Insurers Ramping Up Digital Innovation

Self-driving cars that are insured by the manufacturer. Smart homes that warn of perils in real time. Predictive analytics and automated underwriting and renewals. Wearables that measure your daily activity. Drone, sensor and video technology that help insureds avoid losses. One can’t help but ask, what do innovations like these mean for conventional insurance?

They herald an organizational shift away from a tradition of risk aversion to one more open to the risk of failure inherent in innovation. They mean developing and deploying new technologies that will automate processes and improve customer experience. And on a grander scale, they may ultimately result in a shift from away from strictly indemnity-based products toward ones that actually prevent loss.

A digital transformation.

Insurance companies are taking several approaches to innovation. It is occurring in groups within insurance companies as well as externally across what is being called the “innovation ecosystem.” As well as continued IT projects within an insurance company many are reaching out to best of breed technology solution vendors, insurtech start-ups, investing directly into insurance technology firms or funds or contributing to accelerators to form partnerships.

Celent recently revealed more than 80% of insurance professionals viewed innovation as a critical corporate activity to meet and exceed growing customer expectations. Yet only 35% stated that innovation is critical to their business strategy. So why the gap?

In an industry as complex and diverse as insurance, theory and practice can be hard to reconcile. This can make adapting legacy systems and processes, or adopting entirely new strategies, even more challenging. However, the arrival of new opportunities for partnership through joint ventures, and partial and full ownership of insurance tech firms, are making this shift in culture smoother.

Novarica highlights the growing use of insurance technologies across Life and P&C carriers with a strong focus on mobile, big data and telematics.

The key, of course, is linking innovation efforts to business strategy. This applies across technology solutions and is crucial to ensuring the organization and innovation hub or team are aligned with goals.

Understanding the models within the innovation ecosystem is an important starting spot for carriers considering how to plug in. Incubators versus accelerators, venture capital versus partnership, and internal versus external teams are all options that have their own set of pros and cons and differing levels of appetite for risk.

While some insurance carriers have yet to invest in innovation, others have taken the leap. Those that have will begin to see the results of those investments over the next few years. Telemetry for automobile insurance, sensors and drones for home insurance and IoT wearables for life and health are poised for growth.

Alegeus announced the release of Emma last year, a chatbot that enables customers using its mobile application to receive information about their health benefits plans via voice commands. The intention is to empower consumers with an array of information about their account from recent transactions and annual contribution limits to what happens if you leave your employer. Manulife has introduced the ability to use Amazon’s Alexa for plan members to review their group benefits coverage also with voice commands.

Church Mutual Insurance has piloted a project that uses IoT sensors to identify potential damage and notify insureds. The small pilot has been successful, with 24 customers out of 220 saving $500,000 in damages in the first two years of the program. Proactively protecting against further weather related loses in the United States.

Of course, Silicon Valley is participating as well. Tesla is bringing telematics to new levels for customers using data to build flexible, personalized products and deliver services such as accident alerts and advice on how to become a better driver in real-time.

Participating in innovation projects promotes innovative thinking within traditional insurance organizations. And while the day-to-day challenges of doing business can impede steps toward innovation as it requires additional resources and a mandate to do things differently, the innovation ecosystem is healthy and growing. If insurers want to build better relationships with their clients, drive efficiency, provide more value and remain relevant then we will continue to see more investments and adoption of digital technologies. Most insurance executives recognize that insurers can’t afford to be risk-averse anymore, but rather become judicious risk takers.