June 2016, London, United Kingdom
Digital and big data collide in a brand new connected world for insurers
Insurers have their say on the Internet of Things
The Industry Must Consider New Product Options
The world is becoming a safer place and that can be bad for a traditional view of insurance and its common products. Data and the emergence of IoT must be embraced in a way that looks beyond what the industry is used to today.
Often, insurers offer the risk adverse an opportunity to reduce their premiums, and that means less revenue. Competition from data-centric services and organizations is also pushing commoditization in more areas because they compete – largely based on data – for low-hanging fruit.The industry must face the decline in revenue by looking for a way to diversify its offering. IoT plays on the connectivity that is driving down price, but all of the machine-to-machine connections can provide new data to help insurers develop new products or pricing models.
Maintaining Value in Brand
Google’s Nest smart smoke detector builds up the company’s brand as a top Internet company that is able to bring the Internet to new devices and activities. It’s part of a clear Web-first strategy that can easily be linked to its broadband service and Android mobile platform.
Insurers, however, don’t have the Web or monitoring as a core value of their business proposition. The industry is embracing connectivity as a new method.Not having the value proposition properly created in the customer’s mind means an insurer fully embracing the IoT landscape may be viewed as a glorified alarm company. As the business model includes delivery and installation of sensors and capabilities, the face most consumers will see is that installation team.
IoT may mean insurers lose some branding around risk mitigation services. If customers view an insurer as a protection service for immediate assets and not protection of long-term assets and growth (i.e. burglary prevention instead of mitigating liability related to a faulty product), then the insurer will likely be restricted into a competition of price.
Meeting the Skills Gap
IoT has a heavy reliance on analytics and almost every industry is facing a shortage of analytics professionals. Larger insurers will have more capital and thus a better chance to bring in top analytics talent, but smaller and mid-size insurers may find staffing difficult.
Unfortunately, most insurers don’t have staff on hand that can learn the data science and advanced techniques to make full use of analytics capabilities. So, for the industry at large, it may be best to focus on attracting new talent to insurance analytics or finding a way to work with independent parties to perform the necessary data work in a way that doesn’t compromise customer information.
Cyber Risks Are on the Rise
There’s a growing concern that IoT rollouts will attract more cyber risks and fraud. The conversation is about both how to detect fraud and where to stop coverage or exclude risks. In general, cyber fraud is seen as prevalent across home, auto, and small commercial policies; but IoT presents a new and quickly moving avenue for fraud in these areas.
And risk isn’t always going to be overly complex. For instance, how does an insurer control for a person who gives a wearable to someone else to wear during a workout?
There will need to be a balance in what data is tracked, how well it is tracked, and the benefit the customer perceives. Ask too much and they may walk away; ask too little and data may not be robust enough for proper analytics.
IoT and the Vendor Ecosystem
The vendor ecosystem rests between a main challenge and benefit of IoT in insurance.Currently, the market is fragmented and the push for a standard is minimal. Certain players in the market who are able to work with multiple systems, such as the chip maker Qualcomm, are pressing for basic standards to work with open-source codes. This can allow for greater security in the future but increase security fears of device vendors in the near term.
Insurers will need to work with vendors known specifically for their ability to track and report accurate, useful data while maintaining a secure environment. It will be a gamble for many.
While the risk is great, insurers who choose well and support a small section of devices, or those who can build powerful systems to integrate with many platforms and find out ways to make the data comparable, can turn the vendor marketplace into an advantage.
The main concern will be cost relative to gained value, but that equation is at the heart of all major IoT benefits for insurance.
5 Expected Benefits of IoT Strategies for Insurance
A connected ecosystem through customer adoption of IoT provides a wealth of benefits in and outside of the insurance realm. Insurers have the chance to join industries that use IoT devices to provide benefits to their customers and leverage collected data to improve products and processes.
IoT is poised to change the landscape of risk and products as consumers are made more aware of their risks and options. It can be daunting for a conservative industry to begin large-scale adoption of new technologies. Insurers will likely be pushed into adoption as consumers use more connected devices, but early adoption by insurers can come with many benefits.
This report has identified five top expected benefits of IoT adoption, all of which can provide a stronger competitive edge the sooner IoT integration occurs.
Potential to Reduce Severity and Frequency of Claims
As more data is collected and modeling gets better through machine learning and other processes, insurers can expect to see gains related to claim frequency and severity. IoT will allow insurers to keep tabs on risks over longer periods of time as well as perform real-time analysis on the likelihood of loss.
This is expected to lead to better controls for loss that can help insurers properly price assets and policies that are more exposed to risk. If customers are inclined to variable products, it could also allow insurers to reduce pricing during times of low risk and raise prices as dangerous seasons begin or as frequency rises.
Better Risk Assessment
Insurers won’t be able to gain additional control over an outside environment, but IoT monitoring and historical information will provide a better picture of risk. Not only does this relate to the benefit above, but it can also help an insurer track a customer’s lifetime value. Risk assessment can be expanded beyond individual products and take a broad look at either a customer or an industry.
New data will improve the underwriting process and allow insurers to make better initial assessments. Extensive data monitoring from multiple sources will also enable underwriters to have a clearer picture of each customer. As more data is collected and processed, it becomes harder for a prospective client to hide risks or past fraud.
Service and Satisfaction Improvements
Telematics can already let every party know when an auto accident occurs. Loss notification is swift and automatic, which can start a claims process immediately. As sensors grow more sophisticated, they’ll be able to tell a better picture of damage; reducing the time to start claims, verify damage, and potentially the expenses related to loss adjustment.
An improved claims process that lifts some of the responsibilities off of customers is likely to improve their satisfaction with the overall process and their insurer. As IoT expands to buildings and other installations, insurers can expect further reduc¬tions and a greater potential for improved reputation and customer management.
Customer service may also be inclined to improve as the claims process becomes easier to understand for the customer. Visibility and transparency can help customers feel like they’re being treated fairly and automated processes give insurers more opportunities to provide customers with specific, relevant education.
Growth in Cybersecurity Markets
As noted earlier, cybersecurity is a growing concern in the insurance world. While IoT may present new security challenges, it also gives us new opportunities. Customers are looking to insurers to analyze the risk they face. The wealth of information from IoT systems can provide a better understanding of the new risks and exposure points in the flow of data, but only if insurers participate in the system. It is a big area of potential growth, many experts agree, but it is one that will require immediate action to start handling, processing and protecting.
The Omni-Channel Insurer
Improved data collection allows for the diversification of products and services. This reality may allow Google, Walmart, and other data-intensive companies to enter the market, but it also allows insurers to expand into new markets based on existing customer preferences.
Analytics provides a wealth of information on customer preference, including the channels where they want to receive different types of information. IoT can provide the avenue for insurers to deliver on-demand products and services. Consumers who allow their information to be shared across multiple lines can see bigger savings and other IoT benefits, including the ability to have every insurance partner contact them using their preferred method.
Data itself will also be more holistic, allowing insurers to use IoT data to build larger profiles and look for more trends across lines. Connections, such as an increase in aggressive driving being linked to poorer health or exercise, can allow insurers to properly price across both of those lines and recommend changes that can improve the insured’s quality of life.
These are just a few of the many potential benefits available through IoT. Unlike existing analytics, IoT isn’t limited in its scope. When analytics adoption increases and companies unify device data, every part of the industry can become a link in a large value chain for each insurer.
Who Is Leading IoT for Insurers?
The one question that seems to have too many possibilities but not true definite answer is: who should be leading IoT initiatives for insurers?
While other industries will turn to Chief Data Officers and even Chief Analytics Officers, insurance needs a new connected head that doesn’t exist at most companies. Consider telematics projects that involve teams from underwriting, claims, I.T. and customer service. Each area has its own set of data around each customer and wants to take ownership of that information, but the system works best when everyone shares.
Few insurers currently have a team or leader in place who can manage all of these areas in both daily operations and long-term goal setting.
Speculation may say that an I.T. head would provide the best view of the data or that claims leadership might help secure the highest long-term value, but there is no clear industry standard. Nor is there enough data to say one unit will be best able to manage data and value.
IoT is moving much of the information and decision making upstream, so many experts believe insurers need a new role. The key combination of this role is the ability to direct the processing of data and then tie any insights to direct business goals and processes. The industry may see IoT adoption in the P&C markets first if the adoption of other technologies can be a good guide. These insurers will need to test a variety of management structures and find the flexibility to change what doesn’t work. They may even be at less of a risk because insurers who wait and watch for too long may have the right management structure but lose out on the competitive edge that IoT can bring.
The IoT Future of Insurance
The true potential of IoT for insurance is not yet known. The one unifying theme, regardless of lines offered, is opportunity. Because the technology is so nascent, its final application in auto, home, life, commercial and specialized policies may look very different from today’s expectations.
What is clear is that the data available through IoT represents a significant fountain of knowledge that may better shape the way insurers understand risk. Through understanding can come better pricing, improved customer service, and new lines of business that address risks so far missed. Data is the key.
Companies who are better equipped to work with data will have an advantage as IoT moves forward. This advantage may be tempting enough to pull in competition from outside of the insurance space. Retailers and tech companies have a significant advantage in the data and analytics space, but they don’t have insurance knowledge.
Competition will increase and insurers will need to bank on industry knowledge and new data sets to match companies like Google or Walmart who have millions of consumers giving them information every day. Outsiders will come with differ¬ent customer expectations and will have to adapt their existing brand to meet the new realities that insurance proves.
Insurers can maintain their competitive advantage by embracing the industry’s tradition of creating opportunity from uncertainty. Like the processing of risks for existing policies, IoT may turn out to be more hype than expected or have much more far-reaching consequences than we can imagine.
Future success for insurers lies in adapting to the data IoT can provide, creating paths for each asset or line, and being flexible enough to differentiate or adjust the response of consumers to policies. Smart insurers will be open to the disruption of IoT and adapt to the demands that come from consumers and competition alike.