Name Two Transformative Disruptors
If You Answered Digital Revolution and the IoT, Two Points
By Nicholas Chen
Insurers are now presented with a wonderful opportunity to use digital
technologies and the IoT to create business opportunities and rethink
existing products.
“The
“
IoT has the potential
to transform the P&C,
life and health insurance
industries as we know
them today.”
Two major disruptors, the digital revolution and the
Internet of Things (IoT), offer exciting possibilities
for companies that are bold and ready to leverage
digital technologies to develop new products and
services. Indeed, the evolution of digital technologies
has already disrupted many industries that
were unprepared or simply did not see how new
technologies and changing consumer behavior would
impact their once-dominant business models. Some
recent notable examples are the music, book and
photographic film industries.
Some Initial Thoughts
The thought of billions of devices connected to the Internet is scary,
especially for insurance companies with old legacy systems and
data privacy concerns. However, digital technologies are getting more
advanced, and the IoT is here. Furthermore, insurers will face more
competition from noninsurance companies, especially companies with
strong digital ecosystems. Rakuten, a Japanese e-commerce company,
sells life insurance leveraging its customer data and digital platform.
Air Asia also utilizes its strong digital platform to cross-sell insurance
products through Tune Insurance. And Google acquired beatthatquote.com,
a U.K. motor insurance aggregator, in 2011, and launched its own motor
insurance aggregator with 127 providers shortly after.
It’s important for companies to think about what areas to focus on first,
and not get overwhelmed by numerous devices and sensors.
Finally, as the number of devices connected to the Internet continues
to grow exponentially, your organization’s ability to analyze the volume
of unstructured data will need to increase, and developing a robust, big
data analytics strategy will become even more critical.
For insurers, the digital revolution (Figure 1) and the
IoT provide transformational opportunities:
•• New insurance products, services, distribution
channels and loss control
•• Reduced claim cost and frequency
•• Increased customer engagement
•• Improved business intelligence to make better
underwriting decisions from IoT-generated data
Increasing smartphone penetration coupled with
ubiquitous Internet connectivity have enabled
consumers to do more on their handheld devices
and, as a result, are increasing customer
acceptance and adoption of mobile offerings.
Additionally, smartphones are becoming increasingly
powerful and now have the functionality to
support usage-based insurance (UBI), as well as
more sophisticated marketing, self-service and
distribution/sales execution.
What Is the IoT?
The IoT is not a futuristic innovation. It’s here, and
it has the potential to transform the P&C, life and
health insurance industries. The IoT includes any
physical object with a unique identifier that can
transmit data to other objects using technologies
such as Wi-Fi, radio frequency identification, quick
response codes, bar codes, sensors and Bluetooth.
These physical objects can be medical devices,
clothing, thermostats, wearable devices, home
appliances, cars or other transmitters. Gartner, an
Internet technology research and consulting firm,
predicts there will be 26 billion units installed by 2020.
Technology companies are acquiring smart home
device companies to build connected home
products. Some recent notable deals are Google’s
12 towerswatson.com
Figure 1. Transformational digital opportunities and benefits for insurers
Sales/Marketing
Underwriting
Operations
Claims
Product
Development
Online — Purchase, policy management, first notice of loss, self-service and renewals
Digital sales tools
to improve the ease of doing business
with your company and increase
cross-selling
Attract and retain
best customers
Identify products
target customers
are more likely
to buy
Identify types of
risks to avoid
covering and
price more
effectively
Expedite claim
processing and
payment via
mobile
technology
Loss prevention
and mitigation
Improve
underwriting
loss ratio
Increase
customer
satisfaction
Reduce claim
cost by
capturing the
right data
Product
co-creation
Improve existing
products and
develop new
products
Increase revenue
Nicholas Chen
Specializes in
insurance management
consulting, strategy,
digital, innovation,
and mergers and
acquisitions.
Towers Watson,
Hong Kong
Reduce customer acquisition costs
Reduce general operating expenses
acquisition of Nest Labs, a smart thermostat, and
Samsung’s recent acquisition of SmartThings, which
allows people to synchronize connected devices
to a smartphone app. Apple unveiled HomeKit, its
own iOS-based protocol to connect devices in the
home, such as thermostats, doors, lights, cameras
and security systems, to Apple’s platform. Appliance
companies are starting to build more smart
appliances that can not only be controlled with a
mobile app, but also turn on and off based on one’s
location, and adjust temperature settings based on
one’s usage patterns.
Let’s explore just some of the potential benefits to
those companies that can develop novel customer
propositions that leverage the technologies
available.
UBI
Some IoT examples in the P&C insurance space
are UBI and sensors for loss control. The first UBI
program was launched by Progressive over a decade
ago and currently generates roughly $2 billion in
premiums for the company. There have been several
variations including pay-as-you-drive, pay-how-youdrive, pay-as-you-go and distance-based insurance
models. The ultimate goal for insurers is to price
risk based on a set of individual behavioral ratings.
According to our 2014 U.S. Consumer Usage-Based
Insurance Survey, the number of consumers who
have (or had) a UBI policy in the past 17 months has
nearly doubled, from 4.5% in February 2013 to 8.5%
in July 2014. Most (89%) of the 1,000 respondents
surveyed said they would either buy or consider a UBI
policy if there were no risk of their premium increasing.
The Connected Car
During the early days of UBI, the high cost of
hardwired devices and transmitting driver data was
a concern. Now, new cars, even non-luxury cars,
are starting to roll off the assembly line with built-in
4G Internet connectivity with enhanced safety and
telematics features. Google established its Open
Automotive Alliance with the goal of transforming
the car into an Android device. Apple has CarPlay,
already available in Ferrari, Honda, Hyundai,
Mercedes-Benz and Volvo. BMW recently announced
a factory-installed telematics device as part of its
connected drive technology, partnering with Allianz
U.K. to offer auto insurance.
“Experts
“
predict 20% of all vehicles insured in
the U.S. will have some form of UBI within
five years.”
Emphasis 2015/1 | 13
“Wearable
“
technology,
ingestible sensors and
many other health
technologies have
profound benefits for
consumers, insurers and
doctors.”
In the U.S., the Obama administration is taking the
first step toward requiring future cars and light trucks
to be equipped with technology to send warning
signals to avoid collisions. In fact, GM will launch a
Cadillac in 2017 that can drive hands-free and footfree in an autopilot mode called “Super Cruise,” and
exchange speed and safety data with other vehicles
equipped with this feature. In this mode, the car
will automatically stay in its lane, make steering
adjustments and trigger braking. And in a joint effort
among the Michigan Department of Transportation,
General Motors, Ford and the University of Michigan,
sensors and cameras will be installed along 120
miles of Metro Detroit freeways to allow cars to
communicate with each other.
Remote Monitoring
Home sensors can reduce claim frequency and
severity. In 2011, AXA UK warned that in the previous
two years, they had seen one in 1,000 people
fall victim to burst pipes, with average claims
reaching £25,000. Imagine if sensors could notify
a homeowner remotely through a mobile app about
a burst pipe or even remotely shut off the water
supply. Currently, State Farm has a partnership
with ADT and IRIS, a home management system,
to provide these types of monitoring capabilities:
security, water detection, smoke and carbon monoxide,
and door and window. Allstate has a partnership
with Rogers Smart Home Monitoring offering
similar features. Both insurers offer discounts for
customers who opt for these features.
The Climate Corporation, acquired by Monsanto in
2013, underwrites weather insurance for farmers.
The Monsanto unit recommends a customized
insurance plan based on production and target
profit, and then monitors weather through remotesensing systems, satellites, weather stations and
radar. If a covered weather event occurs, a payment
is made automatically without any claim adjusters.
Telemedicine, Digital Pills and More
Technological innovations will advance health care.
According to a recent global survey conducted by Intel:
•• More than 80% of respondents would be willing to
share their health data anonymously to reduce
health care costs and improve treatment.
•• 72% are receptive to connecting remotely with
their doctors.
•• 50% trust a diagnosis delivered via
videoconference from their doctors.
Digital pills used with wearable devices, sensor
patches, smartphones and cloud computing will
allow doctors to better manage and treat chronic
conditions. A patient’s vital signs and reaction to a
drug could theoretically be captured within seconds.
Proteus has a low-cost, ingestible digital pill approved
by the U.S. Food and Drug Administration to remind
users when to take their medications. When patients
swallow a Proteus pill, it turns on and provides
information about what the patient is swallowing
and the body’s reaction to the medication, with the
potential of turning every medication into a digital
object connected to an online platform.
14 towerswatson.com
Figure 2. UBI could be expanded to other insurance lines
UBI example
What it could look like for life and health insurers
Auto UBI
Traditional
Lifestyle-based insurance
Pay-as-you-drive
Utilization
Risk
proxies
• Estimated
mileage
• Garage location
• Claim history
• Number of trips
• Time of day
• Mileage
Pay-how-you-drive
Simple
behaviors
using event
counters
•
•
•
•
•
Acceleration
Braking
Cornering
Excess speed
Approximate
location (GPS)
Traditional Healthy lifestyle Premiums based on lifestyle
Full
behavioral
rating
•
•
•
•
Maneuvers
Anticipation
Aggression
Adaptability
Behavioral change
Premium
discounts
Utilization
Risk
proxies
• Age, gender,
weight
• Medical history
• Occupation
• Lifestyle choices
• Provide incentives
and discounts
• Wellness programs
• Encourage healthy
lifestyle through
wearable devices
and mobile apps
Full
behavioral
rating
• Premiums
determined by
biometric data
and lifestyle
Behavioral change
Live at Home Longer
Are You Ready?
As Baby Boomers age, the ability to unobtrusively
monitor their health and allow them to live
independently in their own homes longer provides
peace of mind for caregivers and doctors. There
are numerous companies with products that can
monitor a person’s daily activities and formulate
patterns by utilizing sensors installed throughout
the home. In fact, the data made available through
these sensors give medical professionals a view
of a patient’s daily activity and behaviors that was
previously not possible.
So the ultimate question is straightforward, but not
necessarily simple: Are you ready? To help you find
out, we offer five preliminary questions to consider:
Lively, a start-up, can remotely monitor an elderly
person’s daily activity, medication time intervals,
eating habits and sleep patterns, and spot unusual
activity using a combination of wireless sensors on
objects such as pill containers, refrigerators and
doors to give caregivers and family members a view
on an online dashboard in real time.
Is Lifestyle-Based Insurance Next?
•• How can digital technology benefit your
organization, customers and employees?
•• What can realistically be achieved?
•• What capabilities do you need, and how can you
best acquire them (partnerships, buy or build)?
•• What investment is needed, and in what time
frame?
•• Have you developed a robust, big data analytics
strategy? A careful analysis of where your
company fits in this evolution could open up
business opportunities, and create a new
relevance for existing products and a renewed
corporate mission.
For comments or questions, call or email
Nicholas Chen at +852 2593 4574,
[email protected].
Wearable technology, ingestible sensors and many
other health technologies have profound benefits
for consumers, insurers and doctors. If you look at
the development stages of UBI for auto insurance
over the past decade, you can see the potential for
lifestyle-based insurance in the future (Figure 2).
Emphasis 2015/1 | 15