Tag Archives: Suncorp

Busting Myths on the Cloud (Part 2)

Many insurance companies are not moving to cloud computing because they believe they can’t recover their sunk costs in IT infrastructure. This is not correct. Insurers can achieve big total cost of ownership (TCO) savings by migrating to the cloud.

Cloud computing offers insurers substantial benefits as they endeavor to adapt to changing market conditions and introduce new digital products and services.

Many insurers, as I mentioned in my previous blog post, are not capitalizing on these benefits because of some serious misconceptions about the cloud.

One of the most persistent and widespread of these fallacies is the belief that sunk costs are not recoverable. According to our research, 35% of insurers are holding back from embracing the cloud because they believe it offers unfavorable total cost of ownership (TCO). Such views are way off the mark.

Take a look at Suncorp. This Australian banking and insurance group reduced its data center space by more than 75%, and also curbed its utility costs, by moving to the cloud. Several mergers and acquisitions had left Suncorp with a highly complex IT environment with considerable redundancy. It was operating more than 2,000 applications across many different technology silos. Furthermore, the company needed to support multiple major business brands.

Instead of continuing to maintain and enhance its complicated and expensive IT infrastructure, Suncorp opted to move to the cloud. It first migrated its storage facilities and then transferred its other workloads and applications. The shift to the cloud has been a big success.

See also: Lost In The Cloud: Five Strategies For Risk Managers Facing The Challenges Of Cloud Computing  

Other insurers should take a fresh look at the substantial benefits that cloud computing offers. We’ve found that 60% of insurance companies replace their legacy infrastructure every three to six years. Most of these insurers, therefore, can optimize and align their IT replacement cycles with a migration to the cloud. This would allow them to avoid unnecessary capital expenditure, minimize write-offs and sunset their depreciation schedules. These benefits add up to considerable cost savings. What’s more, insurers can also capitalize on the data center space they’re no longer using by subletting to an IT services provider or cloud operator. This would generate additional revenue and improve their asset utilization and energy efficiency.

In my next blog post, I’ll discuss why the cloud is essential for digital transformation in the insurance industry.  Until then, have a look at this link. I’m sure you’ll find it helpful.

Eighty percent reduction in insurance carrier costs? Cloud as rainmaker.

Insuring What You Want, When You Want

DIAmond Award winner Trōv is one of the most widely referred to cases when speaking about disruption in the insurance sector. But what is Trōv exactly about? What is the business model? How successful is it? Trōv’s founder and CEO Scott Walchek will share his vision in a keynote presentation at DIA Amsterdam, this May. To warm up, I interviewed Scott last week.

Trōv is the world’s first on-demand insurance platform for single items. It is a mobile app that allows users to insure whatever, whenever. It empowers customers to insure “just the things you care about” for whatever period you prefer. Trōv users simply snap a picture of a receipt or the product code of a product. This creates a personal digital repository for all things tangible. For selected items, Trōv offers a quote to insure each individual item. Customers can then simply “swipe to protect” to purchase the insurance. It is equally simple to “swipe to unprotect.” With Trōv, long contracts are not necessary. Even the claims process is automated with the use of chatbots and available on-demand on a smart phone.

Trōv is founded by Scott Walchek. Scott is a successful technology entrepreneur. Over the past 25 years, he built companies such as Macromedia, Sanctuary Woods, C2B Technologies and DebtMarket. He was also a co-lead investor and founding director of Baidu, China’s largest search engine.

Scott is also one of the 75 thought leaders who contributed to our new book “Reinventing Customer Engagement. The next level of digital transformation for banks and insurers.”

What inspired you to create Trōv?

Scott: “At some point I realized there is an enormous latent value in the information related to the things people own. From obvious things such as receipts and warranties to actually having an overview of what you own and what the current replacement value of each item is. We want to curate ways to turn this into value for consumers. From keeping information on items up to date to, for instance, arranging insurance for these items.

We’re a technology company, not an insurance company. We’re new in this space. So I started with testing our first ideas about a proposition and the assumptions behind it with several senior executives of large P&C insurers such as AIG and ACE. What I assumed is that at the end of the day the core metric of success is the ratio of insurance to actual value. The better this ratio, the better the balance sheet.

Of course, this is an oversimplification, but everyone agreed that in essence this is how over the past 200 years value in insurance is created. Now, what is remarkable is that insurers do not really know what consumers own, and what the exact value of these goods is … What if they did know? This would disrupt markets. It would lead to much better risk assessment driven by real knowledge of the true value of what people really own.”

See also: Insurtech: The Approaching Storm  

Trōv’s main target users are millennials, a target segment that most incumbents find very difficult to reach and engage with. Why does Trōv strike the right chord among this generation?

Scott: “We’re in the Australian market for a year now and entered the U.K. market a few months ago. Around 75% of our users are aged between 18 and 24. It appears that we are successful in tapping into the specific needs of this group. We do this by explicitly tapping into four key millennial trends. The first is “on-demand.” We can see that from how millennials consume entertainment, shopping etc. Services need to be now, 24 hours a day, on my device. The second trend is, “Don’t lock me into a lengthy contract.” We enable micro-duration. Customers can turn their insurance on and off as they see fit. In practice, they hardly do. But it is about the psychological benefit of being able to do so. The third is what we call “unbundled convenience”: “Let me choose what to protect, the things I really care about.” The fourth is: “people/agent optional.” Millennials want to engage with their smartphone without having to talk to an actual person.”

Trōv is based in the San Francisco Bay Area. But you decided to launch first in Australia and the U.K. Why there?

Scott: “Ha ha – there’s a linear story and a non-linear story to that! The linear story is that microduration is still new to the industry, so our hypothesis requires testing. The regulatory environment is important if you want to get to market fast. Australia and the U.K. have a single regulatory authority versus the 56 bodies in the U.S. But we’re also in the process of filing in the U.S. The non-linear story is that I just happened to meet Kirsten Dunlop, head of strategic innovation at Suncorp Personal Insurance, at a conference in Meribel in France. She immediately understood the strategic impact of Trōv, and that is when it took off.”

Because the Trōv concept is so new to consumers, it must be extremely interesting to learn what exactly strikes the right chord …

Scott: “Customers just love the experience. Our NPS is +49. However, we’re learning every day. With a completely new concept such as Trōv, it is impossible to know exactly what to expect, honestly. It turns out that Trōv reveals new consumer insights. There is still a significant number of valuables that our audience wants to insure but that we cannot provide a quote for, for instance. Although more than 60% never turn off an insurance, the ability to switch an insurance on and off turns out to be an important psychological benefit. This appears to be category-dependent. Sporting goods are switched on and off more often than smartphones and laptops.

We’re constantly measuring and improving every step of the funnel. From leaving Facebook to downloading the app, to registration, to actual swipes. We will share concrete numbers on uptake and conversion rates at DIA Amsterdam. But to already share two big learnings: We designed Trōv for use on smartphones, but, much to our surprise funnel figures multiplied when we decided to add a web interface. And we are actually even attracting better-quality customers.”

In Australia, you decided to partner with Suncorp, in the U.K. with AXA and in the U.S. with Munich Re. What are the success factors of a partnership between an insurtech and an incumbent?

Scott: “At the end of the day, it is about relationships and people. We understand their internal challenges. Everyone agrees that real knowledge of individual insured goods and the actual value of those goods improves the loss ratio. But we need to figure out how this works exactly through experimentation. This requires internal dedication, throughout the whole organization, starting at the top. It is not about conducting small pilots, but the willingness to experiment while going all the way, invest for several years and learn as we go what insurance will look like in the future and how consumers want to engage.”

What are your future plans and ambitions with Trōv? We can imagine that Trōv could also be an interesting partner for retailers and producers of durables. With Trōv, they could seamlessly sell insurance …

Scott: “We have three lines of business. The first is what we call “solid.” This is about expanding the Trōv app geographically, covering more categories and continuously developing the technology. Trōv will be launched in Japan, Germany and Canada shortly. Then there is “liquid”; offering white-label solutions to financial institutions, for instance in relation to connected cars and homes. The third line of business is “gas”; basically Trōv technology embedded in other applications; insurance as a service. This could be attractive for all sorts of merchants, telco operators etc.”

See also: Understanding Insurtech: the ABCs  

This would make Trōv even more part of the context in which consumers makes decisions about the risk they are willing and not willing to incur. And it also taps into the exponential growth of connected devices, similar to how machine-to-machine payments are increasingly taking place …

Scott: “Yes. What we’re now doing with Trōv is really the beginning. Trōv is about providing our customers with exactly the protection they want, exactly when they want it. With more and more connected devices and sensors and new data streams everywhere we can make the whole experience so seamless they don’t have to do anything at all.”

10 Predictions for Insurtech in 2017

It’s time to reflect on the passing year, mark my predictions from last year and throw some light on what I see 2017 holding in store.

In my post from this time last year, I made a number of predictions, so, now, I wanted to look at how I did. Feel free to jump in and see how close to the mark I was and share your perspectives.

Reviewing 2016 — How did I do?

1. Fintech and insurtech.  In last year’s piece, I said that 2015 was the year of the zone, loft, garage and accelerator and that this would continue in 2016 with more focus. Regarding fintech and insurtech, I was right. We have seen some heavyweight investment (more so in the U.S. and Asia) and no major failures, to my knowledge. Trending up. Points: 1. 

2. Evolution of IoT. In 2015, I wrote, “2016 will be the year we all realize (IoT) is just another data/automated question set.” Evolution here is continuing, but not at the pace I expected. New firms such as Concirrus (and many others) have come up with some great examples of managing and leveraging the ecosystem. Points 2.

3. Digital and data. At the end of last year, I said 2016 would continue to be a big area of growth for both. There’s been progress, yes, and pace and traction ahead of what’s expected. Points 3.

4. M&A will continue but will slow. I think this has slowed this year, with two of the three major regions in the latter half of the year focused on Brexit and the U.S. election. Now, folks are trying to work out where that leaves fintech/insurtech. Points 4.

5. Will the CDO Survive? I said I thought we’d see a move back to the chief customer officer. Well, no sign of my chief customer officers yet! (Although, after writing this, I came across three chief customer officers, so it’s a start). Have you ever asked an insurance company or people inside the company “who owns the customer?” To me, we’re still product-centric rather than customer-centric. Points 4.

6. New business models. I said last year that we’d need to be clear on what the new business model will be — and what it needs to be. This year, there’s been lots of talk in this area, including here at Deloitte in our Turbulence Ahead report. We identified four business models for the future: 1) Individualization of insurance, 2) Off-the-shelf insurance, 3) Insurance as utilities and, finally, 4) Insurance as portfolio. It may take longer for this to materialize, but, without doubt, these models are coming. See my colleague Emma Logan describe these here. Points 5.

7. What we buy and sell. I believed that, last year, we’d move away from a product mindset to become more relevant and convenient. But we’re still in talking mode, although the ideas here are evolving rapidly. Expect an all-risks policy in Q2 2017. Points 5.

8. Cyber is the new digital. There has been an increase in the number of products and players, but there still hasn’t been any personal cyber policy. I expect that to come in 2017 still. Points 6.

9. Partnerships and bundling. In 2015, I thought we’d see a big rise in the partnerships between insurers and third parties. That’s happened. Points: 7.

So I’m marking my 2015 predictions as 7/9 (or 78% ) — a good effort, but I may have been a bit too ambitious.

See also: 4 Marketing Lessons for Insurtechs  

Moving into 2017

Re-reading the above, I still feel all my predictions are valid, be it the end of the CDO, the birth of personal cyber or an all-risks policy. I’ve been involved in enough conversations over the last 12 months to say these are all very real, although some are closer to seeing the light of day than others.

Moving into 2017, here are my top 10 trends to watch:

  1. Speed. Almost all conversations about insurance start with a statement that we’re not moving quickly enough — from transforming and modernizing the legacy estates to quite simply getting products to market quicker. We can no longer wait six months to launch new or updated products. Look at those who managed to capitalize on Pokemon Go insurance cover. In insurance, we’ll move from fast walking to jogging and sprinting. But take caution: This is still a marathon, and there’s still a long way to go. In fact, as Rick Huckstep wrote recently, the sheer speed at which the insurance market has grown in the last 21 months is part of the challenge and attraction.
  2. AI, cognitive learning and machine learning. AI has been long bandied around as a material disruptor. On the back of collecting/orchestrating the data, it’s critical to drive material insight and intelligence from this and allow organizations, brokers and consumers to make subsequent decisions. In 2017, AI will come of age with some impressive examples, including voice. In 2016, we saw Amazon’s Echo and Google Home product launches, as well as some insurers — like Liberty Mutual — giving voice a try. Imagine asking freely, “Am I covered for…?” or, “What’s the status of my claim?” Adding this skill to the mix will likely be table stakes. In addition, AI will augment other solutions to drive value, e.g. robotic process automation, which I wrote about here. All this boils down to getting a better grip on the amazing data we have already while leveraging the vast open data sets available to us.
  3. Line of business focus shift. The insurtech world will make a definitive shift from all the wonderful personal line examples to SME (the next obvious candidate) and to more specialty and complex commercial examples. Will Thorne of the Channel Syndicate wrote a great piece on this in November. While the challenges are harder and more complex, I believe the benefits are greater once we get to them.
  4. Believers. The market has polarized somewhat between those who believe in major innovation and are pushing hard, and those who don’t (or have a different focus and near-term objectives). The range is from those who worry about the next 90 days/half-year results to those who are actively looking to cannibalize their business and investing to find the most efficient way to do this. Here, there’s no right or wrong, with hundreds of organizations strewn across the path. I still believe more will move to the cannibalization route as the first carriers start to unlock material value in 2017, including continued startup acquisition. Oliver Bate (Allianz) had an interesting and positive perspective on this during his company’s investor day in November.
  5. Scale and profitability. Over the last 12 to 18 months, I’ve seen some great startup organizations; internal innovation and disruption teams; VCs; and more. Now is the time to work out how we industrialize and scale these. This is the very same challenge the banking and fintech communities are going through. If you’re an insurance company with 30 million or 80 million global customers, should you be worried about Startup X that has 10,000 or 100,000 customers? If they do manage to scale, can they do so profitability? This reminds me of a recent article about how unprofitable Uber is, but, with millions of engaged customers, they have our attention now. Profitability will become front and center. In fact, Andrew Rear over at Munich Re Digital Partners put together a good post on what the company looks for and why he and the team chose the six they did.
  6. Orchestration. With all of these startups in insurtech, we’ll need to quickly understand what role they play. Are they a platform play, end product play, point disruptor or something else? Regardless, given the volume and velocity of data generation, the importance of both API connectivity and the ability to orchestrate it will increase dramatically. For me, these are table stakes.
  7. External disruptors. In the Turbulence Ahead The Future of General Insurance report released earlier this year, we identified six key external disruptors that are happening regardless of the insurance industry. These are 1) the sharing economy, 2) self-driving cars and ADAS, 3) the Internet of Things, 4) social and big data, 5) machine learning and predictive analytics, and 6) distributed ledger technology. The key for me within insurance is to identify what role we’ll play. I believe we’ll continue to firmly be the partner of choice for many given our societal and necessary position in the global economy.
  8. Micro insurance. Here, I specifically mean the growth of micro policies, covering specific risks for specific times. Whereas we typically annually see 1.1 policies per customer, we’ll see eight to 10 micro policies covering a shorter period (episodic or usage-based insurance) as per our business models described in the Turbulence Report. This will be true for all lines of business. We’ve already seen some great launches in this space — including Trov, which partnered with Munich Re in the U.S., AXA in the U.K. and SunCorp in Australia. There’s been global access through partnering with established players that has created a new way to market to the next generation. While we switch this on manually by swiping left and right (given some of the external disruptors and location based services), this will very much be automatic going forward. Insurers will need to find new ways to orchestrate, partner and find value to bring in clients. It won’t be just one policy, it will be many that they orchestrate to deliver clients everything they need.
  9. Blockchain and DLT. I almost didn’t include blockchain here, but two factors have led me to include this for the first time: 1) the number of requests we’re now seeing in the market for both specific solutions and more education/use cases and 2) the fact that nine of the 18 startups in the FCA’s new Sandbox are blockchain-related. In 2016, we saw lots of PoC examples, trials and the first live insurance product on the blockchain (see: FlightDelay). Some use cases are more developed than others, and some markets are more suitable than others (I’m still looking for good examples in personal lines), so I believe this will evolve in 2017 but that there won’t be scale breakthroughs. However, along with the World Economic Forum, I firmly believe that “The most imminent effects of disruption will be felt in the banking sector; however, the greatest impact of disruption is likely to be felt in the insurance sector.” We still must ask, “why blockchain?” Just because you can use it? It needs to be the right solution for the right business problem. Horizontal use cases such as digital identity or payments offer compelling use cases that can easily be applied within insurance. In many ways, blockchain, for me, feels much more like an infrastructure play in the same way we would do core systems transformation (policy, claims, billing, finance, etc.)
  10. Business as usual — for now! Partly related to No. 4, we still need to run our business. How we do this and how we set up for the future will be another challenge — not just from a technology perspective but from a people and organization design perspective. (How we work, collaborate and more.) What are the transition states from our current models to a new world in 12, 24 or 36 months. Forward-thinking organization are putting plans in place now for their organizations in the years to come. This will become more important as we embed, partner and acquire startups and move toward new ways of engaging and working with customers.

Interestingly, there are now also so many accelerators, garages, hubs, etc. that startups all now have a lot of choices regarding where to incubate and grow. This presents a whole new challenge on the rush to insurance disruption.

See also: Asia Will Be Focus of Insurtech in 2017  

Finally, there are two other observations I wanted to share:

  1. China. While I don’t spend any time in China, it’s hard not to be in awe of what is going on — specifically, the speed and scale at which things are happening. China’s first online insurer, Zhong An, did an interview with Bloomberg regarding what the company is doing with technology (including blockchain) and, more importantly, its scale ($8 billion market cap in two years, 1.6 billion policies sold) — and the only concern from the COO, Wayne Xu, is that the company isn’t moving quickly enough! Step away from this and look further to what’s happening with disruption in general with Alipay and others from the BAT (China’s equivalent of GAFA — Baidu, Alibaba and Tencent) is simply amazing. There’s a good FT article on Tencent, the killer-app factory, and the sheer speed and scale of disruption.
  2. Community. The global insurtech (and fintech) community is an amazing group of people from around the world who have come together across borders and time zones to further challenge and develop the market. Each geography has its own unique features, mature players, startups, labs, accelerators, regulators and, of course, independent challenges. We don’t always see eye to eye, which makes it all that more rewarding because you’re challenged by industry veterans and outside-thinking entrepreneurs. This year’s InsureTech Connect in Las Vegas with more than 1,600 people was truly amazing to see. Things have clearly moved far beyond a small isolated hive of activity with varying levels of maturity to a globally recognized movement. It was great to meet and to see so many carriers, startups, VCs, regulators and partners looking to further the conversation and debate around insurance and insurtech. This community will, no doubt, continue to grow at a fast pace as we look for insurtech successes, and I look forward to seeing how the 2017 discussion, debate and collaboration will continue.

As always, I look forward to your feedback! What I have I missed?

Here’s to an exciting 2017!

Is Change Really Happening So Fast?

Lots of people are saying these days that the insurance industry, after essentially not ever changing, is suddenly moving too fast to follow — for instance, the recent ITL article, “Feeling Like a Keystone Cop.” But in my 37 years in the industry, insurance has evolved continuously.

Insurers have changed from the days where syndicates consisting of individuals provided insurance coverage through the Lloyds market; today, China Re with a majority ownership by China’s ministry of finance, has a syndicate at Lloyds. Today, a large number of insurers are owned by multinational conglomerates.

Other types of evolution include Berkshire Hathaway’s use of insurance premiums as a means of financing its investment interests. Similarly, Fairfax Financial Holdings of Canada uses premiums collected from its insurance companies around the world to finance investment interests.

Financial services groups such as Suncorp Group in Australia now offer insurance through a number of brand names, such as Shannons (classic car insurance), APIA (Australian Pensioners Insurance Agency) and AAMI. Rand Merchant Insurance Holding Group of South Africa offers insurance in Australia under the name of Youi (https://www.youi.com.au).

In addition, some insurance companies, like Progressive, are taking a technology-only approach to offer motor vehicle insurance in Australia without a “brick and mortar” presence. Apart from the option of reporting a claim by phone, all other communications are through email or a web page. With this approach, Progressive in Australia will only attract those who use technology. Here is the link http://www.progressiveonline.com.au/car-insurance.aspx

People talk about Google, Walmart, Amazon and others possibly entering the insurance market — again, this isn’t something new. Brand names have been used by insurers for many decades. Coles, a large supermarket chain in Australia (https://financialservices.coles.com.au/insurance) (similar to a Safeway or Ralphs here in the U.S.), offers various insurance polices to its customers that are underwritten by Insurance Australia Group.

Whether Google, Walmart or Amazon actually decides to underwrite risks, act as channels for insurance or simply provide a means to compare insurer premiums remains to be seen, but, regardless, none of this is new. For example, InsWeb has offered car insurance price comparisons since the mid-1990s. Here is the link: http://www.insweb.com.

One thing that is certain, however, is that the insurance market will continue to be driven by price and service, especially service at the time of a claim. In his 2013 annual report, Warren Buffett made the following comment, “GEICO in 1996 ranked number seven among U.S. auto insurers. Now, GEICO is number two, having recently passed Allstate. The reasons for this amazing growth are simple: low prices and reliable service.”

Over time, risk types change, and insurance coverage follows. Boiler explosion insurance for example, was a major type of insurance through the 1800s and into the mid-1900s. It still exists but is only a very small percentage of the insurance market.

We will see changes to vehicle insurance coverage when driverless vehicles appear on our roads, as mentioned in the recent ITL article titled, “Beginning of the End for Car Insurance.” There are many risk coverage issues for potential exposures with driverless cars. Imagine if a child runs onto the street to retrieve a ball without looking (a common occurrence for those living in the suburbs). With advanced technology built into driverless vehicles, the vehicle would be programmed to make a decision about which action to take in the best interest of all parties (i.e. the child, occupants in the vehicle or nearby vehicles as well as pedestrians): (1) brake but still hit the child or (2) brake and avoid the child but possibly hit another object such as another vehicle or lamppost, injuring the occupants of the vehicles as well as nearby pedestrians.

All this will need to be addressed by laws and road rules when driverless vehicles are introduced, with insurance following on. Premiums and who pays are the least of the insurance complexities involved with driverless vehicles. If a manufacturer is required to obtain insurance coverage or volunteers to obtain insurance coverage, the premium would be factored into the price of the vehicle; otherwise. it would be paid by the owner of the vehicle. Regardless, insurers will receives premiums from one source or the other.

Another evolving insurance coverage relates to a disability occurring from a work-related, motor-vehicle or non-work-related incident. While U.S. jurisdictions ponder whether coverage for a work-related injury or illness should be through a workers’ compensation policy issued by a property/casualty insurer or through the opt-out option (a hot topic in the U.S. at the moment), Europe, Asia and Australia are focusing on what people with a disability can be doing and deciding on how best to achieve this, including funding. In this case, the evolution relates to who will pay the premiums. Will employers continue to pay for work-related injuries, or will individuals buy personal injury coverage to cover their recovery costs, no matter whether associated with a work-related, motor-vehicle or non-work-related incident?

In the evolution of insurance, technology has always played an important role in areas such as deciding which segment of a market companies want to attract, meeting reporting obligations and improving processing efficiencies. In workers’ compensation, a number of U.S. carriers have chosen to outsource many of their claims functions, as I outlined in my last article. Whether this practice continues remains to be seen, but something needs to change in the way the workers’ compensation insurer or its representatives (e.g.. third party payer) handle claims, because clearly what they are doing is not producing the desired outcome for the injured worker or the employer, and no form of state legislature or technology change will address this shortfall.

Products like IBM’s Watson and Saama that are able to use unstructured data in addition to structured data to perform analytics are part of the technology evolution, and there is high probability of success. But we saw something along the same lines during the early 1990s, when all the buzz was about neural networks.

In closing, I don’t feel as if I’m a Keystone Cop when it comes to professional development, either relating to insurance or the technology used now or offered in the future. I also don’t think the major players in the insurance industry (like Berkshire Hathaway, Fairfax, Suncorp and others around the globe) feel they or their personnel are operating like Keystone Cops. If they were, I’m sure their share prices would not be as high as they are.

Will Fintech Disrupt Health, Home Firms?

The integration of technology in the insurance company’s value proposition is turning out to be one of the main evolutionary trends in the sector, and digital initiatives have been for a couple of years now one of the priorities of insurance groups. Until today, though, they have brought only limited improvement when it comes to the competitive abilities of the insurer.

The best practices at the international level show that, to obtain concrete benefits, the innovation has to be directed toward clearly determined strategic objectives.

An interesting example is the American company Oscar – a start-up that in less than two years has managed to raise more than $300 million at a valuation of more than $1.5 billion. It has radically innovated the customer experience of individual health insurance policies by directing the innovation effort toward two key factors that are crucial for the profitability of the medical spending reimbursement business: deductibles and “emergency” visits.

Oscar has created an insurance value proposition based on a smartphone app that incorporates a highly advanced search engine – including a search based on symptoms – allowing the insured to identify and compare the medical structures part of the preferred network. In this way, the client receives support in optimizing direct spending before reaching the deductible; this basically postpones when the insurance company starts to pay and thus reduces the amount of spending (medical reimbursements) by the insurer for the remainder of the year.

The company addresses emergency visits by providing chat with a specialist and a call-back system that the insured can choose at will from inside the network. This represents a comfortable alternative and reduces the number of urgent visits.

Health insurance and connected health

In these last months, I have been considering how to replicate the motor telematics experience for the health insurance sector. Insurance companies see the benefits from a telematics black box and how the return on investment in this type of technology can be maximized by the insurer: This is possible by taking into consideration not only the underwriting of the car insurance policy but by also looking at the services provided to the client, at loss control and at customer loyalty. In health insurance, similar benefits are achievable by using mHealth devices and wearables.

The first element is risk selection, seen in car insurance as:

  • the capacity of auto selection and dissuasion of risky behavior,
  • the integration of static variables traditionally used for pricing with a set of “telematics data” gathered within a limited time and used exclusively for supporting the underwriting phase.

The creation of a value proposition that is focused on the use of wearables and that uses “gamification” makes the product attractive to individuals who are younger and healthier – generating a self-selection effect comparable to the motor telematics experiences. Oscar, since the beginning of January, has been offering clients a pedometer connected to a mobile app. Every day, the app shows a personalized objective that, if attained, means $1 earned by the customer. Each month, the customer can receive a maximum of $20 as cash back from the company.

The second source of value generation is services. The use of telematics data represents an incredible opportunity for offering new health services and for offering a better customer experience: for example, the geolocation of medical structures and doctors who are part of the network, linked to a medical reimbursement policy.

Medibank, of Australia, has integrated in its health policy (using a smartphone app) a series of services built on informative contents and advice. The services are medical – as done by the Italian insurance fund Fondo Assistenza Benessere, using an app called Consiglio dal Medico (an Italian start-up partnering also with Uber) – as well as related to wellness. Medibank, using this package of services, produced 10% growth in the company’s top line. This Australian player has created an app for noncustomers that gives access to wellness discounts and attracts customers who can later be offered other insurance, too.

The ability to provide health services with a high perceived value (from the client’s point of view) can also allow the company to increase the efficiency of guidance inside the preferred network – this is a crucial aspect for controlling the loss ratio of a medical reimbursement product. The loss control actually represents the third area of value creation, just as it does for the auto business.

Within the health industry, it will soon be possible to generate significant economical benefits employing telemedicine to optimize spending with medical reimbursements or to link the reimbursement to the actual observance of the client’s medical prescriptions. In the medium to long term, the objective is to have behavioral and contextual data to prevent fraud and early warning systems that can spot altered health conditions and that allow preventive and timely intervention.

South African-based Discovery has successfully tried out this second approach. It reduced the loss ratio of the cluster of insured who suffer from diabetes – mainly reimbursements linked to complications because of lack of self-control. Discovery provides an instrument for measuring the blood sugar level through a connected app and rewards the insured.

Discovery’s Vitality program represents the international best practice regarding the fourth axis of value creation: behavior guidance, by using a loyalty-based system that rewards non-risky behavior. The South African company has integrated – in its very complex reward system – devices for measuring physical activity and has incorporated their usage among the “rewarded” types of behavior. Discovery’s experience in several different countries proves the effectiveness of this approach in terms of:

  • commercial appeal
  • capacity to acquire less risky clients
  • ability to gradually reduce the risk profile of the single client.

Pricing based on individual risk is the last benefit achievable with the integration of wearables and health insurance policies. Constant monitoring of the level of exposure to risk lets the insurer create tariffs based on the health state, lifestyle and context of a person. As already done in the auto telematics business, this will be a goal to be attained after some years of data gathering and systematic analysis of the historical series together with information regarding medical reimbursements.

Home insurance and connected home

Homes are another area in which, at an international level, there has been experimentation with how to integrate an insurance policy with actual sensors. There already exists a replication of the business model used more than 10 years ago in the auto insurance sector — an up-front discount between 10% and 25% of the insurance premium based on installation of a device at the client’s house and by the payment of a fee for services or a lease for the technology. This approach, which has been adopted in the U.S. by State Farm, Liberty Mutual and USAA and in Italy by IntesaSanpaolo Assicura, BNP Paribas Cardif, Groupama e Poste, is based on two of the five levers of value creation: first, loss control – focused on flooding, fire and theft – and second, value-added services. American companies have even reached the point where they offer clients a wide range of services provided by selected partners (such as Nest) and tied to the home “ecosystem,” which can even include medical assistance services.

An interesting and innovative example of the use of such technology for the assessment and risk selection in home insurance is the one adopted by Suncorp with a retail touch to it, and by ACE Group, which focuses more on the insurance needs of high net worth individuals (HNWIs). Both companies have used a partnership with a start-up called Trōv – a smartphone app that allows registering and organizing the information referring to personal objects, including through photos and receipts – to evolve their underwriting approach when it comes to the risk connected to the contents of the house.

Domotics, or home automation, is growing at a high rate even in Italy and represents a material part of the revenues generated by the Internet of Things, according to data provided by the Osservatorio of the Politecnico di Milano. A horizontal domotics solution – with thermostats, smoke and water detectors, sensors present in appliances and other household items, sensors at the entrance and antitheft alarms, sensors spread within the building – would let an insurance company track the quantity and level of exposure to risk. This includes, for example, the periods and ways in which the home is used but also the state of the household and the external conditions to which it is exposed (humidity, mechanical vibrations, etc.).

The insurer could price based on individual risk, adopting pricing logic based on behavior, as already done in the motor sector. This could open up growth opportunities, such as for secondary houses used only for vacation and rarely insured. This scenario, which sees the growth of solutions built on connected objects within the home – if correctly approached by insurers by reviewing their processes to make the most of the potential offered by gathered data – can lead to important benefits in loss control: Some studies have estimated that there is the potential to cut in half the current expenses for claims.

To turn this opportunity into reality, it is essential that the insurer acquire the ability to connect its processes (through adequate interfaces) with the different connected objects. Insurers must create an open digital platform that uses the multiple sensors to be found in the home “ecosystem” – just like those used in the health sector.

The change of paradigm doesn’t only concern fundamental aspects of the technological architecture – like data gathering or standardization of data coming from heterogeneous sources – but affects the strategic choices of the business model. For insurers, it becomes a necessity to define their level of ambition for their role in the ecosystem and for their cooperation with other players to create solutions and services around an integrated set of client’s needs.

It is extremely interesting to see the journey made by American Family Insurance, which – in partnership with Microsoft – has launched a start-up accelerator focused on home automation.

Insurers have to start thinking strategically around how adapt insurance business to IoT, before some new Fintech comers do it.

This article originally appeared in the Insurance Daily n. 749 and n. 750 Editions.