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Looking Beyond the Insurance Horizon

Denise Garth | October 21, 2014

Amazing. Extraordinary. Powerful. Disruptive. Transformative. Destructive. Constructive. Innovative.

These are the words that describe what I heard, saw, and experienced at recent conferences outside the insurance industry that were focused on innovation and transformation. The themes were about the revolution that is underway, triggered by the emergence of new technologies and the digital enterprise that is creating new business and revenue models, destroying long-held businesses, and creating new industries that were previously not even possible. 

This is disruption, the likes of which have never been seen before. And it will shake the foundations of the insurance industry’s long-held beliefs, assumptions, and business models. Technology is now super connected, creating new experiences, new products and services, new outcomes, and new business and revenue models. 

Replacing our legacy systems with new, modern core systems is now table stakes, providing a critical foundation that allows insurers to enter the game, but it will take much more than that to win in the new digital game. The disruption is happening much faster than most thought it would, or could, and certainly sooner than many were prepared for. The changes happening over the next three to five years will be significant. 

Don’t believe that timeframe? Many don’t, but consider this: The Apple iPod, introduced in October 2001, the Apple iPhone, introduced in June 2007, and the Apple iPad introduced in April 2010—and the resulting disruption, destruction, and construction of industries and businesses. These technologies and devices disrupted, and in some cases, destroyed the music, movie, camera, phone, media, and personal computer industries and market leaders such as Blackberry, Sony, Nokia, Microsoft, IBM, HP, Motorola, and others.

This innovation powered the imagination and created new industries and businesses based on social media, GPS, video, crowdsourcing, and mobility with new leaders like Google, Facebook, Yelp, Uber, Huffington Post, and more. And the disruption, destruction, construction, and innovation continue to pick up momentum, reaching other industries and companies.  

The impact of Apple leveraging emerging technologies to develop and create new solutions has been substantial to nearly every stagnant, slow-to-change industry, even insurance. What is unique about Apple, and has now been adopted by Amazon and Google, is how these companies move quickly from disruption to iterative innovation, leveraging improvements, and solidifying and intensifying their impact on other industries and companies. Fundamentally, Apple provided a platform of possibilities, ingenuity, and innovation that initiated the disruption, transformation, or (re)construction of existing or new industries and companies. 

Creating a Paradigm Shift

A new wave of disruption, transformation, destruction, construction, and innovation is building from emerging technologies, with one standing out from the pack. The Internet of Things (IoT) has the potential to create even greater disruption, transformation, and construction of industries and companies. The IoT is creating a massive paradigm shift in how we view, understand, connect, and interact with the world. Mary Meeker, a venture capitalist and former investment analyst, recently stated in a presentation at the CODE Conference, “The biggest re-imagination of all is coming from people enabled with mobile devices plus sensors uploading troves of findable and shareable data.”

Just to help to understand the breadth, depth, power, and exploding influence of the IoT, here are some statistics recently shared at the conferences:

  • The number of devices connected to the Internet exceeds the number of people on earth, 7 billion, since 2010.
  • By 2020, there will be 8 billion people on earth and 50 billion connected devices with 5 million apps, representing nearly 6 connections per person.
  • And by 2035, there will be 1 trillion connected devices with 100 million apps.

The Disruptive Power of IoT

Why is IoT so disruptive and why is it growing at such an astounding pace? It’s due to the convergence, adoption, and affordability of service oriented architecture computing infrastructures; the cloud for storage of massive amounts of data; a mobile communication infrastructure to connect any device, anytime, anywhere; and advanced and emerging analytics to consume and analyze big data.  

IoT is transforming standalone products into complex business solutions by combining or integrating sensors, software, analytics, processors, and digital user interfaces into the product that are all connected to the Internet. Sensors are increasingly being built into “products” or embedded into things such as animals, land, people, clothing, homes, and cars that generate massive amounts of data.

That data could be used by companies or industries, including insurance, to create and offer new products, services or solutions. As a result, the opportunity to reimagine “the product” from what it historically has been into what it can now be, with integrated value including real-time information, alerts, services, and much more, enhances the value for the customer and redefines the quality of the customer experience. Here are a few examples:

  • A bank created a savings and incentivized rewards program that gives its physically active customers more money. Customers connect their activity tracker (using IoT) such as RunKeeper or Fitbit to the program. Based on their level of activity, it will transfer money from their savings account to a special account with a higher interest rate.
  • A startup is placing sensors into agriculture fields. They collect and analyze data from the fields and add weather data and crop data from the farm management system to help farmers plan, forecast, and manage their crops to achieve optimal results.
  • A healthcare company is experimenting with how they can use sensors in wearable or implanted devices to help manage the health care of an individual by coordinating the doctor, hospital, and insurer via real-time case management. 
  • An automotive manufacturer is creating a new in-car experience that leverages sensors and data from the car and integrates new services, via partners, to the system. The services include finding and booking a parking space and paying via the car system, buying groceries online and having them delivered to your parked and locked car, and receiving icy road warnings using road friction data and communication between cars within the network that are on the same road (based on GPS data). 

By linking people, data, physical material, processes, and ecosystems together, the IoT is transforming simple business processes into holistic new business models. As companies shift to smart or connected products that offer greater customer value the impact on insurance will be disruptive.

Long-held insurance business models and assumptions from risk assessment and protection to legacy definitions of insurance products, business assumptions regarding ownership of customer relationships and customer data, and traditional revenue models will be disrupted.

Reimagination of Insurance

The power and potential of IoT demands that insurers urgently reimagine, redefine, and rethink everything:  product definition, product creation, the channels where products are sold, the services offered, ecosystems of partnerships, pricing, data and analytics, and new business metrics for success. We can no longer view our business and value in isolation, as an insurance value chain. We must broaden our vision and outlook to see our business as an ecosystem of products, services, and partners for delivering integrated, valuable services that will fundamentally change business and revenue models. Why?

As other industries reinvent their businesses and offer products embedded with IoT, they will be gathering data and insights about their customers. This is data and information that can give insurers the potential to manage or reduce risk; offer new, innovative risk-based products; and create new services embedded with their products.

 These new services can deliver new value—enhancing, strengthening, and changing the customer relationship, commitment, and experience from other industries and companies to the insurer—transferring customer loyalty, perceived customer value, and business revenue. Just like Apple, with the introduction of the iPod, iPhone, and iPad, companies embracing IoT will begin to shift, destroy, and create companies. The question is: On which side of the shift will insurers be?

The insurance industry’s first experimentation and use of IoT have been with telematics, which uses sensors in the vehicle, either in an attached device or installed in the car itself. The first insurers using telematics, as well as most of the followers, changed an existing business process and insurance product structure by using the actual number of miles driven to price the cost of auto insurance: the pay as you drive (PAYD) approach.

It modified existing, legacy structures and models, rather than reimaging them. While considered ground breaking within the industry, in reality it missed the mark at leveraging the power and potential of the technology to be truly disruptive and innovative. This epitomizes why insurance will be seriously challenged by other industries in the use of IoT. We are not reimagining the business and thinking big.

New entrants are entering the market with reimagined business models, business processes, products, and services that move well beyond PAYD to create a value-added customer experience by influencing safer driving behavior, monitoring the health of the vehicle, recommending service, and more. This is disruption and innovation and highlights the broader potential of IoT by shifting the paradigm and rethinking the business model.  

Riding the Wave of Opportunity

Some insurers understand the seismic shift underway with IoT and are aggressively developing strategies, experimenting, piloting, implementing, and investing. They are seeking outside-the-industry ideas, partnerships, and opportunities that can be leveraged strategically to disrupt, innovate, and win in this new competitive landscape.      

Unfortunately, too many insurers are doing nothing. Preliminary results from SMA research about the planning, adoption, and impact of emerging technologies in insurance indicate that over 50 percent are doing nothing with IoT, yet nearly 70 percent believe IoT will potentially transform and innovate insurance in the next three to five years. This highlights a serious gap between the adoption of emerging technologies relative to the perception of their potential impact, placing many insurers at risk.

The vision and potential of IoT to make businesses and lives better will be accomplished by connecting devices and data with one another in meaningful, actionable, and impacting ways. IoT will create masses of rich data within the cloud, offering countless opportunities to rethink and reimagine the business of insurance, challenging long-held business assumptions, traditions, and definitions of what insurance is, should, and can be. 

The opportunities are vast; the potential is great. The disruption to existing business and revenue models is significant. Those who do not embrace IoT quickly will put their businesses at risk, both competitively and financially. Which side of the paradigm shift will you be on?   

So be innovative. Reimagine. Create an inspiring, impactful, and valuable connected experience.

(Denise Garth, a partner and Chief Digital Officer at SMA, leads the firm’s Innovation Practice and heads up the industry’s first Innovation Communities, an avenue for fostering and facilitating innovation across the insurance industry.)


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