The insurance industry has been abuzz with the announcement by Allstate CEO Tom Wilson that he has created a stand-alone business unit with the express purpose of monetizing telematics data that the firm has been collecting for at least the last six years.
The new company, called Arity, will provide data and analytics products to the insurer’s brands, as well as to third parties.
This is not a surprising move for Allstate.
I have been watching Allstate for the last couple of years. They have had an active research and development department. You can be assured other insurance companies are exploring similar options that will help them increase revenue in arenas beyond insurance policies..
Allstate has provided hints of its intentions for the last couple of years. In the 2015 SEC 10-K filing, the insurance company — for the first time — identified how changing technology is increasing the risk of its ability to continue to generate revenue from insurance products. Specifically, the company said:
“We are also investing in telematics and broadening the value proposition for the connected consumer. If we are not effective in anticipating the impact on our business of changing technology, including automotive technology, our ability to successfully operate may be impaired. Also, telematics devices used have been identified as a potential means for an unauthorized person to connect with a vehicle’s computer system resulting in theft or damage, which could affect our ability to successfully use these technologies.
Other potential technological changes, such as driverless cars or technologies that facilitate ride or home sharing, could disrupt the demand for our products from current customers, create coverage issues or [affect] the frequency or severity of losses, and we may not be able to respond effectively.”
Allstate identified the new risk it faced. In response, the company has been aggressively researching, developing and testing new ideas for how to use the data collected to create new types of insurance policy coverages and rating models.
See also: 6 Key Ways to Drive Innovation
The company was granted 28 patents in 2015. So far in 2016, it has been awarded 15 patents. The company has also submitted 16 patent applications. Following is a small sampling of the patents:
Insurance System Related to a Vehicle to Vehicle Communication System(#9,390,451) – System and methods are disclosed for determining, through vehicle-to-vehicle communication, whether vehicles are involved in autonomous droning. Vehicle driving data and other information may be used to calculate a autonomous droning reward amount. In addition, vehicle involved in a drafting relationship in addition to, or apart from, an autonomous droning relationship may be financially rewarded. Moreover, aspects of the disclosure related to determining ruminative rewards and/or aspects of vehicle insurance procurement/underwriting.
Motor Vehicle Operating Data Collection and Analysis (#9,189,895) — A method and apparatus for collecting and evaluating powered vehicle operation utilizing on-board diagnostic components and location determining components or systems. The invention creates one or more databases whereby identifiable behavior or evaluative characteristics can be analyzed or categorized. The evaluation can include predicting likely future events. The database can be correlated or evaluated with other databases for a wide variety of uses.
Route Risk Mitigation (Utility Patent Application (A1)) – A method is disclosed for mitigating the risks associated with driving by assigning risk values to road segments and using those risk values to select less risky travel routes. Various approaches to helping users mitigate risk are presented. A computing device is configured to generate a database of risk values. That device may receive accident information, geographic information, vehicle information, and other information from one or more data sources and calculate a risk value for the associated road segment. Subsequently, the computing device may provide the associated risk value to other devices. Furthermore, a personal navigation device may receive travel route information and use that information to retrieve risk values for the road segments in the travel route. An insurance company may use this information to determine whether to adjust a quote or premium of an insurance policy. This and other aspects relating to using geographically encoded information to promote and reward risk mitigation are disclosed.
Data is king
Allstate has been granted about 43 patents in the last 18 months. A high percentage are related to data, telematics and how to use the data collected to more effectively understand driving behavior. Data and more specifically data analytics is rapidly becoming the key to unlocking new revenue sources. Data is king.
Allstate CEO Wilson was quoted in the Chicago Daily Herald saying that Arity can “incorporate new data sources and enhance analytical capabilities in ways that we weren’t able to do when it was embedded in the insurance company. It’s a big enough platform today with the Allstate customers in it, and that will continue to grow, but we’d like it to grow even faster with a broader set of customers.”
See also: Data Science: Methods Matter (Part 4)
One option for bringing innovation to a conservative company is to spin off the innovations into a separate company. It appears that the telematics business unit just simply couldn’t operate effectively within the confines of a highly regulated and conservative company.
“The biggest risk is not taking any risk… In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks.” ― Mark Zuckerberg
Lessons to be Learned?
So what are the lessons to be learned?
- Invest in research and development – finding new ways to enhance the customer experience and at the same time generate additional revenue will be key to being prepared for the uncertainty ahead.
- Define “successful failures” — you can be assured that not everything the Allstate staff tried worked. The key to innovation is being able to learn from your failures. This is particularly challenging in a larger company where risk-taking is punished.
- Embrace the changing nature of risk – Risk management departments are told to reduce a company’s exposure to all types of risk. To be able to respond to the rapidly changing nature of risk, you will need to increase your exposure to risk.
- Embrace the risk dilemma – How do you encourage innovation (taking risks) without putting the company in jeopardy? Every type of organization faces this dilemma.
What do you think? What other lessons can be learned? Is this a smart move by Allstate, or risky adventure? Leave a comment below.
This article was originally published on LinkedIn. It is reprinted with permission of Steve Anderson.