Standardization has been a holy grail for as long as I have been involved in insurance technology. However, competitive pressures are challenging this goal. While standards are required in parts of the insurance process, these may become deeply buried in technology, allowing flexible implementations.
There have been good reasons for adopting standards
- When we create contractual and informational documents, we are well served by following common definitions of terms.
- And when a broker is electronically sending an insurer data that includes names, address, covereages, and premium, industry data standards such as CSIO, ACORD, and CLIEDIS significantly reduce friction costs.
- Further, when governments, regulators, and industry groups define operational and service protocols, standards ensure that there is common understanding with employees, business partners and customers.
In these respects, standards are, and will remain, important.
However the evolution of risk challenges other standards
There are new risks, new activities, and new opportunities that stretch existing standards. Telematics/Usage–Based Insurance (UBI) is an example.
There are lots of data associated with automotive insurance, most of which define the driver’s experience, the type of vehicle and its use. The advent of UBI expanded these data exponentially on two dimensions: data points, and frequency of change.
Automotive technology tracks lots of information that might be of interest to underwriters (and claims examiners). As, or more significantly, these data are captured frequently, sometimes many times per second.
Actuaries and underwriters will make decisions about the critical data that are required. These vary significantly rom company to company. Many of these insurers regard the data (and the analytics required to utilize the data), as proprietary.
And that means that comparing rates and premiums between carriers are not straight forward.
Beyond automobiles, it is a Big Data World
UBI is a star in the galaxy known as the Internet of Things (IoT). The growth trajectory of connected ‘things’, is geometric. According to IDC (quoted in the Wall Street Journal), the number of “endpoints” will grow from 10.3 bn in 2014 to 29.5 billion in 2020.
From an insurance standpoint, the use of the IoT will be significant in improving underwriting a wide variety of objects, and people (think fitbits). And, like UBI, underwriters – with the help of data analysts and actuaries – will develop highly bespoke measures for risk selection and metrics for pricing.
Standards won’t die, they will just be buried alive …
The IoT is standards driven, but these standards are buried deep in the technology, allowing competitive positioning will come from the innovative utilization of the data.
At the IoT USA conference (as covered by the IIReporter), John Lucker, Principal, Deloitte Consulting LLP (New York), noted that by leveraging the IoT, insurers “have the opportunity to differentiate insurance products and also sell assurance and layers of service.”
And these layers may or may not be the same from one insurer to another.
There are questions…
Will regulators allow a fragmentation of product? Jury is definitely out on the automobile product, but for other products, this will be a non-issue.
Will brokers penalize carriers who bring forward unique products? That will depend on the consumer.
Will consumers accept unique products that don’t easily compare to others? Perhaps not, if these better fit the consumers’ unique requirements.
What do you think? Will technology forces pu pressure on data and process standards?
Editor’s Note: The Internet of Things and Analytics will be two major topics at the 2016 Insurance-Canada.ca Technology Conference (#ICTC2016) on February 29, 2016 n Toronto. More information and details at https://www.insurance-canada.ca/ictc