In an exclusive interview, Brewster Barclay of Zuhlke tells Internet of Business that insurance companies need both imagination and technical know-how to drive business model change.
The IoT represents a huge opportunity for business-to-business (B2B) insurance providers to really differentiate themselves from their competitors – but they’ll need to apply a great deal of imagination and a hefty dose of technical know-how if they are to emerge as winners in the race to innovate.
That’s the view of Brewster Barclay, business development director at Zuhlke Engineering, a company that is helping many insurance providers place their IoT bets wisely. With around 1,000 staff across 12 locations worldwide, Zuhlke provides the software and hardware engineering services that clients across a wide range of industry sectors need to take potentially promising ideas and turn them into a commercial realities.
Zuhlke, for example, provided some of the engineering expertise behind the [BB1] design of the Nespresso coffee machines. In insurance, it helped Zurich develop a risk management platform, MyZurich, for business clients with international operations.
As Barclay explains: “We’ll listen to the CEO, to the board of directors, to understand what they’re seeing in their particular sector and the challenges they face. They will usually have the germ of an idea around a new way to deliver value to their customers, and we will [BB2] help them take that forwards. Our engineers will run small-scale proof of concepts, using proven Lean Startup development methods, then test and iterate to make sure they work. Eventually, that idea will become a new, full-scale service or offering.”
Read more: UK insurance market lags on digital, says LexisNexis
Managing risk better
In the insurance market, he says, these fledgling ideas increasingly focus on the potential of IoT to help providers manage risk better. In other words, machinery, vehicles and buildings equipped with sensors are able to convey a great deal of information about their status, performance and condition. When an insurance provider is given access to that data, they can better understand the risks these assets face. And that, in turn, can enable it to work with the owners of machinery, vehicles or buildings to mitigate those risks.
In this way, the business of insurance providers looks likely to move away from simply shouldering risk in return for payment of premiums, towards a risk-prevention model based on a deep understanding of how an insured asset is used and maintained.
The advantages for both sides are clear, says Barclay. The insurance provider is able to diversify, providing new kinds of services to clients, and where these services mitigate risks by, say, 30 percent, a client’s insurance rates might fall by 25 percent. Win-win.
That also opens the door for insurance companies to start specializing in certain areas. “The market for B2B insurance services are pretty diverse so there’s lots of room for providers to quickly build up expertise in particular areas: factories, office blocks, ships at sea, cargo in transit,” says Barclay.
Read more: Survey: Life insurance firms face hurdles in digital transformation race
Partnerships in place
In fact, he adds, the foundations for this kind of partnership are already very much in place, since companies typically have a much closer relationship with their insurance provider or broker than a consumer might have with their car or home insurance provider. For example, an insured factory will probably be subject to regular visits, risk assessments and equipment inspections, and as such, there’s already a personalized service aspect associated with the provision of insurance. The idea of new risk mitigation services, fuelled by IoT data, could help companies build on this business model and take it in new directions.
“This is a topic that comes up in almost every conversation we have with major insurance providers,” Barclay says. But, he acknowledges, the industry is a notoriously conservative one and while many leaders in this business are attracted to the idea of digital transformation and diversification, caution can sometimes deter them from acting on their hunches about new ways of doing business.
That’s where the kind of iterative approach that a company like Zuhlke can offer comes into play, he claims. “It’s about understanding a company’s business goal and then working with it to test out various hypotheses as to what might deliver that goal. We don’t start with a technical specification – that’s not the way to approach this at all. You take an idea and you test its value with customers. Anything else is hubris.”
For many insurance companies, taking advantage of IoT to deliver new business models will require a big mindshift, he says. “It’s about fundamentally changing interactions with customers and the ways that data is collected, integrated and analyzed – but on the basis of these changes, there’s an opportunity here to transform services, enlarge your customer base, and adopt new pricing models to attract new customer groups. That’s not a proposition that any insurance company can afford to ignore, but each provider needs to consider how it gets there and how it can change itself in order to take advantage of IoT. Our mission at Zuhlke is to help them do that.”
Read more: Aon: Insurtech start-ups will help, not disrupt, insurance stalwarts