The World of P&C Insurance has been turned upside-down as carriers aim to become leaders instead of laggards.
The insurance industry is on the brink of major technology-driven change. IoT, mobile computing, big data, and blockchain ecosystems will bring even more opportunities for insurance companies aiming to become leaders in their markets and introduce major disruptions for the laggards.
Ongoing technological advancements will continue to enable new business solutions and models. Game changing disruption will continue in these areas:
Evolving consumer channels: the advent of smartphones, tablets, augmented-reality wearables, and advanced telecommunication networks are offering new options for consumer interaction. These changes are creating a demand for evolving models of consumer engagement and should facilitate more flexible on-demand types of coverages.
IoT/Big Data analytics: the maturing of these technologies has opened the door to new ways of assessing and managing risk, while helping insurers improve their loss ratio.
Blockchain: the adoption and maturity of blockchain technology will facilitate and increase disintermediation as well as the creation of digital ecosystems which will open the door to new and potentially disruptive business models.
The intersection of these technology innovations and the increasing consumer adoptions will have significant impact on the insurance domain. This creates exciting opportunities for insurers that are keen to embrace it, but significant risks for the laggards. We could see disruptive models emerge that could have a dramatic impact on the insurance industry all along the value chain, changing the nature of risk assessment and management, as well as the consumer engagement model.
Business implications for insurers:
Consumer Engagement: mobile platforms are ubiquitous and key in today’s marketplace. This ubiquity demands an engagement model tailored for a digital world – if incumbent insurers want to stay relevant. Consumers expect the same digital insurance experience they receive from other industries – online retail and financial services specifically. Pricing and risk assessment: IoT will transform insurance offerings in the automobile, homeowners, health and commercial sectors by allowing insurers and consumers to deploy inexpensive, connected sensors for collecting new datasets, and enable the use of advanced data analytics platforms to gain a much better understanding of their customers, develop new pricing models, and assess risk in a completely different way.
Premium reduction: the advanced loss prevention and risk assessment facilitated by IoT and big data could lead to a reduction in insurance premiums. This reduction in risk pools especially in the automobile and property segments will drive insurer’s need for more agile core systems for the rapid creation of more flexible, on-demand types of insurance products to boost demand and capture niche markets.
New types of competition: the security and confidentiality that is at the heart of blockchain technology will facilitate a disintermediating platform that will allow disruptive new business models and new players to enter the insurance marketplace. Such players may be in adjacent industries and could then utilize insights gained in their niche, combined with IoT-sourced data to cross-sell insurance products on-demand via the services of a blockchain-based platform. For example, one could see Amazon.com using its vast repository of consumer data as an advantage in identifying sales leads for its own data-analytics tailored insurance products.
Opportunities for insurers:
Improving consumer engagement: ongoing research has demonstrated that direct online channels and social media are widely used by consumers as part of their insurance shopping. Additionally, it was further shown that online satisfaction with insurers decreases along the value chain (specifically at the claims and renewal stages), however, any negative experiences are now entirely within the insurer’s controls given the ubiquity of mobile technologies, platforms, and integration architectures. Leading insurers will provide equivalent customer service support via traditional channels as well as digital channels to include chat and advice via mobile/tablet apps. Industry surveys have also found that a better online customer experience translates into brand advocacy.
Ecosystem integration: IoT and blockchain technologies will allow innovative insurers to participate in disintermediated ecosystems of products or services whereby, through partnerships, insurance coverages are embedded in products and services sold by partners while insurers themselves further boost revenues by cross-selling partner-related service-led propositions (for example, cross-selling peer-to-peer lending products or IP-based and IoT-enabled home security devices and services).
Innovative products development: Digital-only players in the insurance market are using technology to develop flexible products such as the new startup, Metromile, has created an innovative auto-insurance product based on a pay per mile policy for ridesharing scenarios - such as those posed by Uber drivers – who require coverage not only while with a passenger, but also in between while awaiting new passengers. Another example is Italy’s Allianz1 with an innovative umbrella insurance product providing coverage against accidents, illness or death, home and auto accidents. The policy can be changed at any time to reflect the consumer’s lifecycle and is sold via an online FastQuote system that uses advanced data analytics and three personal data points (date of birth, occupation and the residence province) to quote a monthly price.
Improved pricing and underwriting: Companies have come to recognize the value of the insights provided by advanced data analytics for pricing and product design. While legacy actuarial techniques often used analysis of various factors such accident history, home address, age, and marital status for automobile insurance risk, for example, data analytics technologies, IoT data sources like telematics, and blockchain-based ecosystems can now offer the potential to understand the risk in real-time. Furthermore, IoT will likely have significant applications in insurance – not just in auto insurance telematics, but also in remote monitoring of fire and water damage risk as well as connected biometrics helping workers compensation insurers prevent and monitor injuries and employee recoveries.
Reducing admin costs and improving claims management processes: Big Data applications are especially promising for improving fraud detection. Early detection of fraud patterns and fraud networks has been demonstrated by some insurers to achieve an estimated 2-3% reduction in auto claims payouts, driven by improved detection rate of fraudulent claims and by increased detection of outlier claims. Analytical tools are now available for investigating potential fraud across all stages of the claims management process including validating involved party identities, analyzing inter-party relationships, scrutinizing structured and unstructured associated data, and monitoring social media for claims details inconsistencies.
While insurance is fundamentally about the pricing and selection of risk, IoT, Big Data analytics, and Blockchain will change the type of data that insurers use to assess risk and the way in which information is accessed, analyzed, and ultimately the size of the actual risk pools. These technology-driven forces will continue to create major opportunities for innovative insurers that are looking to embrace them.
Author: Wayne Iluyomade is a Managing Partner with MVP Advisory Group. Wayne can be reached at email@example.com.