At the recent 2014 Insurance-Canada.ca Executive Forum, Donald Light, Director – Americas Property/Casualty Practice, Celent, gave an update on the progress of the Internet of Things and his view of the direction the IoT might give to the industry. It is a bad news/good news story that — we think — needs careful attention.
Do you see the IoT on the insurance industry radar?
A Fresh Refresher on IoT
Light gave a succinct anatomy lesson on the IoT. There are three major components:
- Things with Networked Sensors (e.g., telematics devices in cars; temperature, moisture sensors in homes; state sensors for equipment in manufacturing plants; remote control mechanisms).
- Data Stores to receive and store information in a variety of forms (data, text, images, voice/sound, rules/models).
- Analytic Engines (Learning machines, cloud based services).
Courtesy Donald Light – Celent
These components interact.
- The Sensors provide internal and external state status to the Data Stores. Light notes that these data are not only more accurate, but may not have been available before.
- The Data Stores and Analytic Engines iterate the data to produce constantly updated information to inform decisions on underwriting, claims, marketing, etc.
- The Analytic Engines provide feedback and control to the Sensors to direct machine behaviour automatically or trigger people to take particular actions or be informed of new developments.
This changes everything …
Light contends that this will impact every part of the insurance life cycle. The most amount of change, according to Light, will occur with:
- Product Design. There will be massive amounts of data on which decisions will be made. Care needs to be taken to understand:
- They types of sensors and their output. Insurers may not have complete control over the sensors that are deployed, so they will have to understand the variations.
- If there is feedback to the sensors (raising lowering temperature, modifying a vehicle’s performance), the insurer needs to understand the rules underlying control decisions and the effectiveness of the feedback.
- Pricing. New data (in large quantities) will be available which will drive new pricing and algorithms. This will place new demands on exisiting rating engines.
- Policyholder Service. If the insurer is involved in directing any of the feedback and control (e.g., if premiums are changed dynamically, or if loss control processes are directed), the insurer has to ensure these will work well with their customers and must understand how these can be used to motivate specific behaviour.
Becoming a digital insurer today …
Light contends that the IoT is the foundation for becoming a digital insurer. The goals of this transition are:
- Cheaper. Reducing expenses, increasing productivity.
- Smarter. Getting pricing, underwriting, and claims adjusting right, and getting it right consistently.
- Faster. Shorter cycle times.
Being a digital insurer tomorrow…
Digital insurers will be positioned to transform themselves and their products. Light provided a peek with two new offerings.
The Climate Corporation was founded by two ex-Googlers who want to do crop insurance differently. They take massive amounts of data (50 terabytes and counting) from climate models, weather measurements, and soil observations. These data are used to write and price insurance policies for specific plantings. Claims are zero-touch, they are paid based on events, not on impact. The company was recently sold to Monsanto for US$930 Million.
AirCare (part of Warren Buffet’s Berkshire Hathaway Portfolio), is a bundle of services, that is sold to travelers for $25 per domestic flight:
- Bag Backer – The traveler sends a digital picture of a lost bag claim form and Aircare transfers $1,000 into the traveler’s bank account and manages the claims process
- Deluxe Delays – If there is a 2 hour delay on a departing or connecting flight, $50 is transferred.
- Route Repair – If the traveler misses a connection due to a flight delay, $500 is transferred.
- Tarmac Bonus – If the travelers’ plan sits on the tarmac for more than 2 hours, $1,000 is transferred.
All of the transfers are automatic, and Air Care monitors flight status for the flights on the traveler’s itinerary. Pretty slick, considering the owner, as Light reminded the audience, that Buffet is famous for not investing in technology.
Are we leaders
Light concluded that, given the complex nature of insurance and its data, the industry is ripe for change and the IoT is a solid enabler. Our question to you: Do you see the industry taking this step? Do you see your company being a leader in this?