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Connected and Sustainable Insurance

Connected insurance represents a new paradigm
for the insurance business that allows a new virtuous role for society

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Connected and Sustainable Insurance

  1. 1. CONNECTED AND SUSTAINABLE INSURANCE Matteo Carbone, Pietro Negri and Marco Harb with the contribution of Dario Focarelli and Michael Jongeneel Connected insurance and digital technology play critical roles in the economy, welfare and development of a sustainable society
  2. 2. Matteo Carbone is Founder of the Connected Insurance Observatory, Principal with Bain & Company and global InsurTech thought lead- er. Pietro Negri is Senior legal adviser and CSR Manager of ANIA (Italian Association of insurance firms). He is ANIA representative in the Italian Forum for Sustainable Finance and in the CSR Forum of the Ministry of Welfare. Marco Harb is Consultant and Project Man- ager at IRSA and passionate about the digi- tal transformation and the human interaction with new technologies The authors would like to acknowledge the contributions of Michael Jongeneel -partner in Bain & Company’s Amsterdam office and expert on sustainability and social impact – and Dario Fo- carelli, General Director of ANIA and Member of the Executive Committee of Insurance Europe.
  3. 3. 1. Introduction 2. The role of insurance in ancient, modern and future societies 2.1 Managing the unknown 2.2 Risk management, welfare and economic growth 2.3 The future of insurance 3. Connected Insurance will transform the way we manage risk 3.1 The experiences on the Italian market 3.2 What’s in it for the Carrier? 4. Impacts on society and the environment for sustainable and respon- sable development 4.1 Moving toward Corporate Social Responsibility 4.2 Corporate opportunities for re- sponsible industries—the integration of CSR in strategy and in processes: the UNI ISO26000, the B-corporation 4.3 Influencing consumers to adopt safer, more sustainable and heal- thier lifestyles? 4.4 Will nations indirectly benefit from a more-connected, responsible insurance? 5. Conclusions 3 4 4 5 6 7 7 9 11 12 15 17 21 25 TABLE OF CONTENTS
  4. 4. 301. INTRODUCTION 1. INTRODUCTION More and more our society expects companies to take up their corporate social responsibility (CSR). In the past CSR mainly consisted of donations to charities, in many cases not very close to the core business but initiated by rela- tions from executives or CSR managers. Now- adays we see a clear shift towards involvement of the core business. There is a clear need to address social, environmental and economic fairness issues, such that the success of the business and that of future generations are not compromised by actions taken today. With the recent financial crisis in mind trust needs to be restored in the Financial Sector. Many financial services players have conduct- ed (trans)actions that are not qualifying as so- cially responsible. The general public clearly is demanding change. Companies experience a request from customers and employees to en- sure their products and services, but also the company’s operations, are truly sustainable. And in the Financial Services industry we addi- tionally see that regulators are becoming more and more active in this area. Insurance is inherently a social responsible type of business: set up to share risk among each other to protect and take care of the (lo- cal) community. So corporate social respon- sibility is core to the DNA of the insurance industry. But we have seem to forgotten that somewhat. This document brings that responsibility back to the forefront. And even better - it also takes the whole notion forward: the paper shows how technological developments related to Connected Insurance can help insurance companies progress in making their business more sustainable for both the customers and society at large, as well as for the company itself and its shareholders. In this way real ‘shared value’ is created – an important step towards a sustainable future! Michael Jongeneel
  5. 5. 4 CONNECTED AND SUSTAINABLE INSURANCE 1 https://www.theguardian.com/world/2012/nov/15/merapi-volcano-spirit-guardian-tradition Figure 1 – Merapi Eruption - https://www.flickr.com/photos/coolinsights/5127279893 With more than 100 active volcanos, Indonesia is one of the most geologically dangerous na- tions on Earth. The 2010 eruption of the Mount Merapi volcano displaced thousands of inhab- itants and killed hundreds. Among those who perished was Mbah Maridjan1 , the “spirit keep- er” of the volcano, who refused to evacuate and kept offering food and flowers to calm Merapi’s wrath. This exotic, esoteric way of coping with risks and natural disasters still has the power to seduce the rational Western mind. The spirit-keeper tra- dition harkens back to the ancient Age of Myth, the time of the oracles, when people hedged against their fear of future calamity by offering sacrifices and libations to supernatural divinities. The time may not be that far off, however, when insurers trying to sell fire, calamity or di- saster-recovery policies in Indonesia must first figure out how to work alongside the beliefs of people accustomed to rendering offerings to Merapi’s volcanic spirit. In this chapter, we’ll remember the dark shad- ow of superstition cast by the volcano as we briefly review the history of insurance and risk management, and discuss some of the future developments of the insurance industry that are illustrated in the next chapters. 2. THE ROLE OF INSURANCE IN ANCIENT, MODERN AND FUTURE SOCIETIES 2.1 MANAGING THE UNKNOWN The ancient ways of superstition began to be displaced by disruptive cultural change when people adopted the tools of scientific and mathematical risk-evaluation to deal with the unknown and uncertain. Peter Bernstein’s 1996 book “Against the Gods: The Remarkable Story of Risk” is a bril- liant account of the birth of insurance—a de- velopment made possible, Bernstein writes, by the development of actuarial science and probability theory, which was driven by math- ematicians of the last millennium who had an intense passion for gambling. Examples of the first forms of insurance are traceable to Egypt in the third millennium B.C., when pyramid builders cooperated to pay for the funeral expenses of their associates. Like- wise, those with financial interests in Phoeni- cian fishing vessels created mutuality funds to recover their investment in ships that sank. Oth- er examples are the assistance communities of ancient Greece and the Sahara nomads who took out insurance against the loss of camels.
  6. 6. 502. THE ROLE OF INSURANCE IN ANCIENT, MODERN AND FUTURE SOCIETIES Figure 2 – OECD Statistics 2014 – Insurance penetration as % on GDP The first structured forms of insurance were born in the Italian port city of Genoa during a time when marine transport was subject to the dangerous uncertainties of rough weather and pirate attacks . In the face of such hazards, merchants would make bets on the safe return or loss of a ship, and in in 1424 founded the first insurance company, Tam mari quam terra (“both on sea and land”). The word “premium,” a Latin term for an ad- vanced payment, owes its origin to the practice of betting for or against the loss of a seagoing vessel. The statistical sciences evolved significantly in the seventeenth century. Sophisticated mathematical tools like probability theory, the law of large num- bers, mortality tables, and perpetuities calculation gave scientific bases to the first structured Insur- ance societies, such as: • Lloyd’s of London, formed in 1688 as a marketplace where sailors, merchants and ship-owners bought marine insurance • Fire Office, the first fire insurance market, cre- ated after the Great Fire of London in 1666 • Sales of the first life insurance policies based on scientific calculations beginning in 1705 In the following centuries, the insurance industry evolved to cover many kinds of risk, from natural disasters, casualty and liability, to new modern risks like cybersecurity. This complete set of coverages protect indi- viduals, families, professionals and companies from losses and accidents that they would not be able to manage with their own capital. What is the contribution of insurance to the economic growth of modern societies? 2.2 RISK MANAGEMENT, WELFARE AND ECONOMIC GROWTH Insurance promotes societal welfare and de- velopment by helping individuals, families and companies manage any kind of risk, and in- demnifies the insured against property dam- age, sickness, accidents and the like. It provides equally concrete support to pub- lic policies, integrating uncovered areas of the welfare of nations by filling the gap of protec- tion and social security with private pensions and health insurance. Furthermore, sophisticated risk-management tools allow companies and individuals to man- age potential losses and to free up investment capital that was traditionally shelved in funds and held in reserve to cover unexpected outcomes.
  7. 7. 6 Finally, there all the assistance services, includ- ing auto, travel and legal, which provide direct support to insurance consumers in highly criti- cal moments of their lives, like vehicle crashes or accidents resulting in injuries. Studies by the European Insurance and Occu- pational Pensions Authority (EIOPA) show the correlation between insurance and financial stability, economic growth, entrepreneurship, risk-taking, investments and innovation pro- motion; in 2014 insurance penetration reached 8.7% of the Gross Domestic Product of states belonging to the Organization for Economic Cooperation and Development. Given the maturity level of the insurance in- dustry, is there any other possible margin for development, either in terms of economic vol- umes or for the social value that insurance may return to society? 2.3 THE FUTURE OF INSURANCE Let’s go back to Indonesia, just after the vol- canic disaster of 2010, as people try to restore normality and organize the reconstruction. CONNECTED AND SUSTAINABLE INSURANCE
  8. 8. 703. CONNECTED INSURANCE WILL TRANSFORM THE WAY WE MANAGE RISK Connected insurance represents a new para- digm for the insurance business. This new in- surance approach is based on the use of sen- sors for collecting and transmitting data on the status of an insured risk and the deployment of Big Data capabilities that transform raw in- formation into actionable knowledge along the insurance value chain. The insurance sector, which is considered to be fairly traditional and resistant to change, is currently being overtaken by this transformative paradigm. Connected insurance represents one of the most relevant trends, considering its potential impact on the profitability of the insurance business, the productivity of each carrier, proximity to clients and portfolio per- sistency. Analysis by the Connected Insurance Observatory—a think-tank created by Bain & Company and Italy’s National Association of Insurance Companies (ANIA)—shows how this new approach is starting to pay off. The auto insurance sector is being transformed by auto telematics, a technology undergoing experimentation in business-insurance lines, specifically the Internet of Things (IoT). The following pages present the Italian market’s experience and the key elements of the busi- ness opportunities presented by connecting an insurer with its customers and their risks. 3.1 THE EXPERIENCES ON THE ITALIAN MARKET In this context, traditional insurance providers would be in charge of refunding their clients for their losses and providing assistance for the recovery plans. Just a few years later, insurance will have a greater impact, mainly during the phases of prevention and management of the tragic event—for example, in the form of alarm sen- sors that rouse people from sleep, giving them enough time to escape the eruption. The next chapters describes in more depth how Connected Insurance is disrupting the insur- ance business, our lives and society as a whole. Italy is recognized as the most advanced auto insurance market at the global level for telematics. Leveraging the experience of the auto business, the country is affirming its posi- tion as a laboratory for the adoption of this new paradigm by other business lines. The fact that the Italian insurance market represents the state of the art for Connected Insurance gave rise to the idea of creating the Connect- ed Insurance Observatory as a think-tank to help generate and promote innovation in the insurance sector, offer a strategic vision and stimulate debate. More than 70% of Italians show a positive at- titude2 to auto telematics insurance solutions and 26 different insurance carriers in the Ital- ian market are currently offering this product. Telematics-based insurance contracts repre- sented 16% of the personal cars insured in Italy in the first quarter of 2015, according to data from IVASS. This relevance of telematics was highlight by Insurers member of the Ob- servatory responding to a question about the maturity level: 65% affirmed the “the way to 3. CONNECTEDINSURANCEWILLTRANSFORM THE WAY WE MANAGE RISK 2 Connected Insurance Observatory, Bain & Company and SSI survey on auto telematics on August 2016. “How likely would you be willing to agree to have a black box fitted in your car or a driving app on your smartphone tracking position and dri- ving behaviors in order to receive services and a discount on your auto insurance premium?” Both 4 and 5 were considered “positive” on a 1-to-5 scale (where 1 is “not at all likely” and 5 is “very likely”).
  9. 9. 8 Figure 1: Auto insurance telematics maturity level—2015 Incubation phase Does the approach make sense? What is the ROI my main use case? Which is the best way to do it for m y company? Exploration phase Learning phase Growth phase Maturity phase manage day by day the auto insurance busi- ness was already impacted by the telematics.” This kind of telematics adoption is a com- plex process requiring many years, due to the cross-functions impacts and the involvement of multiple parties (tech vendors, insurers, dis- tributors, clients). It is important to consider the evolution path showed by the Italian market: 1. Incubation phase: It began in the early 2000s, when first-mover players were studying the feasibility of com- bining the insurance product with the technology. The main carriers’ ques- tion was, “Does the approach make sense?” 2. Exploration phase: This commenced in the late 2000s, when pioneers start- ed to achieve volumes from the solu- tion rolled out on the market. In this phase, the average level of awareness in the markets was low, and other play- ers started with pilots only based on a “me-too approach”; their main question was, “What is the ROI of this program?” At the end of this phase, in 2012, the Italian market accounted for about 1.3 million black boxes. 3. Learning phase: A few players start- ed to move from focusing on “quick wins” to a more holistic approach. They were able to exploit the potential of the solution, and were thus in a position to start pushing the selling phase. Some differentiation began to appear; the approaches become more articulated: Carriers also introduced insurance cov- ers based on self-installed devices— moving away from the myth of the Ital- ian telematics business case only being linked to anti-theft and anti-fraud—and this new approach represented around half of the telematics market’s growth through those years. The key question on the market was, “What is the best way to do it for my company?” Telemat- ics have become mainstream and this phase was completed by the Italian market on 2015. 4. Growing phase: Currently, the Italian auto insurance sector has reached the point where telematics solutions have traction in the market. Each player will develop his own approach and ex- periment with further upgrades, intro- ducing multiple segmented products with his offer. The 4.8 million insurance contracts with a black box fitted in the car—a statistic gathered by ANIA in December 2015—is expected to grow to almost 14 million by 2020, based on the Connected Insurance Observatory’s projections. Figure 1 below highlights the current level of telematics maturity by country and the current leadership of the Italian market: At the end of 2015, 4.8 million Italian contracts accounted for more than 45% of all the insurance contracts active globally, with sensors sending data to an insurer. CONNECTED AND SUSTAINABLE INSURANCE
  10. 10. 9 3 Connected Insurance Observatory, Eumetra Monterosa survey on connected home showed as—on top of the current home insurance penetration (almost 27% of families)—22% of families became interested in home insurance if combined with IoT features. This sequence of stages seems to be the nec- essary evolution path for the offering of Con- nected Insurance on a new business line, as it is during the adoption of vehicle telematics in other countries. Connected insurance applied to other busi- ness-insurance lines have been a hot topic in the last 12 months. Insurance applied on per- sonal lines like home and health is currently on top of the innovation agenda of many insur- ance carriers. Over the last years, five pioneers in the Italian market have introduced house-insurance cov- erage with sensors and a gateway that sends data to the carriers. More than 75% of the in- surer members of the Observatory consider Connected Insurance to be the most relevant innovation expected in home insurance in the next year. This potential is confirmed by the consumers’ voice: Connected home insur- ance use cases appear to be able to double the penetration of home insurance in Italy. 3 The connected home insurance sector is cur- rently transitioning from the incubation to the exploration phase. The connected health sec- tor is less mature. Some carriers are currently running pilots, and only a couple are already selling a connected health product. Around 40% of the insurer members of the Obser- vatory consider Connected Insurance to be the most relevant innovation expected in the health insurance industry over the next year. 3.2 WHAT’S IN IT FOR THE CARRIER? The Connected Insurance paradigm opened incredible opportunities in the insurance sec- tor, which underwent a tremendous digital trans- formation. Insurers can play a new proactive role in their relationships with their customers: from payers to cares. In a world where analysts proj- ect 10 connected things per person by 2020—a figure projected to grow to 200 by 2030–2040, we can calculate the house-insurance value proposition delivering (for a monthly fee): • An active prevention service for all the ri- sks that could occur in the house, based on the data coming from the sensor; • Proactive actions to limit the damages and fix them, when the prevention was not enough; and • The guarantee of monetary reimburse- ment limited to the cases of “service failu- re,” meaning when the two services above were not working as expected. The three business opportunities The key business opportunities (see figure 2) for the insurance carriers are: 1. Achieve a direct impact on the insur- ance profit and loss; 2. Enlarge the proximity and increase the interaction with clients by deliv- ering a vastly superior customer ex- perience, a proven way to achieve enlarged loyalty; and 3. Create and consolidate knowledge about the risks and the customer base. The value generation on the insurance P&L was the area more exploited in these years, and one of the key lessons learned was: there is no “one-size-fits-all” approach. Each carrier needs to design its own Connected Insurance journey based on its own strategy and specific characteristics. 03. CONNECTED INSURANCE WILL TRANSFORM THE WAY WE MANAGE RISK
  11. 11. 10 The five value-generation levers The value-generation levers each player must combine in order to deploy its own approach are: • Risk selection. Telematics can be used to select risks either indirectly or directly at an underwriting stage. There is the op- portunity to generate value with the sole goal of supporting the underwriting phase; without any telematics, the tariff will adjust the insurance rate base on the data ga- thered. This can be achieved in two ways: o Directly, using a set of information coming from sensors to improve the overall quality of the underwriting pro- cess; and o Indirectly, leveraging the ability of the value proposition to auto-select the customer base. The analyses of the ANIA actuarial department of all the Italian insurance telematics portfolios have shown a claim frequency risk adjusted 20% lower than the non-te- lematics one; • Risk-based pricing monitoring the quantity and level of risk exposure on the basis of information monitored continuo- usly. This personalized price requires the development of new risk models based on the fusion of the traditional insurance pa- rameter with the Connected Insurance in- formation and the contextual information. • Value-added services (VAS). It is about enriching the value proposition by adding services built upon data provided by Con- nected Insurance. The driver’s journey was already reinvented by innovative services delivered by insurers—beyond the well-k- nown exceptional emergency response and help to the client through a critical si- tuation—enabling many carriers to earn fees for these services. The importance of this aspect will grow exponentially with the volu- me of claims-reductions due to new-car sa- fety systems in the next couple of decades. VAS could be the insurance sector’s way to stay relevant in the future age of semi-auto- nomous and autonomous cars. • Loss control. This impact can be obser- ved from two different perspectives. The first is risk-prevention, already mentioned at the beginning of the chapter. Many car- riers have this target as a challenge for the next years. Instead, the second area can be one of the most relevant impacts in the short term on profit and loss for the insu- rers that will adapt their claims processes in a consistent way, as proven by the auto telematics experience. Crash-detection and the related anticipation of the FNOL (first notification of loss), as of the stolen vehicle recovery service, have demonstra- ted their effectiveness in the loss mitiga- tion. Connected insurance reinforces the entire claims-handling process: the carrier can streamline claims-management using the structured and objective information extrapolated from the sensors’ raw data. • Loyalty and behavior-modification programs. This mechanism generates value from the insurance perspective by engaging clients and directing them toward less-risky behaviors, (mechani- sms to manage client engagement and retrocession prizes other than insurance premium discounts), but also by indirectly creating a multi-year reward mechanism to reinforce customer loyalty. CONNECTED AND SUSTAINABLE INSURANCE
  12. 12. 1104. IMPACTS ON SOCIETY AND THE ENVIRONMENT FOR SUSTAINABLE AND RESPONSIBLE DEVELOPMENT Today’s global competitive environment is more and more characterized by interdepen- dence between economic, social and environ- mental trends, and all the demographic and social changes are facing the effects of climate change and the scarcity of natural resources, creating new risks for people, for companies and for society in general. The new “needs” of society, now thought to be increasingly evident, have not found any solu- tion and proper answer yet because the social dimensions of the economy do not receive the same dignity of production and finance in the Value Chain of Corporations. Only recently have we started to discuss the “economy of solutions,” “problem-solving business” or even “3D Economics.” The con- nection between the three dimensions (social, productive and financial) is, however, funda- mental for an open perspective on the issue of “organic” and “ecologic” sustainable devel- opment in the long term—caring about both the actual emerging needs now and the next generation’s future ones. In this changing environment, it is extremely necessary to rediscover the connection be- tween financial growth and real economy. To implement it fully, however, it needs an environ- ment that focuses on the values of knowledge, innovation, solidarity of one’s own quality of life, and that of future generations. First, the key points of sustainable develop- ment are based on the principle according to which any business should go beyond the mere pursuit of profit for the company, creating value not only for shareholders and investors but for the entire community of stakeholders. There is a proven track of evidence that com- panies pursuing the overall development of society in a generalized vision of well-being and shared value are creating a context where the culture of “informed capital” based on trust, authenticity, care, transparency, integrity, learning and personal improvement grows. A rapidly changing society is in itself a factor that facilitates sustainable development. In the financial and insurance sectors, this evolutionary process is very evident, due to the impact of various components—first of all, risk-evaluation and management—which are moving the business models toward an “econ- omy of solutions.” Citizens are increasingly exposed to the need to perform autonomously economic and finan- cial choices relevant to their current and fu- ture well-being: for their health, for retirement, to choose investments for their savings and, more generally, to strengthen their protection against external events that may affect their lifestyle. These choices are always more trans- ferred to the individual private will, given the current crisis of the public social welfare. Finance and insurance are asked to play an important role in building a new business model that may intercept people’s and society emerging needs in a sustainable way (this is a paradigm shift). Already, at present, insurance helps the in- sured cope with economic, climate and tech- nology risks. To insure, in fact, means to offer mutuality, and this in turn is done by starting with the individ- ual risks faced by individual policyholders and 4. IMPACTS ON SOCIETY AND THE ENVI- RONMENT FOR SUSTAINABLE AND RE- SPONSIBLE DEVELOPMENT
  13. 13. moving until a communion of risk is reached, in which individuals’ risks become collective risks, nullifying each other. It means considering an insurance policy based on the law of large numbers, and work- ing on the basis of extensive and compre- hensive statistical and actuarial series. It also means having to put together a certain amount of information and news to organize and man- age a community of risks. What, however, has not yet been fully under- stood is the role that the financial sector and, in particular, the insurance sector can con- cretely play in the coming years, above all in view of the enormous mass of available capital managed, which exceeds 200 trillion dollars. This chapter aims to highlight the role of In- surance Industry in this brand new economic environment, which claims big attention to the future, the next generations, to promotion of equality and the prevention of further conflicts. We will track the evolution of the economy, the society, the technology and of the legislation drawn by national and international institutions to promote CSR policies. We will try to give answer to a few simple questions that will provide a clear picture of this topic: 1. Where does Corporate Social Re- sponsibility (CSR) come from? The first paragraph will discuss how CSR is becoming more and more relevant in corpo- rations’ strategic agenda and will analyze the main Acts deliberated globally by international institutions to promote CSR. 2. How can a company can benefit by introducing CSR measures? The second paragraph will provide evidence about the opportunities for all companies in adopting socially responsible business models. 3. Will the Internet of Things will be able to support CSR policies? The third paragraph will concentrate on the In- ternet of Things, discussing how Connected Insurance will contribute to CSR in developing new processes to design innovative products, exploit the new technologies, better analyze better clients’ needs and provide personalized insurance solutions. 4. How we can concretely use Con- nected Insurance to be more socially responsible? The last paragraph will focus on the social im- pact of insurance applications in the new eco- nomic context. 4.1 MOVING TOWARD CORPO- RATE SOCIAL RESPONSIBILITY In 2015, many actions had been promoted to support and solidify a global approach to a socially responsible business model for private companies, from G20 discussions to the new EU/UN policies on CSR. 1) G20 discussions Proper risk management, among other things, is above all necessary for correct, sound and prudent management of business. If risks aris- ing from environmental sources are being in- adequately incorporated into financial decision making, for example, this is of strategic sig- nificance to G20 financial systems—including banking, institutional investment and the insur- ance sectors—for at least two reasons: 1. Managing risk is central to the effective functioning and stability of financial institutions. Inadequate un- derstanding of growing environmen- tal sources of risk could allow threats to financial institutions to accumulate and limit progress toward sustain- 12 CONNECTED AND SUSTAINABLE INSURANCE
  14. 14. able global growth associated with a green transition. 2. All capital is deployed on the basis of expected “risk-adjusted” returns. If environmental risk is being underesti- mated, capital can be over-allocated to higher risk activities. Improving en- vironmental risk analysis can support more efficient allocation of capital for long-term stability; addressing any mispricing of risk will trigger demand for green finance solutions by main- stream actors. Financial institutions have addressed environ- mental sources of risk in the past; however, the traditional approaches to incorporating environ- mental factors into risk-management systems are insufficient in the face of environmental sources of risk which now exist at new levels of scale, likelihood and interconnectedness. Social justice issues are often intrinsically linked with risks arising from environmental sources. The use of the word “environment” should be interpreted in a broader sense so as to include all elements composing it and its social impacts, which are frequently felt disproportionately by those least able to withstand them. 2) EU/UN policies on Corporate So- cial Responsibility The most important acts on CSR in the last years have been: a) Paris Conference in December 2015 b) Directive 2014/95/EU c) Corporate Social Responsibility evolution d) Financial Stability Board (FSB) contribution a) Paris Conference (December 2015) The world economy—mostly after the Paris Conference in December 2015—has finally accepted an “ecologic” path, which is defined by Walter Stahel as the “circular” economy, a model that combines the human dimension, the safeguarding of the planet and technolog- ical innovation4 . One of the major elements observed at the conference, however, was the presence of many non-state entities, regions, municipali- ties, small, mid-sized and large towns, individ- 13 4 The term “circular economy” was used officially for the first time in 1976, in the report “The Potential for Substituting Man- power for Energy”, presented to the European Commission by Walter Stahel and Genevieve Reday. It outlines the vision of a circular economy and its impact on the creation of jobs, saving of resources and waste reduction. The “circular eco- nomy” is described (Ellen MacArthur Foundation) as “an industrial economy conceptually regenerating and it reproduces nature in actively improving and optimizing the systems it works with.” Natural capitals – ecosystems- are preserved and enhanced. There’s no process waste in the industrial value chains, for it becomes feedstock for others. Therefore, the “circular economy” is based both on an idea of production and consumption of goods and services alternative to the linear model (for example, through the use of renewable energy instead of fossil fuels) both on the role of diversity as an essential feature of resilient and productive systems. By dissociating economic growth from the use of resources and their impact, the circular economy offers perspectives of a sustainable and durable growth. The circular economy calls into question the role of money and finance because, for an adequate evaluation of the economic performance, it uses measurement instruments that take into account more aspects than the ones that determine the GNP. The “green economy” goes even beyond. In fact, it has been defined (by UNEP) as “a system of economic activities related to the production, distribution and consumption of goods and services that result in improved human well‐being over the long term, while not exposing future generations to significant environmental risks or ecological scarcities”. This definition is very similar to the one of su- stainable development. The “green economy” introduces a new idea of prosperity and well-being, not based on GNP and consumption anymore. Prosperity is given by the growing of human, natural, social (and, certainly, also financial) capital stocks. So, cash and resource flows are not anymore the guidelines of prosperity, but they become variables internal to the system where they preside over exchanges. 04. IMPACTS ON SOCIETY AND THE ENVIRONMENT FOR SUSTAINABLE AND RESPONSIBLE DEVELOPMENT
  15. 15. ual communities, and so on, who by stating their commitment to support—with concrete actions—a reduction in the phenomenon of global warming, aspired to being the uphold- ers of change, apart from the will expressed by their governments. It’s a snapshot of a trend in which citizens di- rectly become the main characters of their lives and claim, rightly, to be able to have their say without having to submit passively to choices made by others. It’s the beginning of the end of delegated democracy, accompanied by the onset of a new awareness that makes every- one more aware of the consequences of their actions. b) Directive 2014/95/EU Starting in 2017 throughout the EU, Directive 2014/95/EU will be applied. For certain types of enterprises with certain thresholds of turn- over and a number of workers employed, it the directive obliges a company to integrate its accounting statements with non-financial information related to the impact of its financial choices on the environment and on society as a whole. The importance of this approach is represent- ed by the fact that the determination of the economic value of a company, in addition to what is reported in its financial information disclosures, must be made in light of the con- sideration and assessment of its non-financial information, among which figures, for exam- ple, company’s impact on the environment, its reputation, its adopted business strategy the internal processes by which it ensures its sus- tainability as a going concern. Through this information, stakeholders can evaluate the quality of the corporate risk-man- agement system, including risks relating to so- cial and environmental issues. c) Corporate Social Responsibility evolution Corporate Social Responsibility, in particular, has undergone over the years a remarkable transformation: From a simple system of re- porting to stakeholders the “beneficial” and virtuous activities carried out by the compa- ny, CSR reporting has become, especially in the last two years, a real management tool in which information neither directly nor exclu- sively of a financial or business nature has be- come an essential part of the definition of busi- ness strategy. This tool also has direct impact on a company’s ability to recruit personnel, to manage risks effectively and, finally, to accu- rately assess its “overall value.” To give an account of such non-financial in- formation involves, first of all, the integration into the business processes of an internal ap- proach to sustainability, and accelerates along a path toward integrated thinking, which facili- tates dialogue between “central” professional- ism in the future development of companies: a risk officer on the one hand and a corporate social responsibility manager on the other. In the coming years, we will set the stage for a significant challenge characterized by the pas- sage of the use of non-financial information ex- clusively for reporting purposes related to the use of this information in management-control processes that support integrated thinking in a quantitative manner. This approach also implies a different rela- tionship with company employees, of whom a different motivation and sensitivity will be demanded in this technology-driven context dominated by increased flexibility, open mind- edness, agility and resilience, matched by a greater specialization. All this will make companies much more at- tractive for investors and stakeholders, while strengthening the bond of trust between busi- ness, society and institutions. 14 CONNECTED AND SUSTAINABLE INSURANCE
  16. 16. d) Financial Stability Board (FSB) contribution These considerations have led the Financial Stability Board (FSB) to create an international working group composed of representatives of the financial and non-financial industry. These people have been assigned to draft docu- ments and plans based on the information that is available about the environmental and social activities of financial institutions. The aim—to achieve transparency, in order to make such data available to insurers, pension funds, hedge funds, investors and, more generally, to all potentially interested parties. 4.2 CORPORATE OPPORTUNITIES FOR RESPONSIBLE INDUSTRIES— THE INTEGRATION OF CSR IN STRATEGY AND IN PROCESSES: THE UNI ISO26000, THE B-CORPORATION Being socially responsible is a big opportunity for companies from different points of view: In a more and more informed and attentive mar- ket, contributing to the sustainable develop- ment of society can make a difference even at for-profit companies. Italian 2016 Stability Law (Legge n. 208/2015) and the B-Corporation The growing importance of these issues is also reflected in the 2016 Stability Law (Law No. 208/2015), which also introduced in Italy the discipline of the so-called “B-corporation.” Under this legislation, any existing or newly es- tablished company will have the opportunity to indicate in its scope of activity that it “pursues one or more purposes of common benefit and operates in a responsible, sustainable and transparent way versus people, communities, territories and the environment, property and cultural and social activities, organizations and associations, and other stakeholders.” These companies will have to follow certain admin- istrative management rules and report on their efforts to contribute to the common good. There are currently over 1,600 Certified B-Corps around the world, all of them seeking to redefine success in business. BOX—The Lemonade Case An incredible media finding reported the recent news that the insurance company Lemonade approved a decision to become a Certified B-Corporation, as announced by its board of directors and shareholders. These for-profit companies are certified by the non-profit B Lab and must meet high standards of social and environmental performance, ac- countability and transparency. Lemonade is the first B-Corp in the insurance industry. This represents, according to its top management, a source of “tremendous pride for our team. Lemonade’s mission is to redesign insurance from the ground up to make it honest, instant and delightful.” UNI ISO 26000/2010 giudelines on Corporate Social responsibility With the publication of the UNI ISO 26000/2010 Social Responsibility guidelines for companies of any legal form, the importance of integrating into its internal processes the habit of paying attention to stakeholders on the issues of risk analysis and enterprise asset-management was clear. 1504. IMPACTS ON SOCIETY AND THE ENVIRONMENT FOR SUSTAINABLE AND RESPONSIBLE DEVELOPMENT
  17. 17. The UNI intended to encourage the adoption of best practices in terms of responsibility and contribute to a sustainable development, pushing companies to go beyond mere com- pliance with the law. According to the disposi- tion, social responsibility is “The responsibility of an organization for the impacts of its deci- sions and its activities on society and the en- vironment, through a transparent and ethical behavior that: contributes to the sustainable development, including health and welfare of society; It takes into account the expectations/ interests of stakeholders; It is in accordance with the applicable law and consistent with in- ternational norms of behavior; It is integrated throughout the organization and practiced in its relationships.” It is now clear that this approach makes com- panies more attractive for investors and cus- tomers helping build customer loyalty and encouraging the construction of a more stable and durable relationship. As examples: • the current debate on the concept of “fi- duciary duty”—especially with regard to financial intermediaries—still focuses only on short-term financial performance that may result from the investment. Instead, fiduciary duty should make financial insti- tutions that to “act in the best interest of the beneficiaries” means having a long- term approach and encouraging the de- velopment of “patient capitals” able to assess the effects of an investment in the medium to long term by measuring the outcome environmentally and socially as well. In some non-European countries, however, rulings have been handed down to some banks that had financed subjects who turned out to be polluters without having passed an adequate prudential ve- rification and thus violating the so-called fiduciary duty toward those who had en- trusted their savings to the bank. • In Brazil, a Supervisory Authority applied stress-tests that incorporated environ- mental, social, governance (ESG) va- riables to ensure the stability of financial firms. Through the use of these variables, the Social Capital Requirement is acted upon, in a risk-mitigation key. Sustainability Indexes On the other hand, sustainability indexes are becoming increasingly prevalent in regulated markets (such as the Dow Jones Sustainability World, Dow Jones Sustainability Europe, the FTSE4Good Index, and the STOXX ESG, to name a few). These include listed companies grouped by different criteria but having in com- mon the goal of identifying the companies rat- ed best in terms of sustainability performance and corporate social responsibility, based on independent analysis by companies that use diversified weighting methodologies and elab- orate ad hoc ranking systems. Empirical evidence now shows that the returns produced by the companies included in these indices are able to replicate and, very often, exceed the performance of traditional indexes, while maintaining a close relationship with the integration of environmental, social and gover- nance aspects within their own activities, from a win-win point of view. According to a recent survey over the past five years, the percentage of companies in the Standard & Poor’s 500, which is committed to reporting on aspects of sustainability, has increased from 20% to 80%. It is a significant figure that includes 500 US companies with the highest capitalization. Impacts on Stock Exchanges and Investments • Big investment funds (Blackrock, Norwe- gian Sovereign Fund, and others) invest in insurance companies as shareholders and pay increasing attention to ESG fac- tors in their investment choices. Directive 16 CONNECTED AND SUSTAINABLE INSURANCE
  18. 18. 2014/95/EC will increase the disclosure of such indicators, and will also increase the stewardship exercised by the investors. • The last revision of the Code of Gover- nance for listed companies (El Código de buen gobierno de las sociedades co- tizada) by the Commission of the Madrid Stock Exchange (Comisión Nacional del Mercado de Valores) introduced a new principle and two new recommendations specifically regarding Corporate Social Responsibility. According to the Com- mission, adequate attention must be paid to CSR principles, which must aim to “promote an adequate policy of social responsibility, as a non-delegable power of the board, and give transparent infor- mation on its developments, applications and results.” According to the Spanish authorities, the listed company must cle- arly specify its CSR objectives and stra- tegy; its practices for sharing information with stakeholders; its results-measure- ment model; its supervision system; and its communication policies by adopting a reporting document that adheres to inter- national best practices. • Denmark, Norway and Sweden require sustainability reports at various levels, and France’s Loi Grenelle II requires that larger companies (listed and unlisted) disclose in their annual reports how they take into account the environmental and social im- pacts of their activities and their contribu- tion to the development of a sustainable society. The law even requires this infor- mation to be verified by an independent third party in an Assurance Report. • From February 2016 the Internet site of the Italian stock exchange market upda- ted its sustainable financial section with a contribution of the Italian Forum for sustai- nable finance. • In conclusion, as regards medium to long- term investments—set up by the forms of supplementary pensions, it is interesting to refer to the recent Italian law 190/2014 (Stability Law 2015) that established (see paragraph 92) a tax credit of 9 percent of income annually accrued, provided that an amount corresponding to the result just mentioned is invested for at least five ye- ars in a financial business represented by: (i)Shares, or shares in companies and entities established in Italy or in the EU or in the EEA, or bonds or other debt securities issued by the same persons, that operate “mainly in the development or implementation of projects related to the infrastructures linked to tourism, culture and environ- ment, water, road, rail, port, airport, health, public non-residential real es- tate, telecommunications, including digital ones, and related to the pro- duction and transportation of energy; (ii)Shares and units of collective in- vestment undertakings for saving (“UCI”) over a period of not less than five years, which invest primarily in se- curities of such companies. Legislation is a sure incentive for those compa- nies who want to renew their production pro- cesses by deploying infrastructure and more environmentally friendly technology. 4.3 INFLUENCING CONSUMERS TO ADOPT SAFER, MORE SUSTAINABLE AND HEALTHIER LIFESTYLES? Up to this point, we have discussed the op- portunities CSR gives insurers; the next step is to analyze how Connected Insurance may concretely support the industry to increase its positive impact on society. The big challenge for insurance is to combine 1704. IMPACTS ON SOCIETY AND THE ENVIRONMENT FOR SUSTAINABLE AND RESPONSIBLE DEVELOPMENT
  19. 19. the new technologies with useful available data to promote a socially sustainable economy—an economy that can support coming generations, reduce social disparities and prevent conflicts. The insurance industry, more so than others, can today become the vehicle through which greater awareness can be created among the insured and among consumers more gener- ally regarding the way society produces and finances the goods and services it needs, influ- encing lifestyles with a view to overall econom- ic and social sustainability. In this framework, it is clear that the informa- tion society—the Internet, human networks, social and technology networks—can be very useful for the development of the society as a whole and can help to improve the quality of people’s jobs, their leisure time, and consump- tion levels—in short, their life conditions. In an era of low returns, what should be done is to regenerate the use of money by matching it to social innovation and to the sharing of tools able to create shared value. The IT and connec- tivity era that we are experiencing has delivered great knowledge and power to consumers. More and more consumers use this power not only to get “good prices” but also to support “good companies.” In this context, to set up a new form of business or to sell a new product “ethically” and sustainably, while paying major attention to the needs of stakeholders, means doing something new and virtuous, not mere- ly avoiding misconduct. It means adopting behaviors that allow us to develop the com- pany’s value and the people who relate with it and help customers do the same. Markets will be increasingly dominated by those who man- age to implement an “ethical” and sustainable behavior in their business model. A study by the Forum for Sustainable Finance and Doxametrics in 20135 shows that there is a growing demand for sustainability from retail investors as well: in a sample of 1,000 inves- tors 30-to-50 years old, (43% of them holding a degree), 47% in fact expressed willingness to change their investment decisions in favor of companies that differentiate positively in terms of sustainability. If, on the one hand, the technological revolu- tion requires considerable flexibility in the of- fer, on the other hand, if well directed, it can change the course of history. It is an opportu- nity that must not be wasted, and if it is true that it poses new challenges it is equally true that it creates new opportunities. Technology significantly influences the behavior of customers. Internet access is now available permanently. Users expect that all Internet func- tions be available at all times, and that all re- quests made online be processed immediately. However, unlike the tools that were used until a few years ago, the latest technology, especial- ly tablets and smartphones, are sealed boxes. There is no possibility of dismantling the pack- age. It is impossible to see inside, and in using them, we feel satisfied just by looking at the world through them. The technology itself is transparent—not be- cause we completely understand its func- tioning, but simply because it’s impossible to assess, since its evolution and dissemination goes hand-in-hand with its ease of use and ease of usability. Stated another way, its natu- ralness in use hides its technological complexi- ty, showing as human a reaction that is instead mediated by the machine. An audience of aware consumers is the best source for the entrepreneur seeking to under- stand consumer needs and the exigencies of learning to manage them while improving upon one’s ability to give answers to the problems of people and society as a whole. 5 The study represents the first market research in Italy on the responsible consumer and was presented at the Forum for Su- stainable Finance during the CSR Week 2013. The survey was conducted by Doxametrics with contribution of Natixis GAM, UBS, Unipol Gruppo Finanziario and Etica SGR. 18 CONNECTED AND SUSTAINABLE INSURANCE
  20. 20. The consumer must have the right and duty to think and to act advisedly, being aware of the things he does and of the reasons and motiva- tions that support his choices and the conse- quences resulting therefrom. In a few years, maybe less, we will have a different consumer, more aware, multitasking and interactive; able to directly influence the companies thanks to digital tools. An educat- ed consumer who is informed, who wants to know and learn about the offer that is being proposed and, only after having evaluated it— in all respects, not only the strictly economic ones—makes his decision. Technology, information technology and dig- itization should help us find solutions, solve problems and make decisions oriented to the common good. As repeatedly stated, in fact, the greater availability of data and information makes risk-assumption more transparent and comprehensive, as well as facilitating the mak- ing of much more simple and well-informed investment choices. It is for this reason that the interaction can fos- ter the development of new investment tools oriented on average to the long term: Social Impact Bonds, green bonds, venture cap- ital instruments aimed at innovative SMEs, and the like can be found in the technologi- cal evolution an instrument of transparency and control that can increase the safety and reliability enhancing the role of financial insti- tutions (banks, insurance companies, pension funds, investment funds) in the construction of the circular economy and the green economy. Insurers—as medium to long term institutional investors—through the Connected insurance can improve their investment and risk as- sessment criteria, reducing the risks of fraud and influencing the behavior of the subjects in which they invest, indirectly working on the en- vironment and society. Finally, it has been understood, for example, that the Sustainable Development Goals can only be achieved with the active intervention of the private sector. In fact, the Global Goals—17 objectives contained in the action plan shared by the 193 UN member countries concerning issues relevant to world development (like the fight against poverty, hunger eradication and climate change)—should be realized by 2030. The implementation of the plan is fostering important and particular cooperation between actors who normally are confronted with skep- ticism: Representatives of the social sector on the one hand, and representatives of private and public institutions on the other. “Blended finance” is a term coined recently to describe the strategic use of public and philanthropic funds to attract private capital into investments with social impact in emerging markets. With the support of public co-investment, pri- vate investors benefit from lower risk and/or returns superior to traditional forms of invest- ment. At the same time, public investors can amplify the impact of private capital, attracting funding that otherwise would not be available for certain activities. The measurement of this impact requires increasingly sophisticated and complex digital technologies that are efficient and “neutral” tools to be used in the shaping of judgment. In this fluid and rapidly changing context, the insurance industry is gradually transforming. Insurance companies today are increasingly using cloud computing, mobile devices, data analysis and social media to meet the chang- ing needs and expectations of customers, and we are witnessing a gradual shift in the provi- sion of insurance services. The pace of digital change and its impact will continue to acceler- ate in the coming years. Many insurance companies have already made changes to their working processes—a phenomenon identified by the neologism In- sTech. It’s important to remember, however, that the amount of information acquired does not always serve to improve knowledge and 1904. IMPACTS ON SOCIETY AND THE ENVIRONMENT FOR SUSTAINABLE AND RESPONSIBLE DEVELOPMENT
  21. 21. awareness, because computerization allows us to merge specific information, but not to automatically shape it in a context understand- able to the recipient. Today we are living a paradox: we can instantly have information that in the last century was acquired in a life time, but we are unable to use it in its entirety. That is why the ability to fo- cus the information to a frame of reference be- comes important. Consideration of these con- nections translates into the ability to be present in the knowledge network that determines the inclusion of all stakeholders (even “potential” ones). In fact, the spreading of information, along with the learning process itself, has be- come increasingly related to the field of social relations rather than to the field of information tout court—without qualification— hence the need for a new “professionalism” and sensitivity in decrypting the data collected. This profes- sionalism will increasingly need to focus on the most important elements of the production pro- cess, such as research and development, pro- cess control and quality of the service offered. According to Italy’s Institute for the Supervision of Insurance (IVASS), in 2015 the country’s in- surance companies received 106,908 claims (+14.1% compared to 2014), 77% relative to the non-life branches and 23% relative to life (78% and 22%, respectively, in 2014). This is why the insurance industry should start developing and producing innovative, more understandable contractual models and adapting them to the electronic tools in which they will be available, perhaps by using simpler language than that used by “experts”—a lan- guage that does not facilitate full comprehen- sibility and consumer awareness. Connected Insurance (C.I.) can increase the spread of “smart contract,” in which, for exam- ple, the management of payments to the cus- tomer after an accident allows for a lump-sum assessment of the damage with the help of an electronic platform and central operation. A third, independent party could certify the existence of the claim, allowing the insured to receive com- pensation without any administrative fulfillment. An approach of this type requires profession- alism to perform an intermediation between conventional systems of information and us- ers. If the technical language is not mediated, it becomes an imposition that ends up manipu- lating the user, generating litigation in the con- tractual relationship, reputational damage, and transmigration toward competition. The next phase of Directive 2016/97/EU, the European Union’s Insurance Distribution Di- rective (IDD), confirms the expansion in the focus of the industry from prudential regulation and risk-based measures toward policyholder protection and conduct. The IDD will change companies’ behavior by applying new rules to sales situations to ensure customers are pro- tected throughout the contract term. This will reinforce the trend to reexamine how insurers go to market and use customer data. The risk of new forms of abuse should be prevented. In fact, each time a new service is offered, the information gathered about the parties increases, and there is no doubt that in the information society the problems of pri- vacy will multiply. But if an operator flouts or even circumvents the rules, the damage will be borne by the entire industry, causing it to lose credibility, reputation and accountability. This will nullify the advocacy work that has been built very slowly over time. The tradeoff will probably involve taking into account individualities, even when working on the community as a whole, so as to draw more and more tailor made products and ser- vices, to satisfy more and more personalized needs. In any case, the industry must bear in mind that the product is important, but that the process of development and quality of service provided before and after the contractual re- lationship established with the client is even more important. 20 CONNECTED AND SUSTAINABLE INSURANCE
  22. 22. 21 Connected insurance will allow you to gener- ate and spread trading and confrontation en- vironments that will become real incubators of knowledge—environments where the users of insurance can learn to make better use of new technologies and have more options to behave in an ethical and aware manner. In addition to doing business according to the dictates of its commercial nature, the industry will also per- form a teaching and narrative function. In the process, the industry will reshape itself using input contributed by all the actors involved, in- cluding the opinions of policyholders and so on, to fully respond to consumer needs. 4.4 WILL NATIONS INDIRECTLY BENEFIT FROM A MORE-CONNECTED, RESPONSIBLE INSURANCE? The insurance sector is aware of the fact that there is potential demand for emerging risk coverage, mainly for households and real es- tate. However, this demand remains dormant: there is not full awareness of the proactive role the industry must play in the integration of en- vironmental factors, technological innovation in production processes and the “global qual- ity” of the products and services it provides. The road toward the greening of the insurance sector will also require a strong emphasis on dematerialization. This is why Connected Insurance, besides making customer experience more stable, effi- cient and satisfactory, will also provide positive effects on sustainable development of society as a whole. It will be necessary to use assess- ment methods capable of measuring such ben- efits—for example, Social Return on Investment (SROI), but if these prove unsatisfactory, it will be necessary to find other criteria, such as making a more and more scientific approach to assessing the environmental, social and gover- nance (ESG) variables of production activities. On the other hand, new technologies are be- coming smarter and less invasive. This tech- nology can be easily implemented in any con- text, although implementation is being done primarily in the urban context. Industry adjust- ments to the technological features have re- al-time effect on goods and services, on peo- ple, and on the things that surround them. In this light, a basic element which will be strongly highlighted by digital technology is the gradu- al transition from possessing goods to having access to goods. Personal Insurance: The use of devices is shifting consumers’ at- tention toward a healthier and pro-active life- style, oriented to preventing diseases rather than treating them, capable of increasing life expectancy and guaranteeing higher quality with a consequent lower need of assistance and specific treatments. Digitalization is de- veloping new forms of sharing and supporting the effort of insurance services to orient peo- ple toward certain behaviors—for example, gaming with friends and other users/insureds, and being rewarded for behaviors that pro- mote healthier lifestyles with complementary services like gyms, beauty farms, fidelity and rewards programs based on consumption, periodic checkups linked to the expiration of documents, and so on. There will be new opportunities to build goods and services dedicated to the needs of older and very old people (assistance, attention to daily needs, cohousing and so on) where Con- nected Insurance will rationalize interventions and create measurable market economies that directly impact public spending. The increased use of eco-friendly means of transportation like bicycling and fit-walking is modifying insurance needs in the areas of acci- dent, assistance and geolocation, among oth- ers. However, dietary habits and diseases can deeply influence emerging risks and needs. Certainly, people suffering from celiac disease, 2104. IMPACTS ON SOCIETY AND THE ENVIRONMENT FOR SUSTAINABLE AND RESPONSIBLE DEVELOPMENT
  23. 23. the obese, and vegan people are constantly growing in number, and the insurance sector can work to promptly introduce technolog- ical products that complement such trends while influencing habits and consumption at the same time. Thanks to the growing and widespread public awareness of ESG issues, in fact, people are living healthier lifestyles, thinking critically about their diets and becom- ing more informed about high-quality food (certified or zero-kilometer, directly monitored by consumers), as well as consumer goods which are less and less polluting (electric cars and bikes, with strong dematerialization in us- ing financial services and payment systems). Consequently, IT risks linked to data protection and cybercrimes on customers’ devices are growing (worms in home computers, identity thefts in transactions, and so on); in this field too, the role of insurers is crucial. Motor Insurance—mobility and transport Mobility in our towns is changing dramatically thanks to digital technologies. Just think of car sharing. The real revolution will come from driv- erless cars, which will give further momentum to shared use. This innovation will eliminate the distinction between public and private trans- port, and some studies prove that some large towns in the world would already meet the mo- bility demand with about 30% of the circulating car fleet. Implications deriving from Connected Insurance in this field are extremely clear for the insurance sector and indicate the path to follow. The economic crisis and a growing aware- ness of the risks arising from climate change, despite the oil price reduction, mark an irre- versible trend. Installing technological devic- es capable of measuring driving style fosters risk-reduction, but also consumption-reduc- tion, and influences the consequent impact on the environment. The development of smart mobility, slower but more constant, is increas- ingly evident, using bikes or collective means, based on the sharing economy. Connected insurance technology monitors tire wear, triggers vehicle-maintenance alerts, tracks geolocation, locates emergency and assistance services, and collects data that can guide the creation of new products and ser- vices to improve customers’ experience. And cyclists can utilize a range of applications to summon immediate assistance from non-pol- luting cycle rickshaws, view interactive maps, locate hotel and restaurant discount offers and custom-tailored complementary services linked to mobility. Clearly, rationalization and efficiency must be applied to every type of transport, whether on roads or rails, in the air or on water. Just to give an example of the role of insurance, see what is established under Article 1 of Italian law 221/2015 (the so-called “Green Act”) con- cerning “Measures aimed at raising awareness among owners of pollutant cargo transported by sea.” Under the law, if a ship is determined inadequate to haul the quality and quantity of the polluted load, its owner must stipulate an ad hoc insurance policy that covers any po- tential risks. The captain is required to keep a copy of the policy with the ship’s documents for presentation to maritime authorities con- ducting compliance checks. This is a clear example of how insurers can use more devel- oped technology to increase the level of com- pliance with environmental regulations. Personal properties—home insurance This is not about imagining futuristic cities, but redesigning existing cities. In a social context where the population is not growing but is getting older, to allow urban areas to expand and unnecessarily consume virgin soil is not the right thing to do. What should be done is to use new materials and technologies to enhance existing assets and improve their re- silience to climate change. That means using less concrete and more silicon, which impacts design, installation, maintenance and use of technology that effectively reduces manage- ment costs. 22 CONNECTED AND SUSTAINABLE INSURANCE
  24. 24. What is needed are serious and pervasive pub- lic policies of intervention on real estate: when skiing, nobody wears only a tank top, because body heat will quickly diffuse away with the risk of rapid death from exposure. The same should apply to buildings: you should take action on “external housing quality” to ensure that the en- ergy is retained within the home. Such a step can cut energy costs 70% to 90%. Using newer, more energy-efficient materials, including fire-resistant and non-conducting materials, decreases related insurance risks, and gives birth, at the same time, to new needs which are still not well defined from the point of view of the insurance risk (e.g., the ability to accumulate the self-produced energy by storing it in more modern batteries). According to Italy’s National Institute of Statis- tics (Istat), almost 40% of the Italian population is single and there is an increase in co-hous- ing, with a change in family housing habits such that more people are living in apartment buildings and in communities. The demand for insurance products should increase, linked to the use of goods and technologies to produce renewable energies that cover the entire “cycle of use” up to their disposal. The tendency for the insurance industry would be to manage its real estate assets in an in- novative way, making full use of the enormous availability of data resulting from automation and providing alternative services for singles or older people not necessarily already in need of care, but in need of shared life and facilities. All this indirectly produces the birth of a prod- uct that does not meet the strict definition of insurance, but that is directly connected to it, and that is also favored by the simplification, acceleration and rationalization resulting from technology (e.g., services to provide for select- ed caregivers to fulfill daily needs and so on). It would be possible to deploy accessory ser- vices (such as a plumber, metal worker, car- penter, construction worker or electrician) on demand, or by means of alerts issued by a computer system that can also be linked to family habits (consumption and “smart” refrig- erators). Chips could be used in pet insurance with considerable benefits in terms of expo- sure to risks. Technology will become increasingly rele- vant to insurance-risk prevention. Examples include gas leak detection, theft prevention, conversion of old systems in time to avoid ser- vice-supply disruption, integration of intelligent electrical systems with self-coordinating appli- ances; reduction of magnetic fields in rooms; isolation and automatic protection during lightning storms, and so on. At the same time, such technology improves energy-efficien- cy and benefits the environment by reducing energy consumption and conserving water. There are applications on the market that save considerable time detecting faults in the water supply network by using satellites. Technology can also help reduce the costs for the commu- nity, for example in the investigation of crimes or in the interventions of maintenance of com- mon goods with obvious benefits in terms of insurance. For example, it will become much easier to take action on the waste cycle, which will im- pact the taxation of services as well (see social impact bond in Naples). In many cases, technology promotes common services and can also be used to develop new forms of real estate management. Some credit institutions, for example, have contracted their properties out to social cooperatives to create forms of social housing where “aware families” that have low incomes can obtain a reduction in condo fees if they perform common func- tions useful to the management of the proper- ty, exchanging their professional skills for lower ordinary and extraordinary maintenance costs. Professional liability insurance: In this field as well, people are cutting costs by using home automation and computer 2304. IMPACTS ON SOCIETY AND THE ENVIRONMENT FOR SUSTAINABLE AND RESPONSIBLE DEVELOPMENT
  25. 25. applications that push energy consumption down while enhancing risk prevention in the areas of liability, property, fire, theft, and so on. This opens up interesting possibilities to make concrete improvements in management of the waste cycle, which is a clear benefit to every- one. Specialized environmental consulting and the engagement of the insurer on the compa- ny that he intends to buy becomes strategic not only from the perspective of risk preven- tion but also cost-reduction for the company itself. The implementation and/or improvement of environmental certifications and their ongo- ing monitoring also brings significant insurance benefits. The growing importance of these fac- tors is highlighted in the recent Italian legisla- tion on public procurement, where we find, as a criterion for selecting the winner of the ten- der, the fact that this proves to have a posi- tive impact on the environment and on society in the realization of the commissioned work. These factors are greatly relevant to insurance. New insurance products can be created by exploiting the potential of C.I. at every step, from quality control in production to product distribution and beyond. Remote-controlled vehicles offer new insurance-market opportu- nities. The same is true of roadside assistance services; interactive GPS maps; theft-preven- tion devices; special offers from the hospital- ity industry; and device-enabled connection with other multi-modal services. Further mar- ket openings include verification of food per- ishability; consistency of warehoused goods; expiration dates; data protection; and the pre- vention of cybercrimes. Increasingly efficient, user-friendly digital tech- nology and Connected Insurance is finding a happy point of synthesis in a growing list of mar- ket opportunities that expands into consumer goods, convention planning, personal services, sustainable mobility and corporate wellness where shrinking company’s carbon footprint, creating obvious tax benefits and environment. 24 CONNECTED AND SUSTAINABLE INSURANCE
  26. 26. 2525 The Connected Insurance represents a new paradigm for the insurance business. This new approach is based on the use of telematic detectors to collect and transmit data about the state of an insured risk and about the use of big data to transform rough data in information that can be immediately processed along the insurance value chain. The insurance industry is experiencing a great transformation and the Connected Insurance represents one of the main change factors, thanks to the potential advantage that it will bring to productivity at top line levels, to the profitability of the business and to the solidity of the portfolio. In addition, let’s not forget the resulting greater closeness to clients for an industry that is used to have a few touch points in particularly sen- sitive phases (acquisition and claim). The Insurance is not just technique, technolo- gy and regulations. It’s an essential part in the development of national economy and wel- fare: risk management, protection, mutuality and national insurance are pillars on which the progress of civilized societies is based. The professional, the artisan, the head of the family, the SMEs can have many insurance products to protect themselves from the ev- eryday hidden risks, to increase their level of security and protection, to plan serenely the future of their family and enterprise, to improve their life quality and their business. In this context, the insurance companies – by using data from the detectors – can perform a new virtuous role for society by providing, first of all, more active prevention from all risks that could happen, and, secondly – when preven- tion is not sufficient - well-timed intervention, also guaranteeing proactivity, useful to limit the damage and facilitate the recovery. In the end, let’s not forget that, by increasing the sustainability of its business models, the insurance industry will be able to generate im- portant positive externalities: respect for the environment and for future generations, better health conditions and, at the same time, less health care costs due to accidents. These are just few examples of how the insurance indus- try can give its contribution for a better world. Dario Focarelli 5. CONCLUSIONS 05. CONCLUSIONS

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Connected insurance represents a new paradigm for the insurance business that allows a new virtuous role for society

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