01 Feb IoT in commercial insurance lines: Secure first-mover advantage in this huge, untapped market
Being connected has become the talk of the town, and insurance companies are surely one of the main interested parties in this discussion, some of them being actual promoters of change and innovation. Traditional players will have a tougher time adapting to the new paradigm, but my view is that they will have to adjust in the long term to the new rules of the game if they want to stay competitive.
Consumers are becoming more and more connected whether it is at home, at work, behind the wheel, when they engage in sports and leisure activities, and so on. This is happening quite fast, due to the adoption of smart devices, and companies have to be able to react accordingly in order to maximize value both for their clients and for themselves. The surrounding environment is becoming smart and is being incorporated in the connected ecosystem, thus creating new opportunities for insurance companies, opportunities which must be managed appropriately in order to maximize value. Here big data analytics play a huge role, as the quantity of collected data & variables is getting higher and higher. To be precise, the discussion focuses on how companies will be able to read the data in order to identify patterns and optimize their business models by controlling loss, perfecting risk assessment and prevention etc.
In one of my previous articles, I talked about connected health insurance and how the industry players should adapt to the new paradigm created by IoT and Big Data by learning from insurance motor telematics (which is one step ahead). But in order to have a complete picture of where insurance is headed in the age of connectedness, we have to take a look at all its components – Health, Motor and Home – and try to address both its opportunities and limits in the current context by keeping in mind the customer, who is, after all, the most important piece of the connected puzzle – not forgetting about the effects on the company’s P&L.
Insurance motor telematics is currently at a different evolutionary stage around the world, with Italy leading the race and a South-African player, Discovery, representing one of the first companies to show that insurance telematics can directly impact P&L if managed correctly.
The image below, presented by Carbone – an insurtech expert- in one of his articles , shows the various phases in which different countries find themselves in and tries to predict the pace of adoption up until 2020. Italy is currently leading over US, UK and South Africa. This is because the circumstances created by Italy’s strong automotive industry and also because they are pioneers in working with telematics starting way back in 2002. Even if the initial stage was costly enough the Italian market managed to absorb the costs due to high prices of insurance rates at the time . In a couple of years, new-comers like Brazil, China and Russia will be coming up strong behind insurance players from France and Germany, as they will have learned from the experience of previous players and will be accelerating towards the “exploration phase”.
Another key to the Italian motor telematics model that is now entering the growth phase is that now the market is able to offer low-cost, self-installing solutions for vehicles. We see Italy still leading the race in the 2020 forecast precisely because it had a head start facilitated by the above-mentioned circumstances and also because it takes more than a couple of years for newcomers to appear on the motor telematics map and to go up the scale.
The other pillar is health insurance, a topic I’ve widely discussed in my other article Idea Insurance: Connected Health Insurance, so I will just make a brief review of the current state of affairs.
The “talk of the day” is the fact that health insurers are trying to transition from the traditional role as a simple player to a more central role where they become the point of reference for customers in health-related matters. ‘Wearables’, ‘m-health’ and ‘telemedicine’ are the new trend-setters and this wave will almost surely last because it has benefits for everyone – the insurers and the insured. Take for example the high costs involved in the treatment of patients with chronic ailments and taking care of the elderly – here connected health will have a lot to say in the next years.
Insurers have the ability to control losses by focusing on the less risky clients and offering them a customized value proposition that they can’t refuse. In order to do that, the companies will need to create a network of partners which will allow them to diversify and to manage profitability levels. By concentrating on “young” customers, who are more healthy and device-smart, companies can use strategies like ‘gamification’ in order to generate loyalty, guide behaviour and focus on prevention instead of reaction – thus controlling losses. The lessons learnt from motor telematics become obvious at this point, and they will have an important role in reshaping the health insurance business model, just like they did with motor insurance telematics.
The future of connected healthcare will also be influenced by new emerging models like seamless care, shared care, collaborative care and home hospitals, even if it may take some time. The attribute all these models have in common is their “customer-centric” trait which will probably become a driver for change, precisely because the current health systems seem to be having difficulties in coping with the current needs of the overall population, especially in over populated countries.
The third piece of the connected insurance puzzle is the “home insurance” market which is expected to reach $235 billion in 2016. Data shows that last year two-in-five insurance firms invested in some kind of project based on connected devices and 45% of insurers believe that connected devices will help drive growth in the next three years. On the other hand, consumers are, for now, a bit sceptical, given the high costs still associated with home telematics and devices. Companies will have to overcome this obstacle, as it has been done in motor telematics, by coming up with lower cost solutions for the connected home – as adoption rates will start to go up slowly.
Some players are already taking steps forward. Take for example Octo Telematics, which, not by chance, is one of the leading players in motor telematics and is developing projects with three insurers – Aviva, Groupama Assicurazioni and Poste Vita. Also, start-ups are beginning to come up with solutions at accessible prices. One such example in Italy is Innotech Connected Solution – a Newco founded by the insurtech start-up Digital Tech, together with highly innovative content manufacturer MR&D – who are capable of offering an integrated and complete user experience to the customer while taking care of the insurer’s current needs by collecting data, creating opportunities for cross-selling and having valid communication channels with their policy holders. Even the colossus Google is active in the field thorough its company Nest, but their partnership with insurer American Family is, for now, a mere co-marketing initiative meant to test the Nest smoke detector solution on a bigger scale in Minnesota, US .
From the insurer’s point of view, connected homes and access to data gathered from smart sensors and devices will provide valuable insight that can lead to: higher customer satisfaction, lower costs and risks, improved efficiency and prevention, and will also allow companies to have real-time data regarding the conditions of a property prior to and after a risk alert. The advantages are numerous and the customer can also benefit, first of all by having more control over perilous events starting from gas leaks to fire hazards or even theft. For example, insurance companies can offer property insurance premium discounts, based on the customer’s actions when a hazard alert occurs and on the measures the customer takes after the event in order to minimize the possibilities of repetition.
Clearly the new paradigm in connected insurance – motor, health and home – will face several challenges posed by rate of adoption, cost barriers, resistance to change, and privacy aspects, but nevertheless the benefits are numerous for both insurance companies and customers alike. And motor insurance telematics confirms that the models can be successful. The three pillars of connected insurance will have to stand within an ecosystem of partners, service providers and interconnected devices that the insurance company will have to foster in order to deliver the ultimate user experience to the customer. In the background: a system based on big data analytics that can identify patterns and provide optimized solutions based on real-time input; up-front: a seamless user-friendly interface that will transform the way companies communicate with policy holders.