The Insurance Industry and the Need for Innovation

On stage at ITC 2015, and I look like I'm performing some sort of card trick
On stage at ITC 2015, and I look like I’m performing some sort of card trick

Earlier this week I was on a panel at the ITC (Insurance Technology Congress) 2015 event. My panel was dealing specifically with Internet of Things in the insurance industry.

The event was aimed at CIOs of large, mainly commercial insurance companies. The CTO and CIOs in the room spend their time and budget keeping the lights on – i.e. keeping their systems in tip-top shape.

These CIOs and CTOs are rightly proud of their systems’ stability and availability, and until now innovation is a distant second priority. However, new technologies and technology companies are entering the market, and this conference was a joining of minds to create a plan for the future.

Note: Endava were sponsors of the event, and I was only able to attend the first day of the event.

The desire to change

Each of the speakers on stage described how the insurance industry needs to change. Unfortunately no one was able to produce a case study of what their organisation has done, or is working on to make that change.

Cost reduction was a major focus of several speakers’ presentations. There is a recognition that current insurance processes are manual and expensive (much of the underwriting world is still ink and paper). CIOs took the stage to explain how new processes needed to become automated and lightweight. “We must change” was the common theme.

The London Market is a true marketplace, full of competitors doing pretty much the same thing. This can make it harder to divulge trade secrets, but in this type of competitive marketplace, innovation would be a clear differentiator.

Several speakers described a dozen technologies which are disruptive to insurance, one of which is Google. When Google gave the afternoon keynote presentation, the question and answer session became confrontational. Google had previously stated it doesn’t want to become an insurance company, and then launched a price comparison product. The audience wanted to know what else Google was up to in this space, and Google responded that it didn’t want to become a fully fledged insurance company.

Missed opportunities

One speaker described the importance of the insurance industry. Insurance by definition helps rebuild lives, communities and personal possessions after devastation.

In the new fashionable world of corporate and social responsibility, one would have expected insurance companies to be a target for graduates so they can help make the world a better place.

A colleague of mine, who had tracked the ITC event on Twitter, commented after the event that you could tell how ready an industry is for Digital Transformation by who is tweeting. If the audience is constantly tweeting the great nuggets of information, there’s a buzz, and a willingness for transformation when they return to work. At ITC, only the vendors and sponsors were tweeting.

Internet of Things

My panel was in the afternoon and we followed another panel discussing “Disruptive Technology in Insurance”.

I apologise for this patronising look. Especially on such as esteemed panel
I apologise for this patronising look. Especially on such as esteemed panel

We covered the definition of IoT (Internet of Things) – multiple devices connected to the Internet providing sensors on anything. These devices will work together to provide more information than the sum of its parts.

An interesting point from Gary Nuttal at Chaucer Syndicates was that historically most consumers contact their insurers only twice a year – at purchase and renewal (most policies don’t have a claim, which would provide additional touch points). Nowadays, consumers with a telemetry box for their car insurance check their driving statistics from the box four or five times a week.

We then moved on to the challenges and opportunities for insurance firms. I answered that insurance firms should consider using the data they’ve collected from IoT devices. They should reconsider of themselves as data companies – and think of new strategies of collecting more data. Remember, it is a legal requirement to have car insurance, and insurance companies already mandate the use of telematics, dashboard boxes, so they are already able to collect data streams by law.

The number of IoT devices will continue to grow, providing more data points for insurers to analyse and ultimately monetise.

Insurers will have the opportunity to revise new insurance models altogether – removing the 12 month insurance policy of old, perhaps replacing it with multiple short-term policies which might become more profitable. IoT enables insurers to constantly monitor assets, rather than a single policy questionnaire upon sign up. This can lower the risk, or increase the premium in real-time.

Our panel moved on to how IoT will change the landscape for insurable risk. I think the landscape will become more decentralised for insurance products. Consumers won’t go to a specific website to insure assets – we’ll expect an equivalent to Uber’s invisible payments – our assets will automatically become insured as we use them, because we’ll have pre-registered the assets, our payment details and our insurance preferences.

I gave the example of my BT Talk app on my phone. When I land in a foreign country, I receive an alert that if I use the app I will pay normal local rate for phone calls. Why doesn’t my travel insurance automatically, and exclusively charge me for when I’m abroad rather than require an annual policy?

If insurers want to change, they need to understand the user experience of Uber and other new services, and work out how this can apply to their services. That will lead to real change.

See this article for more thoughts on how insurance companies can take advantage of IoT.

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