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The Hidden Complexity of Insurance IoT Point Solutions

Connected insurance is a key strategic priority for most carriers, with 40% or more of insurers investing in a connected insurance product in the last few years. Insurers see connected devices as key to driving growth for the foreseeable future. Most of these initiatives are growing organically from within business lines. Each business line can separately realize significant value from pursuing a connected insurance strategy, but the organizational value of multiline connected insurance is more than a sum of its parts. An enterprise approach to connected insurance requires an IoT platform, tailored to the insurance industry, that can help insurers improve risk assessment and pricing, claims management, and customer management.

While point solutions add significant value major challenges can arise as connected insurance programs expand and mature, including high integration costs, fragmented customer data, device management and logistics inefficiencies, and restricted innovation.

Integration costs

Integration with core systems is a prerequisite for maximizing the value of smart devices and IoT data in insurance. This involves connecting sensors to policy administration, claims management, customer relationship management, marketing, and sales systems. While the feasibility of integrating one sensor into these core systems has been proven in the automotive, home, and life insurance business lines, effectively using many such sensors across all an insurer’s lines of business is incredibly complex. Insurtech implementation and core systems integration projects have led to a 24% increase in IT costs as a percentage of overall costs for insurers from 2012 to 2017.

John Hancock, for example, launched their Vitality program in 2015, utilizing a Fitbit wearable to monitor health data. It wasn’t until 2017 that John Hancock integrated a second sensor, the Apple Watch, into their program.

An insurance IoT platform acts as a central integration point between insurers’ core systems and the IoT ecosystem. Insurers can integrate with the platform once and plug in or remove sensors as products evolve. The platform approach not only reduces integration costs but improves the level of integration between sensors. With an IoT platform acting as the engine for insurers’ connected insurance strategy, the addition of a new line of business, changes in IoT sensors or vendors, or even core systems upgrades can be managed without impacting an insurer’s connected products.

Fragmented customer data

Today, most insurance IoT initiatives are launched within a specific business line. A product manager proposes the initiative, selects a vendor, and begins building their product. These IoT vendors are focused on their specific sensor and business line and have built data collection, analysis, and storage processes that focus only on improving a specific outcome for that business line. This narrow focus leads to missed opportunities for using IoT data to improve other outcomes within that business line or to leverage this data at an enterprise level.

Insurance IoT platforms elevate connected insurance from a business-line strategy to an enterprise strategy. By integrating IoT data from across vendors, sensor types, and lines of business with data from policy administration, claims management, and customer engagement, insurers can get a 360-degree view of their customers.  Key insurance functions such as pricing, underwriting, sales, marketing, product management, and customer support can all benefit from a complete picture of their policyholders. For example:

  • Pricing and underwriting functions can benefit from multiline IoT data when performing risk assessment and pricing
  • Customer service can more accurately diagnose and address issues if they understand policyholder behaviors
  • Marketing and sales teams can leverage multiline IoT data for retention and upsell campaigns
  • Product leadership can identify new multiline or multi-sensor product offerings by understanding how insurers are using connected products in conjunction with each other

Device management and logistics inefficiencies

Managing physical IoT sensors can be an incredibly complex proposition. As connected insurance strategies grow within business lines, processes and resources will be devoted to supporting the management and logistics of sensors. Each business line or sensor may have its own system for monitoring physical assets, shipping and receiving devices, and troubleshooting issues. This fragmentation can create significant process and logistics inefficiencies.

IoT devices, like all technology, need regular maintenance. Fragmentation can cause significant challenges in the coordination of IoT management. If devices are owned and operated by the insurer, they need a way to perform capability and security updates. If device updates from the device vendor cause a delay or break in service provision, insurers need to communicate that issue with customers.

An insurance IoT platform provides insight into the status of sensors that are critical for physical asset monitoring and customer relationship management. For example, program managers can understand the distribution of sensor types, firmware versions, or app versions across their book of business. Similarly, customer service has insight into device type and version for troubleshooting if a policyholder needs support.

Restricted innovation

Outside of wearable devices, where Xiaomi, Apple, and Fitbit dominate the market, most IoT verticals are incredibly fragmented. One IoT device or vendor is likely not enough to capture the market share needed to generate enough data for insurance use cases. As technology evolves, customer preferences and trends change. For example, while OBD-II devices (in the US) and black box devices (Europe) are still the primary technology used to monitor driving behavior for auto insurance telematics in the US, but smartphone-based monitoring has quickly emerged over the past few years. The vast investments insurers have made in specific sensors and vendors creates significant barriers to exploring new sensors, adding new business lines, and creating innovative connected insurance products. An insurance IoT platform allows insurers to integrate core systems once and plug into new sensors, vendors, or connected platforms in response to evolving consumer needs.

Fragmented IoT restricts innovation. With each vendor providing a unique set of information, data silos restricting data connectivity, and entrenched processes resisting change, innovation executives face challenges in understanding the relative value of connected insurance strategies. By integrating sensor data with both core systems and with other IoT sensors, an insurance IoT platform can significantly enhance the value of sensor data within a business line and across lines of business.

Read our new white paper Get Ready to Win in an Era of Insurance IoT for insight into how insurance carriers are using IoT across business lines and how an insurance IoT platform can help.

Extending the Value of Insurance IoT Across Lines of Business

Insurance, more than possibly any other industry, relies on the power of data to drive results. Today’s connected insurance revolution, at its core, is about making insurance better through the Internet of Things (IoT). Insurers’ realize sustainable competitive advantage by excelling in three domains: risk management, claims management, and customer management. Insurance IoT uniquely impacts all three core insurance competencies across lines of business. Insurers are already leveraging IoT to improve outcomes across almost every major line of insurance.

Risk management

Traditionally, insurers have used proxy data to identify the risk of loss for an asset. For auto lines of business, actuaries use factors including age, gender, and credit score; homeowners’ insurance uses location and marital status; workers’ compensation uses business type.

The internet of things (IoT) gives insurers access to real-time, individual, and observable data on an asset’s (or person’s) risk of loss. This data is directly actionable for risk pricing and mitigation. By identifying actions or behavior that are causative of risk and leveraging IoT sensors that monitor these behaviors, insurers can create algorithms that tie observed behavior directly to pricing models. Insurers can similarly leverage this data for risk mitigation by providing timely and specific feedback to insureds rewarding safe behavior and warning of risky behavior.

Claims management

The claims management function has relied on subjective policyholder reporting and after-the-fact analysis, regardless of business line. IoT allows insurers to detect loss events in near real-time through dedicated event detection sensors (e.g. connected smoke detectors and telematics-based crash detection) or through behavior monitoring sensors and advanced analytics (e.g. heart attack detection through a wearable sensor). This use of IoT sensors for claims management enables insurers to mitigate losses, combat fraud, decrease claim settlement time, and improve policyholder satisfaction.

Customer engagement

Most policyholders only interact with their insurer when they file a claim (on average once every 7-10 years) or during policy renewal. Nearly all insurers struggle to engage with their policyholders in a positive and constructive way.  As Bain & Company points out, it can be difficult for insurers to build loyalty as they generally have fewer interactions with customers than other businesses, for example, retail banks. This lack of engagement contributed to the commoditization of personal insurance. Low engagement, combined with highly price-elastic customers, leads to customer churn that costs the insurance industry almost half a trillion dollars per year.  Low retention rates and the high cost of new customer acquisition are a major business challenge across the entire insurance industry. IoT can help insurers engage with customers, reduce acquisition costs, and improve retention rates through:

  • Improved customer segmentation: IoT data gives new insights into customer behaviors that can be leveraged for upselling and cross-selling opportunities across business lines. IoT data allows insurers to ask – and answer – new and more complex questions about their customers and prospects than ever before.
  • Personalized insurance offerings: Deeper understanding of policyholder behavior and individualized risk data allows insurers to personalize insurance offers to their customers’ needs.
  • Value-added services: Smart sensors can significantly improve the value proposition of existing services (e.g. adding location data to roadside assistance calls to improve response time). Insurers can also add new value-added services to differentiate themselves in the market. For example, insurers can offer truly personalized health and wellness programs to life insurance and workers’ compensation programs by leveraging wearable IoT devices.
  • Behavior-based feedback and engagement: With IoT-based monitoring individual behaviors can be detected and acted upon in near real time. This enables insurers to provide feedback in the most critical moments to either positively reinforce safe behaviors or educate about risky behaviors. Additionally, if a loss event is detected, insurers can provide immediate support to mitigate losses, protect policyholder safety, and reduce the time it takes to settle.

Read our new white paper Get Ready to Win in an Era of IoT for the insights you need to succeed in connected insurance.

Insurtech innovations to follow in 2019

As we turn the corner on 2018, we look ahead to expectations for insurtech in 2019. What are the key areas to keep an eye on? The impact of the Internet of Things (IoT) and actionable big data continues to drive paradigm shifts across the industry. The transformational nature of these technologies is being applied across the insurance customer journey to increase customer engagement, reduce costs, and meet the shifting expectations of the millennial consumer.

Data and Tech

Data leads the charge

Accenture’s Technology Vision for Insurance 2018 survey found that 82 percent of the 623 insurance executives agreed that their organizations must innovate at an increasingly rapid pace just to maintain a competitive edge. Gartner recently reported that data and analytics continues to be the most commonly mentioned game-changing technology among insurance CIOs. Clearly, collecting data on policyholders and their behaviors will continue to be a top priority for insurance CIOs in 2019.

As the cost of collecting IoT data falls, insurers will have the ability to collect more data about more activities. The falling cost combined with wide availability of IoT sensors has led to a proliferation of insurance telematics data collection providers. Lower technology cost is welcome news for the insurer and is pushing their providers to innovate beyond data collection.

Beyond data gathering

The insurance industry is now facing a new challenge – once you get the data, what do you do with it?

Innovative insurtechs have seen the commoditization of the IoT sensor market and have moved into providing analytics and services that leverage data and make it actionable. 2019 will be the year insurance carriers move beyond data collection to making data actionable through analytics.

Insurers have been using policyholder driving behavior to price premiums in a very limited way for the past decade: a small discount for sharing telematics data. Insurers have not had enough data (or the right data) to accurately price risk based on driving behavior.

They have been focused on data collection – offering a small discount for drivers to share their data. With more advanced predictive models, like Octo’s DriveAbility Score, insurers have the tools they need to advance beyond proxy-based pricing informed by telematics to create truly individual pricing based primarily on observed driving risk. Another example of moving beyond data collection to truly actionable insurance IoT data is the use of telematics data to support crash detection, proactive first notice of loss, and claims management. With the right data, algorithms, and tools, insurers can detect accidents and significantly drive down the cost of claims. Our partners have seen a reduction in combined ratio of up to 14% through telematics-driven pricing and claims management.

Industry experts point to smart contracts as an emerging way for insurers to leverage IoT data in an innovative way. Smart contracts allow insurers to incentivize low-risk behavior through premium refunds and rewards. The primary challenge insurers face when leveraging smart contracts has been finding an efficient way to execute these contracts. Using IoT data to understand risk and detect accidents allows the automation of smart contract execution and significantly reduces challenges associated with pricing these contracts.

Applications for telematics broadens

2018 saw real forays into insurance IoT beyond auto for the first time. Telematics programs, such as Roost’s partnerships with major home insurers and wearable-based life insurance telematics programs such as John Hancock’s will act as a catalyst for new connected offerings in 2019. Insurers must recognize, though, that connected insurance, in-and-of-itself, is not a strategy. They need to find the best way to leverage connected insurance to improve their bottom line.

Property & Casualty, Life and Health

The vision for connected products in home, health, and life has existed for years but we are now seeing the execution as consumers appreciate the benefits of collecting information about their homes and even bodies, as it does for their cars. As a result, insurers are making unprecedented moves in these areas.

Telematics data can provide a better quality of life in our homes and offices as it now does our cars. Our homes are changing radically through smart automation and the introduction of value-added services. We can monitor and control our homes remotely. We can control the thermostat and appliances. We can detect hazards such as fires, flooding, break-ins or gas leaks, and instantly alert emergency services through the push of a button. According to Berg Insight, by 2020, 28% of homes will become part of the IoT.

Likewise, consumers who opt in to active health monitoring and live a healthy lifestyle will also reap rewards. Just as good drivers are rewarded, using wearables or – as we do with vehicles and homes – using sensors to proactively monitor and report health status, will result in not only earlier detection of issues, but improved medical care and possibly special premiums from insurance companies.

Consumers have similarly gone all-in on sensor-driven health through health-monitoring wearables, smart water bottles, posture tracking sensors, and sleep trackers. Over 100 million wearable devices alone were shipped in 2016. These personal telematics devices generate massive amounts of data on overall health and health-related behaviors that could be valuable to insurers. Insurers need to find a way to make this vast amount of rich data actionable for pricing, claim management, and customer engagement.

We are already seeing the first phase of this as insurers consider incentives for policyholders who use fitness trackers such as a Fitbit or Apple Watch. John Hancock, one of the oldest and largest North American life insurers, announced in 2018 that they would stop underwriting traditional life insurance and instead sell only interactive policies that track fitness and health data through wearable devices and smartphones.

Consumers drive the change

Consumer expectations, especially those of millennials, will continue to set the agenda for insurers. Consumers expect a frictionless customer experience, real-time mobile access, and greater transparency. While IoT adoption is not a challenge, as evidenced by the 400 million plus connected devices worldwide, insurers must find the right way to access and use this data. Auto insurance telematics has proven the value of IoT data for risk pricing, claims management, and customer engagement, but auto telematics is just a small piece of the insurance pie.

IoT and telematics is not a matter of ‘if’. Our lives are growing more connected by the year. Consumers, especially millennials, not only see the value of an integrated and connected experience, they demand it. Insurer competitiveness is predicated on their ability to quickly and effectively use advances such as IoT and telematics. The challenge for the insurer will be to determine the most profitable use cases for their client base and business goals.

As the adoption of telematics increases, insurers will find that their greatest challenge is managing their growing portfolio of connected products on a one-off basis. Point solutions for individual lines of business in insurance can cause data silos and logistics inefficiencies as each business line explores IoT separately. Tapping into IoT data streams that consumers are adopting for non-insurance purposes will also be both critical and challenging. Insurers need more than a commercial or personal auto telematics solution – they need an insurance IoT platform to efficiently and seamlessly manage all of their connected products within auto and beyond.

The Rise of the Digital Ecosystem for Insurance

We had a great time last week at InsurTech Connect, the world’s largest insuretech event, in Las Vegas. The event, as described by co-founder Jay Weintraub, is to “make sure that the best people ranging from tech entrepreneurs and investors to insurance industry incumbents are present.” We enjoyed mingling with and presenting to the prestigious crowd.
As we had previously announced, our Chief Revenue Officer, David O’Malley, was a featured speaker, presenting “The Evolution of the Telematics Ecosystem,” and also moderating a panel, “The Rise of the Digital Ecosystem” with executives from several other tech companies, including:

  • Mark Purowitz, Senior Partner, Deloitte Consulting LLP
  • Tomas Revesz, CTO & Co-founder, EverQuote
  • Neil Betteridge – VP of Strategy, Guidewire
  • Jeff To – Global Head of Insurance, Salesforce
  • Haley Smith, Director, State Auto Labs

It was a lively discussion focused on various aspects of the insuretech ecosystem: how insurance agencies are adapting new technologies, telematics role in the evolution, what each of these companies is seeing and what to expect for the future. A synopsis is below in case you missed it!


David opened the conversation with by exploring the major consumer, business, and technology trends that are leading to increasing innovation in the insuretech space. It quickly became clear that the increasing connectedness of the internet of things, the rapidly growing pace of data collection, and improvements in tools to understand and analyze data are changing the way insurers interact with customers.

How is the growing reliance on technology impacting customer expectations?

Hayley, State Auto: That’s a very broad question but digital is important for delivering the best, most straightforward experience. Believe it or not, some carriers are still mailing paper checks to settle claims. At State Auto, we transitioned two years ago and are now a fully digital company. Customers want a simple, easy experience and technology provides that. Some of the other ways we are improving the customer experience include automating underwriting for both personal and the small commercial auto lines, using drones to capture aerial imaging for more accurate pricing, and offering smart home devices to reduce home risk. At State Auto, we are always asking questions like ‘how can we make insurance a thoughtless process for the consumer? How can we create a great experience during claims?’

Jeff, Salesforce: Customer experience is now one of the three most important bases for competition in insurance, today. Insurers are now competing against the major tech companies who, for the most part, have customer experience figured out. This shift has and will continue to change the products and services Chief Innovation Officers focus on.

Mark, Deloitte: The industry has traditionally built and owned everything in insurance – an owned interaction model. The industry no longer owns that narrative. Insurers no longer have the ability to dictate to the customer but have been slow to recognize that. Customers want a spectrum for sales channels (from direct to agent). Partners are better set up to create these engagement streams. It’s similar to the change we saw in banking – there used to be just a teller and you could only conduct business during bank hours, now there are 8-10 interaction points. Insurance is starting to realize they need the same model.

What is the value of the ecosystem for reducing friction for the consumer

Tomas, EverQuote: Pricing is an important conversation. Everquote balances the pricing needs of both the consumer and the insurer. Getting both sides connected more efficiently has been the challenge. Digital insurers need to create a more seamlessness handoff between their platform and the insurer. Often these integrations don’t exist. The ecosystem is helping to build this seamless connection. We must deliver the consumer through just one click or phone call to the carrier. There is no need to refill forms 12 times. We’ve seen a 40% lift to bind rates due to a more seamless experience.

Neil, Guidewire: We see a growing interest from our customer base to move beyond “How do I get people to come shop?” to “How can I be in the right place at the right time?” When consumers are shopping we need to be able to offer the protection that they need in the context of their shopping – for instance, auto insurance when finding a car online. Value-added retailers are helping ensure policyholders get the right protection. We also need to continue to look at how we can use non-traditional channels effectively to reduce consumer friction.

How will increased use of autonomous vehicles impact telematics?

David, Octo: The entire world of auto shifts.

Mark, Deloitte: We offer the foremost research globally on the future of mobility. Where is the auto insurance industry going to evolve? By 2040 insurance will shift from a personal lines product to a commercial line for shared mobility.

Tomas, EverQuote: Ultimately, telematics is representative of a broader trend. Insurance products will increasingly be personalized to individual consumers and risks. Telematics enables more personal products, individualized pricing, and personalized experiences. We will build a personal risk marketplace across industry verticals. Consumers will want a place to manage and govern their data-to-insurance relationship. An IoT for insurance platform will be that system.

What are three barriers to digitization?

To, Salesforce:

  1. Consumer adoption – the products you are putting in the market are new. Channels for distribution are new. You have to get consumers to reach that tipping point.
  2. Legacy systems and culture and workflow – Getting people to change the underlying systems.
  3.  Culture challenges – many insurers still have a ‘build it here’ mindset. Overcoming ‘today is good enough’ is a major barrier

Hayley, State Auto:

  1. Make friends with legal and compliance teams. Slow moving contracts kill partnerships and delay innovation.
  2. Lack of trust in external partners – If you are going to work with external partners, you need to trust them and be willing to take risks.

Is anyone using telematics for underwriting?

Hayley, State Auto: We have a leave-in program at State Auto. We look back at the last term and will rewrite a policy. We both discount for good driving behavior or surcharge for risk. We also use telematics on the claims side and are one of the first in the industry to do so. With it, we receive real time data of crashes and can reach out to the policyholder in real time. This allows us to improve that experience – send an Uber or tow truck, etc. to immediately help the consumer.

What are your additional use cases for telematics / insurance IoT?

Neil, Guidewire: Italian companies have been using telematics for claims for over a decade. Guidewire gets robust rich data when a crash occurs. We then orchestrate this data, pull in other data, and kick off processes like estimates, tow trucks, garaging, rental cars, etc. To add to our earlier discussion, we’ve seen many “random acts of innovation” across the industry – where the full customer experience isn’t taken into account. With our telematics-driven crash and claims process, we’ve really thought through the customer experience and how we can improve it.

What is the customer journey and how do we use technology to improve it?

Mark, Deloitte: Insurtech has been trying to disrupt carriers. So far, we see insurers doing a great job identifying one piece of the journey and fixing it, but the rest of the process is still bad and broken. The customer journey overall is the most important. How can your ecosystem partners improve the whole customer journey? That’s what we need to be analyzing.

Jeff, Salesforce: Hagerty Classic Car Insurance does a great job with relentless customer centricity. Understanding the passions of the customer has led to ‘authenticity at scale.’ They are building a community around the common passion of antique cars. Ask yourselves, how can you piece together the ‘best’ solutions but build it around the passion of your end customer?

The customer wants transparency and value-added services. How they get it should be completely invisible to the end user. Your end users don’t care if they receive a seamless experience.

Hayley, State Auto: State Auto is 100% bought into the open ecosystem. A lot of startups undervalue knowing the insurance industry. We have to be open to partnerships. We are an insurance company. We underwrite risk, manage claims, but the customer experience and journey are driven by our partners. We will never be a hardware producer, so we need our partners. We are not a software company. We could never build Guidewire’s systems.

Jeff, Salesforce: Yes, it’s no longer “Should we partner?” but rather, “How fast?”

Neil, Guidewire: Our partnership program is relentlessly focused on adding value through the insuretech ecosystem. I am always trying to make it as easy as the app store to partner with all the new insuretech out there

Mark, Deloitte: Inherent in this change are some massive shifts in insurance. Insurers are not prepared. How are different insuretech innovations being leveraged? Business unit focus kills insuretech. Insurers need to look at it and keep them at a strategic level. You need to have a mechanism outside standard operations to focus on innovation, set yourself up for the future, and find solutions. Then weave it into the organization.

Tomas, EverQuote: Missing is the economic incentive to invest in digital products. Getting people to skip three steps to improve binding rates. Asking for integrations, etc. It’s hard to innovate on ‘It looks nice and will be nice for the consumer’. Improving bind rate by 40%’ makes the conversation much easier.

Overall, the takeaways are that the insuretech industry continues to evolve, and insurance providers need smart partners to best leverage these innovations for their policyholders, and their bottom lines. The ecosystem and innovative technologies are growing and valuable, and need to be leveraged by agencies. Consumers expect fast, simple and straightforward services – with those, they are likely to remain loyal customers for years to come.

Combating distracted driving through telematics

Distracted driving caused an estimated 40,000 fatalities in 2017 alone. Every one of those deaths was preventable. Octo is committed to helping insurers take the lead in eliminating distracted driving through telematics.

Our new infographic explores the causes, costs, and potential solutions of distracted driving.

Click to enlarge

Octo provides a full suite of insurance telematics solutions, all fully equipped to help you curb distracted driving among your policyholders.

The ideal insurtech stack: new white paper

Juniper Research, a leading analyst firm in the mobile and digital technology sector, recently released a new white paper entitled A Guide to the Ideal Insurtech Stack, highlighting the critical capabilities every auto insurer needs to consider as part of their digital and process transformation strategy.

New insurance products and business models are being brought to market continuously and auto insurance is undergoing a period of significant innovation. To help insurers navigate this changing landscape, Juniper has identified seven key areas insurers should address as they build their insurtech stack.

In this white paper, Juniper:

  • Explores key challenges facing the insurance industry today
  • Identifies critical components of the insurtech stack
  • Highlights the importance of utilizing technology to address claims management, and
  • Provides strategic recommendations for insurers

Octo is proud to be one of the technology companies identified by Juniper as offering services key to insurers’ ideal insurtech stack.

Read the white paper.

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