Our Europe profile combines quantitative insights derived from our global survey, some of which we covered in our previous post introducing our Regional Profiles, and qualitative perspectives from our two in-region commentators:
- Switzerland-based venture capitalist Spiros Margaris, VC (InsureScan.net, moneymeets & kapilendo)
- Charlotte Halkett, former General Manager of Communications at UK-based telematics provider Insure The Box (now MD of Buzzvault at Buzzmove)
For a quick overview of the salient stats from our survey, as they manifested themselves globally please see the pervius article here.
The table below is in the style of Top Trumps, with a regional score for each characteristic — we have tables for North America and Asia-Pacific in their respective profiles too. A full explanatory key is included within the full Trend Map, which you can of course download for free whenever you like.
Our discussion on Europe falls into five broad 'chapters':
1) Growth opportunities in a relatively saturated market
2) The European consumer and Europe’s ‘early adopter’ status
3) How European insurers can deliver on their customer promise with new tech
4) Dynamic, real-time insurance and IoT
5) Progress on developing connected insurance models across the continent
1. Old Problems — New Solutions
While Europe, with a population of 750 million people, is a larger market than North America, it is still less than a fifth of the size of what we estimate for our Asia-Pacific region (4 billion). We therefore expect Europe to be relatively well aligned with North America in terms of the range of market opportunities on offer.
That said, Europe does comprise a broader spectrum than North America, including some of the world’s leading economies (United Kingdom, Germany, France) alongside more emerging markets (like much of the former Soviet Bloc), which are not as advanced per sebut offer attractive growth opportunities.
As is the case globally, low interest rates are adversely affecting insurers’ investment outlook and forcing them to refocus on their core underwriting business. In Europe, this situation is compounded by a stringent regulatory environment (Solvency II), which makes running a profitable investments business harder still.
‘Solvency II regulation is good, but in the kind of environment where we have low interest rates, it makes it much harder for insurers to find opportunities to make money,’ comments Swiss-based VC Spiros Margaris.
This is borne out in the survey stats we gathered on regulation, which we presented in our earlier post on Regulation:
- Among our key regions, Europe leads on Regulation as a priority area
- In our Regulation section, a relatively high proportion of European respondents indicated that regulation was impeding progress at their organisations 'a lot', with Solvency II and the Insurance Distribution Directive (IDD) being identified by European respondents as cause for concern
- Also, consistent with our other regions, a large majority of European respondents believed regulation was posing more of a challenge to their organisations presently than during the previous 12 months
"European carriers have a raft of incoming regulation to implement and prepare for… In addition to the implementation of Solvency II, we can also point to the IAIS’s Insurance Capital Standard (ICS) slated for 2020, the introduction of International Financial Reporting Standards (IFRS) and the transposition into national law of the Insurance Distribution Directive (IDD) in time for 2018."
James Vincent, General Manager at Insurance Nexus
Interest rates and regulation make it imperative for insurers to seek growth and profit opportunities elsewhere. And while there does exist a low-end market opportunity in Europe, this is nowhere near on the scale we see in Asia-Pacific, Africa and LatAm (which we explore in subsequent Regional Profiles!). This means that, in the main, insurers must focus on established demographics and look either for entirely new risk categories or for ways to serve their clients’ existing risks better and more extensively.
A key emerging risk area on the commercial side is cybersecurity, as we will see also in our Regional Profiles on North America and Asia-Pacific. This isn’t entirely new as a risk category but looms larger and larger for any company operating with customer data (i.e. every company). Unfortunately, cyber risk is not an easy category of risk to insure, given the wide range of dependencies involved, spanning everything from reputational damage to share-price hits. It is partly for these reasons, Margaris notes, that many insurers have been reluctant to jump on the cyber bandwagon, at least for now.
Cybersecurity is also an issue that insurers are on the receiving end of, insofar as they steward vast quantities of customer data, all of which must be secured. Consistent with our other regions, a majority of European (re)insurers are very concerned about information security breaches, as we saw in our earlier post on Cybersecurity; fortunately, a majority also have mitigation plans and have adjusted their security strategy in order to reflect the rise of new digital platforms.
Beyond exploring completely new risk categories, like cybersecurity, insurers in Europe will find fresh profits by focusing on what they have always done – only better.
Retention of existing business is therefore of primary importance, and we did indeed find a high focus on customer loyalty among European insurers in our post on Marketing and Customer-Centricity. Part of this also involves increasing the lifetime value of customers already on the books, with around half of European respondents indicating that they have a strategy to bundle and upsell products based on customer lifestyle analytics, consistent with our other regions, as we recounted in our section on Product Development.
"There is an abundance of capital available in the global economy, and right now money is cheap. There is minimal value in continually driving down price and adding further competition to a saturated market place. Putting digital at the core of distribution strategies will allow previously untapped markets to be exploited for a relatively low cost, allowing that capital to be deployed more effectively."
Gareth Eggle, Head of Insurance at Flint Hyde
Additionally though, growth for European Insurers will come from going after new customers in the established demographics, and this will require carriers to better adapt their existing products to the sorts of risks people want to insure against and to offer them at an appropriate price. While this new drive towards customer-centricity will, generally speaking, result in lower premiums (insurance is not a designer item, and less is always more from a price perspective), it also allows greater scale and, ultimately, lower operating costs.
If we take the UK motor-insurance market as an example, we see that there is plenty of old business to be better served and new business to be won. Charlotte Halkett, speaking from her past experience as General Manager at telematics provider Insure The Box (Charlotte is now MD of home-line Insurtech Buzzmove), mentions that the cost of motoring in the UK is a particular challenge and draws attention to unlimited liability as well as to various government-influenced changes, such as the Odgen Rate, which disproportionately affects younger drivers less well-placed to front the cost of auto insurance.
It is this opportunity – not just to improve driver safety but to bring down the cost of motoring – that Insure The Box is taking full advantage of. By monitoring driver behaviour through telematics, the company is able to incentivise safer driving behaviours and ultimately guide motorists to lower premiums. We will explore their Usage-Based Insurance (UBI) model in our next post, in which we continue to explore key Insurance and Insurtech trends in Europe.
While Insure The Box forms part of an incumbent insurer’s technology stack through its parent company Aioi Nissay Dowa Insurance Europe, it is unlikely that the new play for personalised, customer-centric insurance will work out solely for the benefit of incumbents. Indeed, the opportunity is already attracting many new market entrants (like Insurtechs), who represent a serious threat to legacy insurers’ hitherto cosy models.
Margaris gives a high-level explanation as to why Insurtechs are such a threat to traditional players:
‘Consumers will ask themselves why is it so much cheaper with an Insurtech company and why does it cost so much at the insurer’s end? So there will increasingly be a margin pressure. The example I often present: if somebody gives the milk away for free, will you go to the deli and pay $1? You’ll say, I get it free there. I want to stay with you, but I’m not going to pay you a dollar for it. And that’s what Fintech/Insurtech does, it piles on margin pressure.’
Even if insurers can get the price of their products down, Margaris still believes Insurtechs have an edge due to their stronger customer credentials.
‘If Insurtech companies provide solutions that feel very personalised, customised to the user’s needs, people will feel like what their insurance company is offering is so old-fashioned,’ he elaborates. ‘So there will be dissatisfaction with the incumbent services that they’re getting, and of course pressure not to pay up for that.’
Much of the difference between old-fashioned and newfangled comes down to the user interface. In this regard, Margaris compares the old and the new in insurance to the old and the new in software:
‘If we go back 15 years and look at the user experience with software then – nowadays, you’re left asking, how did people use it? But at that point we thought it was cutting-edge. Now though, people don’t want to think about what they’ve got to do, everything has to be seamless.’
Price and Personalisation (the two Ps) are the two key areas that insurers have to work on as they square up to new market entrants. We will see later on in our Europe Profile that insurers’ ability to lower premium prices in fact goes hand-in-hand with improving personalisation – in the sense that more frequent customer touchpoints and interactions provide the very data insurers need to price accurately and to offer the incentive of lower prices still.
"Anyone who believes that business will stay as in the past, will face a so-called 'Kodak' moment and will not survive increasing competition. There is an urgent need to systematically deal with innovation and challenge the current offering or even business model."
Monika Schulze, Global Head of Marketing at Zurich Insurance
2. Europe as Early Adopter
The trends we have just outlined – falling investment returns and a renewed drive towards customer-centricity – all manifest themselves, in some way or another, in the other markets we examine in the course of our Regional Profiles, as does the growing threat/opportunity of Insurtech. But how does Europe compare to other markets in this regard?
Throughout this report, we have characterised the current disruption sweeping through the insurance industry as being customer-driven. We further identified its roots in the growth of digital outreach and distribution channels, not just in insurance but in the online economy more generally (a case in point being online retail), in the sense that these open up formerly captive markets to fleet-footed digital competitors.
"From IoT in the field to analytics and emerging AI solutions at the backend, European carriers are grasping with both hands everything the technology community has to offer in their bid to win the race for the customer. This promises to be a very exciting period for solution providers!"
Guy Kynaston, Commercial Director at Insurance Nexus
Based on the statistics we presented in our foregoing posts on Global Trends and Key Themes, we have reason to believe that Europe is not just a heavily disrupted market but one in which insurers are showing themselves relatively well-equipped to deal with this, compared to our other key regions (this comes of course with the caveat that the European market varies substantially from country to country in ways we can only explore here at a relatively high level!).
In our post on Marketing and Customer-Centricity, we characterised Europe and Asia-Pacific as exhibiting a marginally more ‘problematic’ insurer-customer relationship than North America. In Europe’s case, we pointed to the high priority score (higher than our other key regions) that it achieved for Customer Centricity (56 compared to North America’s 51) — see Insurer Priorities. Our thesis was that higher customer expectations in the region were driving customer-centricity not just high up but to the very top of the European priority rankings.
In line with our view that changes to distribution are intimately tied up with disruption in insurance, we expected to find a relatively shaken-up distribution landscape in Europe. A few thoughts on this:
- The digital direct-to-customer channel is well-established in Europe (as we saw in our post on Distribution, if any region is a laggard, it is North America)
- Affiliate partnerships have a long tradition in Europe, for instance with Tesco insurance in the UK, and a majority are increasing their distribution through these channels
- We know anecdotally that aggregator impact is high in Europe, likely a consequence of the volume of direct business and the plethora of digital channels
While distribution disruption is what fundamentally enables customer disruption, these two trends are ultimately bound together with consumers, once empowered, setting ever higher precedents for distribution. Halkett gives a brief overview, from a UK perspective, of this consumer/distribution complex:
‘The UK consumer is a very early adopter of things like online retail purchasing, and that means that new entrants can get to their market much more easily than in other markets.’
She continues: ‘The UK insurance market has been the most innovative for many years. They were the first to have direct insurance and the first to then start widescale adoption of aggregators, and now Insurtech leads in the UK as well.’
Aggregators in particular allow new entrants to get in front of a vast number of consumers with minimal upfront cost. Halkett recalls how it was the aggregator route that first brought her former employer, start-up Insure The Box, to prominence:
‘We started with almost no brand, no marketing spend, we got onto our first aggregator and that meant that lots of consumers could see our proposition very, very quickly. That’s how you find those early adopters and that’s how the ball starts rolling. The UK consumers are very willing to try different financial products this way.’
Aggregators are particularly well-established in the motor-insurance sector, and Halkett estimates that the percentage of UK customers that use an aggregator before taking out a policy is in the 80% range and that this rises into the high nineties for young drivers.
Based on the two lines of enquiry we have pursued in this chapter on 'Europe as an early adopter' (high customer priority and a wide-open distribution landscape), we conclude that disruption has definitely arrived in Europe, and that the European market may in this respect be marginally ahead of the North American market.
We feel similarly about Asia-Pacific, although it appears that the disruption wave is only just breaking over this market (and will explore this further in our forthcoming profile for this region). On the other hand, it is our conviction that European (re)insurers have already gone some way towards establishing a new normal and are relatively well-equipped to deal with disruption.
One key measure that speaks for this is the fact that it is Asia-Pacific, not Europe, that trails on cross-channel consistency (as we noted in our post on Distribution). If Europe is marginally ahead here, this would suggest that European insurers’ omnichannel strategies – a reaction to disruption – have gone some way towards flattening out the fractured distribution landscape. Similarly, we can point to the lower prominence, compared to Asia-Pacific, of the Chief Customer Officer role in Europe among recent or imminent appointments (see the Services, Investments and Job Roles section).
The lower importance of the Chief Customer Officer appears at first glance hard to square with the high priority Europe currently accords to customer-centricity. However, rather than Chief Customer Officer and other customer-related job roles being unimportant in Europe, we might conclude instead that they are simply not of recent creation. In Asia-Pacific by comparison, which we have suggested is only now feeling the full force of customer-driven change, Chief Customer Officer is the stand-out new job title.
Intuitively, we expect new job roles to get created when the perception of a market threat is at its highest, in some sense as a knee-jerk reaction. If we infer from our job-role stats that Chief Customer Officer is currently all the rage in Asia-Pacific but was last year’s role in Europe, the implication is that the wave currently breaking over Asia-Pacific broke over Europe a short time ago and that Europe is marginally further along with its journey towards tomorrow’s new normal.
The key stat to bear in mind here is the ‘disruption score’ relating to lost market share that we introduced in our Insurtech Perspectives section: only a small minority of carriers in Europe (23%) reported that they are currently losing market share to new entrants. We already emphasised the psychological component of this score in our Insurtech Perspectivespost, so – at least in terms of how European (re)insurers perceive their own market – Europe is in less deep trouble than Asia-Pacific, where 47% of (re)insurers believed they were losing market share.
‘I think European insurers are not panicked yet that the Insurtech companies will destroy their business,’ comments Margaris. ‘We haven’t seen much business deterioration through Insurtech companies yet, but it will happen, that’s certain.’
It would therefore appear that Europe is not so much the most disrupted of our key regions as the longest-disrupted. In line with this reasoning, it is Asia-Pacific that could be termed the most disrupted, in the sense that it is being hit by a storm that Europe has entered already, and North America the least disrupted, in the sense that the storm has not (quite!) broken yet. We explore the nature of disruption in the APAC and North American markets in greater detail in our upcoming dedicated profiles on these regions.
"From the measures we have gathered – covering customer-centricity, distribution and market dynamics – it appears that carriers in Europe are marginally more mature than their North American and Asia-Pacific counterparts, as insurance prepares for its big, tech-powered turn. While Insurtech remains the ultimate challenger, European insurers' confidence in their own armoury is still intact."
Alexander Cherry, Head of Research and Content at Insurance Nexus
None of this is to imply that the material level of disruption in Europe is declining or that the storm has been ridden – far from it – just that insurers have gone further to take it on board. Indeed, as Margaris has pointed out, more business deterioration is likely on its way. There is also no reason for markets to develop in a linear fashion, with innovations (and threats) arriving onto the market in a constant stream, so relative confidence among insurers today could turn into (or back into) panic pretty much overnight.
3. Delivering on the Customer Promise
In Part I of our Regional Profile on Europe we posited that Europe holds a slight innovation lead over our other major regions, finding this borne out in the more disrupted distribution landscape (with affiliate, aggregator and direct-to-customer channels all relatively well established).
Embracing innovative distribution methods is only part of the story for European insurers seeking to engage digitally savvy and ever more demanding consumers
However, embracing innovative distribution methods is only part of the story for European insurers seeking to engage digitally savvy and ever more demanding consumers; another key aspect is to incorporate a greater level of personalisation into the products they are offering.
‘The consumer is used to a really personal experience now, and that is exactly the same as when they’re buying a pair of shoes online,’ comments Charlotte Halkett, formerly of Insure the Box (and now at Buzzmove). ‘They’re used to being able to get something if they want it, where they want it and at the cost they want, including complete information like the exact half hour it’s going to turn up in their house and what colour it is.
That’s the same for the £1000 insurance they’re going to buy, they want to have that real personalised experience to get the cover they want, how they want it, and to be able to influence the price that they’re going to pay. The big, overwhelming message is that the insurance industry is going to need to be flexible and innovative, because consumers are becoming ever more demanding and the base level of their expectations is rising all the time.’
Personalisation in insurance extends from offering positive customer service across channels to customising policy prices on an individual basis (UBI). Halkett believes that the UK market in particular has been a leader in this sense:
‘The complexity of pricing has always been at the cutting edge in the UK,’ she explains. ‘From developing general linearised modelling through to telematics, the initial development has occurred within the UK. And it’s partly to do with this being a worldwide centre of insurance, that’s true, but it’s also to do with the consumer. It’s very consumer-led: consumers are very willing to adopt, consumers are very willing to try new things.’
Halkett believes the UK has served as a guinea pig for in-car telematics and that the models developed here can benefit a wide range of insurance markets. This impression fits in with our product-development stats for Europe overall: Auto was indeed one of the lines respondents identified as driving the most product innovation in the region, the other being Health (see our earlier post on Product Development). We explore UBI models, especially as they relate to the Auto line, as our next theme.
"It is important to listen to your customers and speak their language in order to influence your top and bottom line. If you want to satisfy your customers, you have to know what they want and need, what they're saying about you, and how they feel about your products, services and brand."
Monika Schulze, Global Head of Marketing at Zurich Insurance
All these customer initiatives, if they are to be more than just good intentions, require far-reaching back-office transformation; investment is required in new technologies and solid digital capabilities (such as analytics), and these in turn need to be grounded in well-conceived strategies if they are to truly take root and flourish at an organisational level. Let’s look now at what European insurers are doing practically to deliver on their customer promises.
Encouragingly, a large majority of European respondents acknowledged having formal digital, mobile and crossplatform strategies, so digitisation appears to be well underway among European (re)insurers, consistent with our other regions (see our earlier post on Digital Innovation). We also found a strong increase in analytics focus/investment among our European respondents, as well as a reasonable level of coordination of analytics across their organisations (see our earlier post on Analytics and AI).
Analytical and machine-learning models have plenty to get their teeth into with what customer data has been captured directly by insurers, but they can additionally be supplied with external data from third parties. We found this practice to be widespread in Europe, as indeed were formal data-governance strategies (see our earlier post on Analytics and AI).
"The one who is doing similar business to you should be considered as a chance and not as a risk - being connected via Open APIs based on your Open Insurance Eco System. You will win because your processes and technologies are faster, cheaper and more customer oriented than others, because you are open."
Oliver Lauer, formerly Head of Architecture / Head of IT Innovation at Zurich
One major hurdle for the implementation of more data-driven, customer-centric systems is the presence of legacy, and this is just as present in Europe as anywhere else. ‘Legacy systems’ came in second place among the Internal Challenges for Europe (in line with the global trend), and was additionally identified by our European contributors Halkett and Margaris as a serious challenge for the region. Margaris highlights a couple of particular pain points as far as legacy systems go:
‘If you have legacy systems, it’s difficult to put cutting edge technology on top of them,’ he points out. ‘Legacy systems make it so much harder for incumbents to innovate and to comply with regulations.'
4. Taking Insurance into the Real World, Real-Time
In Part I of our Profile on Europe, we tentatively identified Europe as an early adopter, and we saw this tendency manifested in the prevalence of new-age distribution channels and personalised, customer-centric products.
IoT: the Vanguard of Personalisation in Insurance, placing the customer literally, and not just figuratively, at the centre.
Here, we extend this line of enquiry by turning to the vanguard of personalisation in insurance, namely the Internet of Things, and exploring the progress it has made within European insurance. IoT is the final frontier of customer-centricity in the sense that it takes insurance into the real world on a real-time basis, placing the customer literally, and not just figuratively, at the centre.
If Europe is marginally further along the journey of customer-driven disruption than our other regions, as we have suggested, then we would expect IoT to be marginally ahead as well. And while the technology is making strides the world over, our stats do place Europe above trend on the IoT-for-insurance adoption curve, at least in terms of current platform implementation (more details in our dedicated Internet of Things section!), and the pre-eminence of the continent in this field is borne out by much of our broader research.
While Internet of Things was not a priority area that Europe led on in our Insurer Priorities section (it came second behind Asia-Pacific), Europe did achieve top spot for ‘Mobile’, ‘Customer-Centricity’ and ‘Claims’ – which form a constellation very auspicious for IoT-enabled business models and innovation.
Margaris tends to agree on the importance of IoT for European insurers, and Halkett, as we have already mentioned, credits the UK market as having fostered the development of in-car telematics.
"The IoT development (expected to reach 20.8bn by 2020, according to Gartner Inc forecast) should help a new insurance to emerge, increasing customer centricity and decreasing costs. An example of IoT impact on insurance is wearable tech, a passive way to monitor health and wellbeing, in realtime and for everything. By identifying those who seem to be looking after themselves, insurers can drive premiums down for them."
Minh Q Tran, General Partner at AXA Strategic Ventures
As we indicated in the previous theme, the real personalisation opportunity for insurers consists not just in personalised experience à la retail but in personalised pricing, so that the price customers pay reflects their real-world usage as captured by connected devices.
It is thus that personalisation and premium-price reductions actually go hand in hand; rather than requiring two strategic thrusts, they can be part of one IoT-enabled customer-centric approach. These two Ps – price and personalisation – are the two main advantages enjoyed by Insurtechs, so insurers looking to the future, and to future-proof themselves, should definitely be taking an interest in IoT.
While still only a minority of insurers in Europe have a strategy on Usage-Based Insurance (UBI), this is in line with our other key regions; we expect to see this percentage rise dramatically across the board over the coming years. Auto, Home and Health are the leading lines across all our regions in terms of the expected IoT benefits, though the benefits of sensor networks in other lines should not be ignored.
The two Ps – Personalisation and Premium-Price Reductions – actually go hand in hand; rather than requiring two strategic thrusts, they can be part of one IoT-enabled customer-centric approach ...
Auto is an example of a line that has already been extensively transformed by IoT in the form of telematics. This area is home to solutions of varying sophistication, from smartphone apps to ‘black boxes’ built into cars. Depending on the richness of data coming from in-car sensors, a variety of insurance use cases and business models are enabled.
The one that most immediately jumps to mind is UBI, incorporating dynamic pricing and driving behaviour modifications. By making customers’ premiums dependent on how they drive, insurers both incentivise better driving (which is good for everybody) and lower the cost of premiums, which helps to get more people, more affordably, on the road.
‘The joy of all insurance is the same: the financial desire of the insurance company is completely aligned with customers’ needs. So nobody wants to have crashes! The consumer doesn’t want to have crashes and the insurance company would like to reduce the risk on their books,’ explains Halkett. ‘With telematics, you really get to do that, it’s not only that you get to understand the risk of the individual consumer, it’s that you get to influence that risk, so the risk that you write does not have to be the risk that you keep.’
Even if premium prices remain the same, a premium with the potential for reduction is an infinitely more saleable proposition than the fixed-price alternative. And it is not solely up to drivers to educate themselves – insurers can take a much broader tutelary role by communicating tips and advice on an on-going basis. In this way, companies like Insure The Box are much more than just providers of telematics.
‘We take customers and then we make them safer drivers,’ Halkett comments, ‘and we do that via communications, online portals and via direct messages to the consumers, all the time rewarding safer driving behaviours.’
From language courses to money-saving apps, gamification has proven itself time and time again to be a powerful force for bringing about positive outcomes, and the case with telematics is no different. The key is to engage the customer via whichever touchpoints are the most natural and offer the highest level of trust and engagement.
Insurers should not therefore conceive IoT solely in terms of inbound traffic (data travelling from customer devices to their back office) but also as a means of achieving higher engagement for their outbound messaging (from insurers to customers). Halkett points out the potential of connected home devices, such as the voice-enabled Amazon Alexa, for initiating contact with consumers in a world where ‘mobile’ refers to much more than portable telephones.
"Automated data capture through IoT does not just help insurers pre-empt claims, it also helps mitigate losses and improve customer service when claim events do occur, by rooting out fraudulent or inflated claims and enabling faster turnaround of legitimate ones. Provided customer privacy concerns form part of the discussion, there is no reason why connected claims cannot be a win-win for everyone."
Mariana Dumont, Head of New Projects at Insurance Nexus
Beyond facilitating UBI models and continuous customer engagement, IoT solutions also give insurers detailed insight into what is actually happening on the ground on a second-by-second basis. Admittedly, this requires a lot of data and sophisticated models and, in telematics for example, it is certainly a lot more than just detecting high G-forces.
Indeed, Halkett recounts an example from the early days of Insure The Box, where a spike in G-forces triggered an accident alert but actually turned out to be nothing more than the forceful slamming of one of the car doors. Nowadays though, the company can reliably detect the tell-tale signs of accidents and other claim events from the incoming stream of black-box data in real time and react accordingly. With motor accidents, speed is of the essence, so being able to dispatch an ambulance instantaneously to the scene can be the difference between life and death: the ultimate in claims loss mitigation.
This data is also useful in the inverse case, where insurers want to demonstrate that an accident has not in fact occurred (and that, therefore, an associated claim is fraudulent).
The business case for IoT in claims is self-evident; as we recall from our Internet of Thingspost, a majority of our respondents selected claims as one of the areas best-placed to benefit from IoT. Further still, in our stats on Claims, a majority of respondents believed that IoT would impact the claims department, and a majority also acknowledged having a high level of focus on claims loss mitigation.
The immediate access that IoT gives to data, which does not have to be sought out and gathered but simply ends up in insurers’ back-end systems as a matter of course, is driving the development of automated or ‘straight-through’ claims-handling. We found a reasonable incidence of automated claims-handling among our European respondents, whose claims departments also expressed a strong focus on customer experience.
In the context of continually expanding horizons, we asked ourselves what the next stage of dynamic real-time insurance might be. Continuing this section’s particular focus on the Auto line, we of course cannot ignore the amount of chatter around autonomous driving and what it means for the insurance industry.
While some believe that autonomous driving may eliminate the Auto line, the truth of the matter is that human error is not the sole source of catastrophic events on the road.
‘You don’t just eliminate all risks by making your vehicles autonomous,’ Halkett points out.
‘And that’s before you even start to think about what you’d need to do to have an entirely autonomous ecosystem. The environment is going to have to have so many significant changes before it can support current autonomous functionality, and the journey between now and 100% autonomous – even if that does happen, and it’s not certain it will – is not straightforward at all, and there will be lots of different forms of mobility between now and then.’
Halkett underlines rural and city driving as two key hurdles to be overcome on the way to full autonomy. For now and the immediate future, she believes there is food for thought enough in the intermediate stages between today’s conventional cars and the putative point of total autonomy in the future:
‘We’re going to have multiple different vehicles, some with ADAS systems, some with minor help for driving in there and some with barely more than a glorified cruise control, up to fully autonomous vehicles, all on the road at the same time with drivers behind the wheel with very differing levels of experience and expectations for that driving too.
And what they are going to want from their insurance is a seamless product that just covers them for whatever they’re going to do – that is the reality of what the insurance industry is facing over the next 10-20 years.’
And instead of focusing exclusively on different degrees of autonomy within what is essentially a private ownership paradigm, Halkett believes insurers should also be looking laterally, at emerging mobility formats:
‘I would be looking at things like ride-sharing, things like shared ownership and different forms of vehicles, before we ever got to the point of complete autonomy,’ she concludes.
5. Driving Connected Insurance Models Across the Continent
Our exploration of Insurance IoT and telematics has so far leaned towards the UK. But what sort of progress have new-age insurance models made across the continent as a whole?
Another country that currently boasts plenty of IoT buzz is Italy. Our influencer Matteo Carbone, of the Connected Insurance Observatory, draws attention to the telematics leadership shown by the Italian market, citing the nation’s 4.8 million connected cars (as of the start of 2016), compared to 3.3 million in the United States and 0.6 million in the UK.
However, to compare IoT progress in blanket fashion across different national markets and insurance lines can be like comparing apples and oranges to pears and plums, given the uncategorizable variety of the problems IoT solves and the sheer number of different business models it enables.
In Italy for example, telematics boxes have been mandatory in all new cars for several years now, as a result of legislation aimed at reducing fraudulent whiplash claims. Such legislation does not currently exist in the UK but, as we have pointed out, the UK telematics market could be considered a frontrunner in other respects.
"Italy is recognized as the most advanced auto insurance market at the global level for telematics. Leveraging the experience of the auto business, the country is affirming its position as a laboratory for the adoption of this new paradigm by other business lines."
Matteo Carbone, Founder & Director at Connected Insurance Observatory
Leaving aside the question of who leads and who trails, one thing is certain: that IoT-based solutions for insurance, both within the Auto line and beyond, are only going to become more prevalent as the unit cost of sensors comes down and the demonstrable savings from the technology rise further.
‘The cost of technology is coming down all the time and customer understanding is going up,’ explains Halkett. ‘So the business model becomes easier and easier for a wider portion of the market. Consumers in other countries will more readily adopt these sorts of technology-led products, and insurance markets are becoming more sophisticated as well.’
To continue with our Auto focus, we can see how the advantages of in-car telematics – whether we are talking road safety, lower premiums of counter-fraud – are advantages for people of every age in every market, so there is no fundamental limit on the applicability of the technology.
"At some point in time, everyone is going to get connected. People will feel more empowered as they have a greater control on preventing risk events. This will be the origin of the new business model. In some countries, insurers don’t have a high level of trust because they are establishing conditions, changing prices and the relationship is only one way. This is going to change, because in the future clients will have their data as an asset."
Cecilia Sevillano, Head of Partnerships, Smart Homes, at Swiss Re
This is not to say that the specific use cases will be the same everywhere. Halkett believes that the technology will bring about a bigger quantum leap, from a road-safety and world-health point of view, in those countries where infrastructure currently lags.
‘I think when you stand back and start looking at the benefits of telematics, there’s an awful lot that could be used in different markets for very different reasons,’ she says.
‘For example, if you look at the accident alert service and it tells you when someone has had a serious road accident – that would be so useful in rural areas in poorer countries which perhaps do not have the same infrastructure or the same emergency services as we do in the UK. And to have that pinpointed alert would be even more valuable in countries where not everyone has a mobile phone and hospitals are perhaps less accessible.’
This is a classic case of high-end technology bringing the full benefits of insurance to the lower-end market, a recurring theme across our other Regional Profiles as well; underdeveloped markets, especially when they lack the burden of legacy systems, have a chance to catch-up with and even leapfrog more established markets.
Margaris believes that this will be the case, not just for IoT adoption but for innovation more generally, in those parts of Europe that are currently less developed.
‘The truth of the matter is that in less affluent countries you will see a faster adoption of Insurtech because it’s cheaper and more personalised than what the incumbent insurance players offer,’ he observes. ‘Furthermore, I believe that the richer the countries, the less there is a need by consumers to adopt the cheaper business models that are offered by Fintech and Insurtech start-ups. So, therefore, I would say, the more developed the country, the longer it will take for innovative technology and business models to be adopted.’
Looking beyond Europe for other emerging markets with ‘leapfrogging’ potential, Margaris points to Africa as ready-made example, referring specifically to mobile technology (something we explore in further detail in our Regional Profile on Africa):
‘Look at Africa, where with a normal phone – not even a smartphone – you can already transfer money, you can do anything,’ he comments. ‘Because with low incomes, you will find a greater need for innovation.’
This forms an unfavourable contrast with some established markets, and Margaris sees his native Switzerland as a case in point:
‘In Switzerland, where I live, there is a lesser need for innovative business models because people have enough money. Not everyone is well-off of course, but in general, there’s such a comfort level that people say, the status quo works well, so we don’t need to go for Fintech or Insurtech solutions that are or might be cheaper or better.’
Margaris picks out Insurtech and AI as two growth areas towards which sizeable investments are currently flowing, with London and Berlin being the premier European hubs. As for how the Insurer-Insurtech confrontation will play out, he points to the case of Fintech – which has a couple of years’ lead on Insurtech – as a likely indicator of how things will go here as well.
‘If we look at Fintech, which is in a more advanced phase than Insurtech, you see a clear trend of cooperation, meaning partnership or outright buying by incumbents. I think this will also happen to the Insurtech space,’ he explains.
While this prognosis (cooperation winning out over competition) is generally positive for insurers, Margaris believes that in some ways insurers have it more difficult than banks:
‘Banking has the same issues but banks are much more experienced with customer interaction on a daily basis. While, with insurance, usually you talk to an insurance agency once a year, like when you have a claim. So legacy technology and the Insurtech industry as a whole is worrisome for the insurance industry, but it’s also an opportunity.’
"Insurtech will offer new ways to harness IoT potential, with use of AI and machine learning. Through partnerships with these startups, incumbents can definitely accelerate their modernisation. And this is a win-win situation as Insurtechs have technological expertise and, in return, insurance leaders can provide them the one resource which they lack: money."
Minh Q Tran, General Partner at AXA Strategic Ventures
This compromise between incumbents and new entrants, at least for now, stems from the fact that neither has all the ingredients to win outright. While we pointed out the two trump cards of Insurtechs in Part I of our Europe Profile (Price and Personalisation), let’s now examine the advantages enjoyed by incumbent insurers.
‘Insurers have the customers, they have the money and they have the brand,’ explains Margaris. ‘They can adapt quickly and say: OK, let’s take the cutting-edge technology and we can make it happen.’
He gives the pharma industry by way of an analogy:
‘The pharma industry spends billions on R&D and innovation. At the end, most of them – the big pharma players – who have much more experience in this field of innovation, they buy biotech companies and integrate. Because what the big guys do well is selling and distribution. If you give an insurance company a great product, they know how to make the most out of the potential. Incumbents and Insurtech start-ups have to play to each other’s strengths.’
Halkett agrees that traditional insurers have plenty to offer as part of any insurance model of the future, in particular the sheer volume of data, insights and expertise that they have at their disposal. However, she queries whether today’s incumbents are structured in such a way as to make the most out of these assets.
This may involve moving away from a centralised model towards more of an ecosystem play, with the insurer overseeing different components of a technology stack. Insure The Box is itself an example of this, being owned as it is by Aioi Nissay Dowa Insurance Europe, which is the ultimate bearer of risk and also has a long-standing partnership with automotive OEM Toyota.
"The Insurtech discussion all too often centres around the premise that shiny new start-ups will win at the expense of the tired old incumbents. Many see the battleground between them being at the distribution end of the customer journey. For me the Insurtech opportunity extends all the way along the value chain."
Nick Martin, Fund Manager at Polar Capital Global Insurance Fund
At the end of the day, it is not a case of either/or with the partnership and Insurtech-domination models, and we are likely to see some Insurtechs eventually make it big alongside Insurer-Insurtech tie-ups.
‘It will happen. We’ve seen the Googles, Amazons, Facebooks of this world, and we’ll see the same thing occur in Insurtech whereby some will become huge players. However, I believe we will see more partnerships or acquisitions because it’s very hard to scale,’ concludes Margaris.