The insurance industry is facing up to digital disruption and the Internet of Things. IBM’s Tony Boobier explains why insurers should act fast – and take inspiration from the great Bob Dylan and Johnny Nash.
At a recent US conference I was interested to see a full-sized, 3D printed car with embedded devices with the capability to collect and transmit data. The same conference also boasted 63,000 tweets, reflecting the digital nature of a conference with mainly non-IT attendees.
And so, as Bob Dylan once succinctly put it, ‘The times they are a ‘changing’. But how much are they really changing in the insurance industry? With the Internet of Things, that question is one that lingers on.
Some insurers are already taking the topic of IoT seriously, especially in North America which historically is usually ahead of Europe on the technology maturity curve (although that gap is increasingly narrowing).
Motor insurers are already integrating weather data with road congestion, driver behavior and vehicle diagnostics. Health insurers are also encouraging their customers to use mobile devices which share lifestyle details as part of a connected proposition.
Forward-thinking insurers are adopting two approaches:
- Using a connected approach to create new value propositions and capabilities which differentiate their product or change the business model. One example is in auto telematics – ‘pay how you drive’ although increasingly is more broadly considered as ‘UBI’ (User-based insurance). Not only does this provide more accurate pricing, but contributes to counter-fraud management
- Using data and analytics from multiple sensors to provide greater insight, typically in customer analytics, at the point of underwriting, claims management or disaster response. Underwriters increasingly have the ability to understand risk with greater levels of granularity, combining structured organisational data with the ‘dark’ unstructured information (from video, social media for example) which is said to comprise 80 percent of all that is available.
Whilst the insurance community might think of IoT as something more appropriate to retail and personal lines insurance, the reality is that there is applicability to almost all (if not all) lines of insurance business, including commercial and specialty lines. The question all insurers need to address is ‘What would you do differently with better insight?’
Insurers are already using streamed data from drones to remotely inspect catastrophe sites, and are also looking to other industries such as utilities and telecoms to better understand the use of advanced technology and analytics. It’s clear that some industries have moved more quickly than others, for example in the case of ‘Smart Meters’ and predictive maintenance for aircraft engines, but despite the increasing use of BIM (‘Building Information Management’) we are probably still a decade away from the ‘Smarter Building’.
The exponential growth of data and devices not only provides opportunity for greater insight, but potentially opens the door to new data security issues. Internet-connected devices may present an easier target than PCs or laptops, and for that reason cyber-security is high on the agenda. For insurers, cyber-insurance is gaining increasing attention in the boardroom. Directors who fail to safeguard their businesses may find themselves under the spotlight of D&O Liability claims.
Beyond this, organisations including insurers will need to think about the wider impact of these changes. The cost of maintaining and supporting multiple remote devices may be substantial, as will the challenges of privacy, standardization, future-proofing and processing cost. In insurance, where will the burden of cost fall, and will new policy conditions and warrantees need to emerge?
The Big Data genie is already out of the bottle. Even if there is some uncertainty about the exact speed and impact, there is already a degree of inevitability about a future where IoT is the norm. Leading thinkers are already reflecting on IoT 2.0, an environment which is more open and decentralized.
What is clear is that change within the insurance industry will occur, and will bring new ideas and approaches to the insurance sector. The future will not be about the insurance industry using technology, but rather that technology and insurance converging in some way. How that materializes has yet to be seen.
Perhaps the final thoughts should rest with another singer, Johnny Nash, who could have been talking about IoT.
‘There are more questions than answers
Pictures in my mind that will not show
There are more questions than answers
And the more I find out the less I know’
Tony Boobier is the IBM European Industry Leader for Insurance