Source: Lexis Nexis
Technological change challenging insurance is a theme that constantly comes up at industry meetings. A lot of apps and start-ups are bringing solutions to various parts of the insurance value chain, so the question naturally arises: where does the innovation really sit? Is it inside or outside the traditional insurance business?
Why should technology be important to insurance, and if so which elements of the technology: the data sensors, computing and data management, or the consumer apps?
Insurance is entering a time of increasing connectivity, automation, competition and new business models, driven by exceptional technological advances.
Data sources and customer expectations are changing. The Internet of Things (IoT) is emerging as an ecosystem which is forcing insurers to think a bit differently, if they want to stay relevant, with new partners and new competitors.
The term artificial intelligence (AI) has been around for over 50 years, but it is quickly becoming part of everyday conversation. There will soon be more IoT devices and sensors in the world than there are people, and new security risks are emerging.
To give a perspective on how fast things are changing, Gartner predicts that 2017 will see 8.4 billion connected devices in use worldwide, up by over 30% from 2016. Consumer devices – such as smart watches, mobile apps and fitness sensors – currently dominate with 5.2 billion of the total devices. But this is changing as more IoT endpoints are being put into use by businesses, and not just by consumers, especially with more devices running across different industry platforms.
Gartner forecasts that by 2018 cross-industry devices including those for smart buildings and smart automotive applications (such as telematics, LED lighting, building control, heat, light, water, and physical security systems) will mostly drive IoT connectivity growth, as these devices rise in popularity and drop in price. By 2020, there will be a total of over 20.0 billion connected objects, and when accentuated with sensors, actuators and alerting systems (together with reduced need for human interventions) the technology becomes a network of cyber-physical systems such as smart homes, smart transportation, smart cities and smart insurance.
Consumers want the ‘bells and whistles’ to fit with their lives
It all adds up to a lot more data, and data complexity, for insurance companies to work with. And it is mostly the consumer apps – such as phone apps and the wider digital world – which serve as the place where value from the data gets delivered back to the customer.
The need for the large-scale, established insurers to sit up and take note is clear, judging from comments at the recent Smart Insurance Summit.
Speaking at the conference, insurance industry advisor and former RAC Telematics Managing Director Nick Walker noted that the role of technology as an enabler of new business models is a constant theme. But in the industry there are different responses coming forward.
“There are the cost enablers, such as the efficiencies and reduced claims costs, leveraging the analytics. Then there are the revenue enablers, such as the new services, new business models and new interactions with the customer,” said Nick Walker.
“It is the revenue enablers that have taken a long time to come out in motor insurance, giving an opportunity to rethink the pricing model, and opportunities to combine services.”
As an example of combining data sources to drive greater value for the consumer we can think of motor telematics, which uses data on location, speed, road conditions and traffic, amongst others. When combined with other data across an aggregated platform – such as other data useful for fleet managers or location-based marketing in real time – we can see different insights that have a financial value.
The vehicle becomes a utility where the automotive OEMs, insurance companies and others come together to create as yet unseen services: incident alerts for sending emergency personnel, an automobile club or towing service, or even sending a replacement vehicle directly to the scene of an accident.
Whereas today the telematics hardware is almost the necessary evil (and most of the cost), cheaper plug-in devices and embedded telematics in the modern connected vehicle are coming.
There are going to be new ways to add a few pennies here, and a few dollars or euros there, in terms of getting data out of the vehicle, and presenting it in a way that consumers want.
“Some of the future revenue enablers are going to be incident-driven,” commented Nick Walker. “But some will be just based on monitoring, such as driving data and alerts.”
He added: “Insurance as a whole can learn from what has been going on in the automotive sector, where it has taken 17 years of learning to move towards new solutions [beyond tactical cost reductions and increased capability for discounts]. These new models include things like bonuses for the customer and shared risk with other services the customer buys, all leading to more innovation in the relationship.”
Research from IHS Markit found that consumers are positive to telematics and other in-vehicle services, although their willingness to pay for it varies.
There’s a wide range of connected car services out there, but consumers want to match these “bells and whistles” with what they find really useful in daily life, and they want the ability to control their privacy settings. Some consumers are looking for vehicle service alerts and independent crash notifications. Others value roadside assistance, stolen vehicle assistance, or turn-by-turn navigation.
This consumer view gives some clues to the practical possibilities for bundling insurance with other car services, such as vehicle diagnostics and wider mobility solutions, using customer insights to create new revenues. The claims function is meanwhile is moving more towards prevention and alerting, in personal motor as well as other insurance lines.
New players are watching and waiting
The data underpinning the new services effectively becomes a source of intellectual property in the insurance value chain. But it is also going to require a new level of customer acceptance in relation to data privacy, backed by complete transparency on the part of insurers and their data partners. Such a complexity of data analytics requests is also going to require new skill sets and partners within insurance.
“Customers buy services, not technology,” commented Nick Walker. “We need to leverage the technology to change the relationship with the customer.”
At LexisNexis Risk Solutions we see our role very much as helping to facilitate this new relationship, bringing insurance companies and vehicle OEMs closer together, harnessing our existing and upcoming partnerships with the global car makers and growing the LexisNexis® Telematics Exchange.
Whilst the automotive industry wants to get closer to its consumers through data – finding out what will keep people using cars as their primary means of transport – the insurers on their part need to get closer to vehicle-derived data, and not just the people.
It is time to disrupt or be disrupted. Not all of the new insurance start-ups are partnered with one of the traditional insurers. Many others are still waiting and watching.