The onset of smart apps, the Internet of Things (IoT), and all other matters digital presents insurance companies with both potential threats and opportunities. Without question, the market of the future of insurance will be different as customers are less loyal while more competitors can enter the space with disruptive ideas in mind. There are around 1000 mapped insurtech startups spread across the globe, while investments made in 2016 in insurtech amount to $2B. Insurers that seize the opportunities of the changing marketplace by using digital technologies to redefine their business models around the customer’s experience will enjoy successes.

New Data For Digital Insurers with IoT and Telematics

Technologies like IoT and insurance telematics provide insurers new methods to improve the data they use to design individual and group policies as well as the way insurers actually interact with their customers, and many insurance companies have already started to experiment. For instance, car insurance companies have begun to use telematics devices to track how much and how well you are driving in order to reward customers for good driving behavior. Metromile is one such company offering a usage based, pay-by-the-mile car insurance in the US and is the first insurtech startup to announce that they will buy an insurer after a funding round of $191M

Life insurance companies have incorporated health tracking devices to integrate wellness benefits with their customers’ insurance plans. For instance, John Hancock offers policy holders discounts for wearing Fitbit wristbands, and uses gamification schemes to “reward” customers with points for engaging in various healthy activities. This smart app based customer strategy is an example of how companies are starting to make insurance more immediate and relevant in the daily lives of their customers. All of these products and more can be achieved and integrated with one another and here technological innovation comes in. Take for example Mendix, a full-service application platform as a service for developing enterprise-level smart apps that “offers solutions which an insurer might need in order to  make the transition to digital faster” says Derek Roos, CEO at Mendix. “We aspire to help insurers to pivot to customer centricity and innovate faster and ultimately to lower costs and drive efficiency in a variety of ways offered by digital transformation.” Roos adds.

Meanwhile, other insurance companies experiment with technologies that connect buildings and houses, trying to offer reduced premiums based on monitoring utilities to understand water leakage, fire potentials, or occupancy trends. Many of any given building’s systems are designed to be purely reactive – such as the smoke-based alarm on a smoke detector – but these new devices allow innovative insurers to perform “predictive maintenance” by using realtime data and statistical algorithms to predict potential problems before they occur, thus reducing claims. Aviva is one such company: They introduced Leakbot, a smart connected water leak detector as a solution to the issue of water damage through its ability to detect leaks in a home, spotting pools of water before they turn into big, damage-heavy problems.

Going forward, it seems inevitable that these data-heavy products will become the norm across the insurance industry, though insurers are not the only players that could take advantage of telematics and the like. Over half insurers believe that they will lose 20 percent of their business to financial tech (or “fintech”) companies. Insurers are faced with the challenge of how to adapt to this shifting landscape and create new connected products rapidly – or risk losing out on business.

From the examples above, it is evident that the opportunities are vast and the potential value pay off could be huge for digital insurers. But while there is no shortage of impressive, potentially groundbreaking ideas out there, the technologies themselves are still very new and therefore the solutions are not always so well defined just yet and the ideas themselves are hard to prove. With this nascent technology comes uncertainty and the need to adapt quickly to changing conditions and transform your business in different ways. Towards making these adaptations as painless as possible, Roos says, “our platform has undergone several phases to keep up with changes in smart app development. In addition, by offering Mendix App Services, development professionals at insurance companies can receive the training they need for mastering the app design platform in order to arrive at well-defined solutions faster.”

Embracing Rapid Experimentation

In order to adopt a development process that allows for this rapid, low-cost experimentation, insurance companies need to approach the IoT projects described above with a willingness to fail often in order to figure out how to succeed sooner. The new mindset for insurers around risk also comes down to budgetary allocations: Understandably, insurance companies need to fund these projects in different ways and need approach the investment as something the business value of which may well be zero or that they may lose money at first. However, if insurers are able to test these ideas rapidly and at low cost, the risk is lowered or perhaps entirely alleviated.

This alleviation, though, only comes when companies employ the right set of tools and processes to drive the low-cost, high-value experimentation route. Roos continues, “Some best practices for fostering rapid experimentation in your organization include:

Assign a limited but sufficient time and resources for this type of experimentation at first and then scale it widely as a new mindset

Create interdepartmental teams that include people from the business and IT sides. Bring together people ideas and those with the technical aptitude to develop

Employ model-driven development in order to create a common language or space between business and IT to allow for faster, better executed collaboration

Test a product or service early in the process to ensure the ability to change direction with minimal risk based on what you learn.”

“All of these practices can be implemented provided insurers accept that they cannot succeed completely on their own anymore and good competitive solutions are out there waiting yet prove their full potential”, Roos concludes.

It’s one thing to spot a useful technological innovation that might help revolutionize the way you build insurance products and it’s a whole other thing to be able to say ‘Yes, let’s do it’ when you’re a traditional insurer that has to take into account complex and highly diverse aspects of the business. Insurers see the value, but apparently cannot currently afford the associated costs. This might be the case now but many insurance technology thought leaders predict that insurtech will be taking over in the very near future after surpassing the initial built-in obstacles.