed operations make up the middle tier, with lack of company-wide dedication to core priorities and mergers and acquisitions activity a long way behind at the bottom of the table.

The methodology used here was the same as that used in gathering the external challenges – giving us both a ranking and a score.

These results are consistent with the picture we saw emerging with the external challenges; that lack of innovation capabilities should be the leading internal challenge indicates first and foremost the industry’s strong will to innovate, which is part and parcel of many insurers’ and other industry participants’ current digital transformation projects.

In keeping with this is the low position attained by lack of company-wide dedication to core priorities – it’s clear that what is missing is neither the intention nor the investment to change (lack of investment was rated the industry’s lowest external challenge), rather it is the capabilities to make it happen. And these capabilities fall short in three perennial areas that turn up once again in our internal challenges table: systems, staffing and silos.

“These challenge tables perfectly illustrate and explain the fundamental conundrum of the global insurance industry; the acceleration of technological advances coupled with expanding sense of consumer entitlement and their rapidly evolving tech-driven behavior is causing older and slower-to-change insurers to struggle mightily in playing catch-up and has made them vulnerable to newcomers and disruptors.” — Stephen Applebaum, managing partner at Insurance Solutions Group

Find out more about how these internal and external challenges vary by geography – for Europe, North America, Asia-Pacific and LatAm – in our regional profiles, by downloading the full Trend Map here.

Additional Challenges

Our survey respondents had the opportunity to provide any additional challenges they felt we had missed. Responses were colorful and varied, but some that stood out were:

  • Prevailing low interest rates
  • Insurtech/disruptors
  • Cyber-risk
  • Loss of agents/disintermediation
  • Change management
  • Lack of strong leadership

Conspicuous on this list is insurtech; while this was not explicit in our short list of challenges above, it nonetheless cuts across them (in particular, technological advancement and lack of innovation capabilities, our two leading external and internal challenges respectively). There is indeed plenty of talk on the air about an impending shakeup of traditional insurance models…