Tag Archives: Tesla

Bigger Disruptor: Lemonade or Tesla?

I’ve never been a big fan of the term “disruption.” I believe that a majority of insurance startups are partnering with incumbents to enable industry transformation and are catalysts for change, to be sure. But few are truly turning the industry on its head.

For instance, Lemonade is a startup that, since its inception, has positioned itself as a disruptor. The slogan is still, “Forget Everything You Know About Insurance.” The constant marketing drumbeat from the company has emphasized its different approach and has focused on appealing to millennials. And, with the recent spectacular IPO, Lemonade has the attention of the insurance world. I believe Lemonade has been very good for the industry (and it has certainly been good for the founders). But I think that Tesla has the potential to be even more of a disruptor in the long run.

This might seem an odd assertion, given that Tesla has heretofore only dipped its toe in the insurance waters, and Lemonade is four years old and on a roll. At this stage, Tesla is only a year into the California auto market as a broker backed by State National (a Markel company), with mixed results. But what has caught my attention is Elon Musk’s callout to insurance actuaries – inviting them to join Tesla to create a “revolutionary” insurance company. You don’t go on a hiring spree of actuaries if you plan to be just a distribution player. Now, on the surface, it might seem strange that insurance would be of interest to Elon Musk. To illustrate, let’s play the Sesame Street game, “Which one of these things is not like the other?”

Space exploration…Autonomous vehicles…Hyperloop travel…Battery Gigafactory…Insurance.

The answer is obvious – does insurance really have the potential to transform the world like these other ventures? Maybe not, but insurance is undoubtedly an enabler of these revolutionary advances and an essential foundation of the economy. And there is actually great potential to “revolutionize” insurance and make a lot of money in the process.

Back to the Lemonade/Tesla discussion. Starting an insurance carrier is a long play. Lemonade, with all its success, is only a small blip in the industry financial picture. Renters and pet insurance are nice businesses, but they will always be secondary lines. Lemonade has also entered homeowners, so there is much more potential there. But now they have to contend with the likes of Hippo, not just the State Farms and Allstates of the world. At SMA, we consider insurers with premiums of over $5 billion to be Tier 1. Lemonade may become a Tier 1 insurer someday, but likely not for years.

See also: COVID: How Carriers Can Recover

On the other hand, let’s consider Tesla’s prospects. Tesla is not the first auto insurance company to enter insurance and try bundling. Others have taken this approach, and, especially those in the autonomous vehicle game, have announced plans for insurance. Most still partner with an insurance company as underwriter. This has been Tesla’s initial approach, as well. Now, with stated plans to build an insurance company, the calculus changes.

Imagine yourself as a brilliant young actuary – wouldn’t it be cool to sign on with visionary Elon Musk and help rethink insurance? For that matter, it won’t stop at actuaries – other industry professionals are sure to be recruited for this venture. Underwriters (if Musk has them), adjusters, loss control engineers and others will probably join. Now, that is no guarantee of success … and the same long play dynamics will apply to Tesla as Lemonade. However, Tesla has some unique advantages. First, it has a well-respected, established brand. Secondly, it has the underlying assets that will be insured – the electric/autonomous vehicles. Third, it has the track record and energy of Musk and his enterprise.

Of course, this is all speculation – Tesla may not go full bore into insurance, and, if it does, it may not succeed for various reasons. But I, for one, would not bet against Elon Musk. 

Postscript: This blog sets up a discussion about two prominent players. There are certainly others that could be big disruptors for insurance. Three companies come to mind and have been the subject of prior SMA discussions: Root, Hippo and Munich Re. Root has shown the most impressive growth among the full-stack insurer entrants and has significant future potential as it moves into other lines and other states. Hippo has built an impressive ecosystem and a unique approach for homeowners insurance. And SMA is on record as saying that Munich Re may be the ultimate disruptor as it explores new business models, new products and broadly invests in insurtech. 

Will Technology Kill Auto Insurance?

The auto insurance industry has been experimenting with technology and tools that are completely changing the way we think about cars.

Self-driving vehicles, ride-sharing and vehicles that include their own insurance in the sticker price are all recent innovations — innovations whose long-term effects are not yet known.

With the rise of autonomous vehicles and ride-sharing came questions about liability and its related coverage: Who will insure self-driving cars? Who is liable in a ride-sharing accident scenario? As vehicle fleets replace individual ownership, who should carry the coverage necessary to pay medical bills, repair costs and other losses in case of a crash?

The changes on the horizon have prompted some commentators, like Deutsche Bank’s Joshua Shanker, to predict that today’s auto insurance industry simply won’t exist in 20 years.

Is the demise of auto insurance imminent? Is it likely? Here, we explore the pressures on traditional auto insurance and the ways the field may shift in the next one to two decades.

Self-Driving Cars: Who Will Insure Them?

Self-driving cars are predicted to change the driving habits of entire nations — and to significantly reduce the cost of auto insurance. A 2015 study by Metromile and Ferenstein Wire estimated that self-driving vehicles would save their owners nearly $1,000 a year on insurance premiums on average, according to Gregory Ferenstein.

The study was based in part on data showing that, as of 2015, none of Google’s self-driving vehicles had been in an accident caused by the technology, only by human error, reported Adrienne LaFrance at The Atlantic. Since then, there have been notable instances of tech errors leading to accidents, including the March 2018 death of a pedestrian. More on that in a minute.

Still, many commentators have drawn the same conclusion from the data: Prevented accidents mean prevented claims, which will reduce premiums. Even big name investors like Warren Buffett have made such predictions with regard to self-driving vehicles, CNBC’s Elizabeth Gurdus reports.

See also: Industry 4.0: What It Means for Insurance  

The Reality on the Ground

Yet the reality may not be so easy to achieve. For one thing, self-driving cars have yet to be tested in the same wide range of conditions human drivers face daily, says Peter Hancock, a professor of psychology and engineering at the University of Central Florida. Seeing how these cars handle bad roads, inclement weather and similar challenges is essential to understanding whether they’ll really replace human drivers — and how to insure them if they do.

In 2015, Volvo CEO Håkan Samuelsson said that Volvo would accept “full liability” for any losses occurring when a Volvo vehicle was in full autonomous mode, indicating a future in which liability coverage for self-driving vehicles is a question of product liability, not driver behavior.

Yet, to date, other automakers haven’t rushed to join Volvo in making a similar promise. While Google and Mercedes have self-insured, as a rule “auto manufacturers are not that keen on taking on the insurance risk,” says Rick Huckstep at the Digital Insurer. Automakers have spent billions of dollars on developing automated technologies, and “they didn’t do this to then have to carry 100% liability for whatever happens on the road.”

Revising Timelines

Even if self-driving cars adopt a commercial liability or product liability approach to coverage, thus eliminating the need for individual drivers’ coverage, a 10- to 15-year timeline may still be ambitious, says Simon Walker, group chief executive at First Central Group. The technology, while ever more widely tested, is not yet commonplace.

Determining regulatory, licensing and liability questions will likewise take years; attempts to start that process now have met with uncertainties because the tech isn’t in common use. Customers will need to gain confidence in autonomous vehicles, and their driver-required cars will have to age their way onto the scrap heap.

All this is unlikely to happen in just 10 years, or even in 20. And with 10 to 20 years, auto insurers have time to adapt. Some have already begun, in fact. Julia Kollewe at the Guardian cites Adrian Flux, a U.K. insurer, which in 2016 announced what it called the first-ever auto insurance policy for driverless vehicles. The policy covers not only the conventional situations other policies address, but also autonomous-vehicle-specific topics like software updates, satellite or navigation system failure and loss or damage from hacking.

If this U.K. company can do it, says Julia Eddington at the Zebra, so can U.S. companies, although they may face more complexity due to the overlapping world of state and federal regulations. As of mid-2018, however, 29 states had enacted driverless vehicle liability laws, according to the National Conference of State Legislatures, which could pave the way for faster adaptation by existing auto insurers.

Improved Safety Features: Are Crash-Proof Cars Possible?

Self-driving cars aren’t the only way that technology may end the need for auto accident coverage. Safety technology is improving, as well, and Volvo’s promise to cover liability for its cars while in autonomous mode isn’t the only goal the automaker has set to change the vehicle liability landscape.

In 2008, Volvo announced an ambitious plan: to create a crash-proof vehicle that would result in zero injuries or deaths, and to do it by 2020. In 2013, according to Viknesh Vijayenthiran at Motor Authority, and again in 2016, Volvo announced its intention to stay on track to create its injury- and death-free vehicles by 2020.

Volvo still has a little more than a year to reach this goal, and its statistics indicate the company is on the right track. Volvo won a 2018 Which? Award in the U.K. for “the company’s solid safety record that put it ahead of other short-listed candidates.”

Awards and strong statistics are evidence that Volvo is moving in the right direction when it comes to safety, but until this technology is perfected, insurance coverage remains a necessity — and completely autonomous driving technology still has a long way to go.

A Car and Its Coverage: A Package Deal?

Tesla is also betting on the safety of its technological advances, and in a way that presents an additional challenge to traditional insurance companies: by including auto insurance coverage in the sticker price of their vehicles.

Tesla is experimenting with selling “insurance and maintenance included” vehicles in Asia, according to Business Insider’s Danielle Muoio. The price for insurance and maintenance incorporates Tesla’s data about the car’s safety features, including its autopilot system. By including the insurance price in the car, Tesla says, the company believes it offers a better deal to consumers, because many auto insurance companies don’t account for the autopilot system in the same way Tesla does.

Tesla may have a point. “If you’re hoping to shave down your premiums, buying an automated vehicle might not be the right move,” Shift Insurance head of business development Raphael Locsin tells Entrepreneur. However, some companies do consider certain other driver assistance features, like electronic stability, when calculating discounts.

Insurance companies’ hesitation may be prudent at the moment. A March 2018 Tesla crash with the autopilot turned on proved fatal for the driver, according to Jack Stewart at Wired.

Selling vehicles, autonomous or otherwise, with the insurance included in the sales price offers a hybrid approach between purchasing coverage from traditional auto insurers and placing the burden on automakers to cover their vehicles as consumer products. While Tesla has gambled on the approach, it remains the only automaker to do so; even the products-liability model has had more buy-in from the makers of self-driving vehicles and their technology.

“Insurance included” models seem the least likely of the self-driving insurance options to threaten the traditional auto insurance industry in the next two decades. Yet they indicate a willingness of companies to take risks to try new models, which are worth noticing.

What to Expect in the Near Future

Self-driving vehicles piloted by technology that prevents accidents is a powerful vision of the future. It provides a sense of excitement and hope.

It also provides challenges to traditional auto insurance companies, many of which are already struggling with auto insurance premiums in a world where many people have eliminated vehicles from their lifestyles. For a $220 billion industry that supports more than a quarter million jobs, the threat is significant, says Patrick Lin at Forbes.

Yet technology’s death knell for auto insurance may not be as close as it appears.

Driver involvement in vehicle operation is likely to be a necessity for many more years, and drivers will need insurance as long as they must take the wheel. Human error will continue to be a factor in accidents. And demand for insurance against theft, acts of nature and technological glitches will persist even in a world where cars do their own driving.

What Will Operations Look Like in 2028?

In a 2011 article in Insurance and Technology, Kathy Burger enumerated several big technological changes in the insurance industry since 2001, including the rise of big data, the ubiquitous nature of cell phones and social media and an increased emphasis on data security and privacy.

Seven years later, these once-big innovations are par for the course. P&C insurers and insurtech companies are now positioned to use these tools — which scarcely existed in 2001 and which were only beginning to be broadly embraced in 2011 — as the foundation for the next wave of major changes in the insurance industry.

Now, let’s look at some of the biggest rising insurtech trends today to get an idea of where they’re likely to take us 10 years from now.

Auto Insurance

In July 2015, Jayleen R. Heft published an article at PropertyCasualty360 with the provocative title, “Will the auto insurance industry be obsolete in 20 years?”

Heft cited the work of Deutsche Bank research analyst Joshua Shanker, who argued that by 2030 self-driving cars and ride-sharing services would occupy so much of the automotive market that setting rates based on driving data would no longer be necessary. Instead, the companies behind these vehicles and services would simply “insure their cars like any other product,” Heft said.

While self-driving cars and ride-sharing services like Uber and Lyft are already shaking up the auto industry, predicting the demise of auto insurance by 2030 — or by 2028, even — may be premature. Pay-per-mile auto insurance is gaining popularity. Spearheaded by companies like Metromile and Esurance, the pay-per-mile model charges a base rate, plus a specified rate for each mile driven.

“Each mile usually costs a few cents,” Craig Casazza explains in an article for ValuePenguin. “So if you drive 200 miles per month at a rate of five cents per mile, you would be charged $10.” In addition, Metromile only charges drivers for the first 250 miles driven in any given day in most states.

Tracking Mileage With Telemetrics

Both Metromile and Esurance use telemetrics to track miles driven to calculate each month’s rate. Metromile calls its program the “Metromile Pulse,” and it uses the car’s OBD-II port to track mileage.

Other insurance companies have experimented with telemetrics for a number of years but haven’t connected rates directly to miles driven. Instead, they use the vehicle’s data to adjust rates in a more complex, less transparent manner, Casazza says.

See also: Future of P&C Tech Comes Into Focus  

The pay-per-mile model is increasingly popular with younger drivers, who often have the option to abandon their cars entirely for the convenience of Uber or public transportation, but who are happy to keep the freedom of their own vehicle when they feel they can more directly control its costs. For these drivers, who include a growing number of those currently under age 40, auto insurance may survive into the 2030s — although it may operate in a very different way.

Shanker’s prediction that auto insurance will fade into product liability insurance over the next decade, however, may be prescient. In an October 2017 article in Business Insider, Danielle Muoio explored Tesla’s partnership with Liberty Mutual to sell insurance as part of the purchase price of the company’s vehicles. The plan, called InsureMyTesla, factors in the car’s autopilot feature while setting rates and comes up with a lower cost than other insurance plans as a result, Muoio reports.

Insuring Shared Rides

Similarly, while ride-sharing company Uber currently requires drivers to carry their own auto insurance coverage while also providing supplementary insurance, the company may switch to providing all insurance coverage on its cars as it continues to move into the self-driving vehicle market.

Given Uber’s bumpy ride in producing self-driving vehicles, however, the company’s total abandonment of conventional auto insurance expectations for human drivers may be more than 10 years out, Tech Radar’s Leif Johnson and Michelle Fitzsimmons said in May 2018.

Adding Value and Processing Claims

“Digital technology destroys value,” warned a March 2017 article by Tanguy Catlin, Johannes-Tobias Lorenz, Christopher Morrison, and Holger Wilms at McKinsey & Co. According to the authors, “although digital technology propels some companies to become clear market winners, for many more its impact depletes corporate earnings and the overall value of an industry. Consumers, not companies, are often the ultimate winners.”

To stay relevant, the authors said, insurance companies must “meet customers’ expectations, which have been transformed by digital technology.”

In 2018, insurance companies seeking to stay ahead of the curve often accomplish this task by breaking down their own silos and presenting a quick, clean digital interface that makes it easy for customers to interact with the company and for staff to understand customers’ needs and provide clear, consistent answers.

Bridging Human and Automated Workflows

By 2028, companies are likely to have struck a balance between automation and human intervention — a balance that many insurers are currently struggling to find, Rick Huckstep writes in an article in The Digital Insurer. Automation offers both the opportunity to improve claims response and the challenge of providing the “human touch” that customers also demand, as Roger Peverelli and Reggy De Feniks put it in a December 2017 piece for Insurance Thought Leadership.

The goal will be to use automation in a way that doesn’t feel automated. As AI technology continues to develop, this goal may be fully realized within 10 years.

The automation of many of the current day-to-day tasks faced by insurance agents will, in turn, change agents’ jobs. Some commentators are already predicting that today’s field agents will be obsolete by 2023, replaced by “bionic agents” who have fully integrated digital tools, including AI and machine learning, into their work.

How Automation Influences Customer Expectations

Customers are already demanding the knowledge and flexibility a bionic agent exemplifies. As Jason Walker writes at PropertyCasualty360, “Consumers today want the ability to conduct insurance business anytime, anywhere for simple transactions, while at the same time be able to have a relationship with a professional to discuss complex policy questions or walk them through the claims process.” As this option becomes ever more normalized for customers, the demand for the same experience in insurance will rise. as well.

The result? By 2028, “digital natives” won’t only be insurance customers — they’ll also be insurance agents who leverage technology not only to serve customers but to demonstrate real value in the insurance process.

See also: Key Strategic Initiatives in P&C  

Automation and Claims Processing

Field agents aren’t the only insurance industry professionals who will see their work change dramatically by 2028. The ways insurance companies process claims will change, as well, driven in large part by customer expectations.

For instance, Ben Rossi writes at Information Age that about a fifth of young adult customers (ages 18–24) expect insurance companies to use drone technology to survey property damage and gather information for claims.

This idea “would have been unthinkable as recently as a couple of years ago,” Rossi says. Ten years from now, sending a drone to a damaged building or factory site may be as commonplace as sending a human adjuster has been for the past 10 years.

For many of us, 2008 feels like it was yesterday. In 2028, our memories of 2018 will feel the same — yet the insurance industry is poised to be eons ahead of where it currently stands, and insurtech will lead the way.

How to Prepare for Self-Driving Cars

For decades, privately owned, privately insured cars have been so common that few people have questioned these models of transportation and the associated risk.

Property and casualty insurers deal with thousands of individual vehicle owners and drivers as a result. Insurers deal with those drivers’ mistakes, too. A study by the National Highway Traffic Safety Administration (NHTSA) estimates that human error plays a role in 94% of all car accidents.

The entire auto insurance industry is built on this humans-and-their-errors model. But autonomous vehicles stand to turn the entire model on its head — in more ways than one.

Here are some of the biggest changes self-driving cars are poised to make to the auto insurance world and how P&C insurers can prepare for the shift.

Vehicle Ownership

Most conversations about self-driving cars and insurance focus on questions of fault, compensation and risk.

In a 2017 article for the Harvard Business Review, however, Accenture’s John Cusano and Michael Costonis posited that an even bigger disruption to P&C insurance practices would be a change in patterns of vehicle ownership.

“We believe that most fully autonomous vehicles will not be owned by individuals, but by auto manufacturers such as General Motors, by technology companies such as Google and Apple and by other service providers such as ride-sharing services,” Cusano and Costonis writes.

Indeed, companies like GM and Volvo are already exploring partnership with services like Lyft and Uber, as keeping self-driving vehicles on the road as much as possible amortizes their costs more effectively.

Paralleling the autonomous vehicle/ride-sharing partnership trend is a decrease in vehicle ownership. Young adults and teens are less interested in owning vehicles than their elders were, Norihiko Shirouzu reports for Reuters. Instead, they’re moving to more walkable areas or using ride-sharing services more often, already putting pressure on auto insurance premiums.

See also: Time to Put Self-Driving Cars in Slow Lane?  

U.S. roads are likely to be occupied by a combination of human-driven and self-driven vehicles for several decades, Cusano and Costonis estimate. As ownership trends change, however, P&C insurers’ focus on everything from evaluating risk to branding and outreach will change, as well.

Connected closely to the question of ownership is a second question: Who is at fault in a crash?

Fault Ownership

NHTSA’s statistics on human error as a crash factor imply that reducing the number of human drivers behind the wheel would reduce accidents. A McKinsey & Co. report agrees, estimating that autonomous vehicles could reduce accidents by 90%.

Taking human drivers’ mistakes out of the equation means taking human fault out of the equation, too. But questions of human fault stand to be replaced by even more complex questions regarding ownership, security and product liability.

Several automakers have already begun experimenting with approaches that upend traditional questions of fault and liability. Concerned over the patchwork of federal and state regulations in the U.S., Volvo President and CEO Håkan Samuelsson announced in 2015 that the company would assume fault if one of its vehicles caused an accident in self-driving mode.

The statement appears to apply to Volvo’s vehicles during the development and testing phases, according to Cadie Thompson at Tech Insider. It is too early to tell whether the company will extend its acceptance of fault to autonomous Volvo vehicles that function as full-fledged members of the transportation ecosystem. Nonetheless, the precedent of automakers accepting liability has been set — and, as automakers continue to explore partnerships or other models of fleet ownership, accepting liability or even providing their own insurance may become part of automakers’ arsenal, as well.

Ultimately, Volvo seems unconcerned about major liability shifts. “If you look at product liability today, there is always a process determining who is liable and if there is shared liability,” Volvo’s director of government affairs, Anders Eugensson, told Business Insider. “The self-driving cars will need to have data recorders which will give all the information needed to determine the circumstances around a crash. This will then be up to the courts to evaluate this and decide on the liabilities.”

Meanwhile, in Asia, Tesla is trying another method: including the cost of insurance coverage in the price of its self-driving vehicles, according to Danielle Muoio at Business Insider.

“It takes into account not only the Autopilot safety features but also the maintenance cost of the car,” says Jon McNeill, Tesla’s former president of sales and services (now COO of Lyft). “It’s our vision in the future we could offer a single price for the car, maintenance and insurance.”

Doing so would allow Tesla to take into account the reduced accident risk of the autonomous system and to lower insurance premium prices accordingly. This might reduce the actual cost of the vehicle over its useful life.

The NHTSA has already found that accident risk in Tesla vehicles equipped with Autopilot are 40% lower than in vehicles without, and the company believes insurance coverage should reflect that, according to Muoio.

If P&C insurers don’t adjust their rates accordingly, Tesla is prepared to do so itself.

Future Ownership

Property and casualty insurers seem torn on how self-driving cars will affect their bottom line.

On the one hand, “insurers like Cincinnati Financial and Mercury General have already noted in SEC filings that driverless cars have the potential to threaten their business models,” Muoio reports.

On the other, 84% don’t see a “significant impact” happening until the next decade, according to Greg Gardner at the Detroit Free Press.

Other analysts, however, believe the insurance industry is moving too slowly in response to autonomous vehicles.

“The disruption of autonomous vehicles to the automotive ecosystem will be profound, and the change will happen faster than most in the insurance industry think,” KPMG actuarial and insurance risk practice leader Jerry Albright tells Gardner. “To remain relevant in the future, insurers must evaluate their exposure and make necessary adjustments to their business models, corporate strategy and operations.”

KPMG CIO advisory group managing director Alex Bell agrees. “The share of the personal auto insurance sector will likely continue to shrink as the potential liability of the software developer and manufacturer increases,” Bell tells Gardner. “At the same time, losses covered by product liability policies are likely to increase, given that the sophisticated technology that underpins autonomous vehicles will also need to be insured.”

See also: The Unsettling Issue for Self-Driving Cars  

Major areas of concern in recent years will likely include product liability, infrastructure insurance and cybersecurity.

Meanwhile, the number of privately owned vehicles — and individually insured drivers — on the road will likely continue to drop, placing further pressure on auto insurance premiums.

What should P&C insurers to do prepare? Cusano and Costonis recommend the following steps:

  • Understand and use big data and analytics. As Eugensson at Volvo notes, autonomous vehicles will generate astounding quantities of data — data that can be used to pinpoint fault. It can also be used to process claims more quickly and efficiently, if insurers are prepared to use it. Building robust data analysis systems now prepares P&C insurers to add value by analyzing this data.
  • Develop actuarial frameworks and models for self-driving vehicles. As Tesla’s insurance experiment and NHTSA data indicates, questions of risk and cost for autonomous cars will differ in key ways. P&C insurers that invest the effort into developing and using more sophisticated actuarial tools are best-prepared to answer these questions effectively.
  • Seek partnerships. The GM/Lyft and Volvo/Uber ventures demonstrate how partnerships will change the automotive landscape in the coming years. Insurers that identify and pursue partnership opportunities can improve their position in this changing landscape by doing so.
  • Rethink auto insurance. Currently, P&C insurers’ auto work involves insuring large numbers of very small risks. As our relationship to vehicles changes, however, insurers will need to change their approach, as well — for instance, by moving to a commercial approach that trades many small risks for a few large ones.

Autonomous vehicles are poised to become one of the most profound technological changes in an era of constant change. Fortunately, the technology to manage this change is already available for insurers that are willing to embrace a digital future.

Linking Innovation With Strategy

Self-driving cars insured by the manufacturer. Smart homes that warn of perils in real time. Predictive analytics and automated underwriting and renewals. Wearables that measure your daily activity. Drone, sensor and video technology that help insureds avoid losses. What do innovations like these mean for conventional insurance?

They may herald an organizational shift away from a tradition of risk aversion to one more open to the risk of failure inherent in innovation. They mean developing and deploying new technologies that will automate processes and improve customer experience. On a grander scale, they may ultimately result in a shift away from strictly indemnity-based products toward ones that actually prevent loss.

Digital transformation

Insurance companies are taking several approaches to innovation. It is occurring in groups within insurance companies as well as externally across what is being called the “innovation ecosystem.” As well as continuing IT projects within an insurance company, many are reaching out to best-of-breed technology solution vendors and insurtech start-ups. They’re investing directly in insurance technology firms or funds or contributing to accelerators to form partnerships.

See also: Global Trend Map No. 6: Digital Innovation 

Celent recently found that more than 80% of insurance professionals viewed innovation as a critical corporate activity to meet and exceed growing customer expectations. Yet only 35% stated that innovation is critical to their business strategy. So why the gap?

In an industry as complex and diverse as insurance, theory and practice can be hard to reconcile. This can make adapting legacy systems and processes, or adopting entirely new strategies, even more challenging. However, the arrival of new opportunities for partnership through joint ventures, and partial and full ownership of insurance tech firms, is making this shift in culture smoother.

According to Novarica, the growing use of insurance technologies by life and P&C carriers strongly focuses on mobile, big data and telematics.

Link innovation to business strategy

The key is linking innovation efforts to business strategy. This applies to technology solutions and is crucial to ensuring the organization and innovation hub or team is aligned with goals.

Understanding the models within the innovation ecosystem is an important starting spot for carriers considering how to plug in. Incubators versus accelerators, venture capital versus partnership and internal versus external teams are all options that have their own set of pros and cons and differing levels of appetite for risk.

While some insurance carriers have yet to invest in innovation, others have taken the leap. Those that have will begin to see the results of those investments over the next few years. Telemetry for automobile insurance, sensors and drones for home insurance and IoT wearables for life and health are poised for growth.

Chatbots and Alexa help members understand group benefits

Alegeus announced the release of Emma last year, a chatbot that enables customers using its mobile application to receive information about their health benefits plans via voice commands. The intention is to empower consumers with an array of information about their account from recent transactions and annual contribution limits to what happens if you leave your employer.

Manulife has introduced the ability to use Amazon’s Alexa for plan members to review their group benefits coverage also with voice commands.

Church Mutual Insurance has piloted a project that uses IoT sensors to identify potential damage and notify insureds. The small pilot has succeeded, with 24 customers (out of 220 in the pilot) saving $500,000 in damages in the first two years. Church is protecting against weather-related losses in the U.S.

See also: 2 Overlooked Factors for Innovation Success

Silicon Valley is participating, as well. Tesla is bringing telematics to new levels for customers using data to build flexible, personalized products and deliver services such as accident alerts and advice on how to become a better driver in real time.

Participating in innovation projects promotes innovative thinking within traditional insurance organizations. And while the day-to-day challenges of doing business can impede steps toward innovation, as they require additional resources and a mandate to do things differently, the innovation ecosystem is healthy and growing. Most insurance executives recognize that insurers can’t afford to be risk-averse anymore, but rather must become judicious risk takers.