IoT: What’s in it for the customer?
Matteo Carbone
@mcIns_
London, June 13
#InsurIoT

The background of the thoughts I will share with you today
Principal
@ Bain & Company
• Financial Service and
Digital Practices
• 12 years strategic
consulting experience
• Focused on insurance
and innovation
Insurtech
Influencer
• Speaker and writer on
insurance innovation
• Insurance Thought
Leader
• Top 50 InsurTech
Influencer
Founder of Connected
Insurance Observatory
• Responsible of the
Observatory on
Telematics, Connected
Insurance and Innovation
• Advisor of more than 50
international players on
Insurance IoT
50
#InsurIoT
Matteo Carbone

I founded a think thank focused on Insurance IoT
More than 45 players joined this first edition of the Observatory
Insurers
30 Insurers part of
Insurance Groups
representing 66% of the
P&C Italian insurance
market
Reisurers
3 primary International
Reinsures
30 3
Aiba Appian Aubay DigitalTech
Guidewire IRSA SYSDATA Vodafone Automotive
Belron
Portolano Cavallo
Studio legale
#InsurIoT
Matteo Carbone

Insurance IoT is not about things, is about connecting
insurance with people and their risks
Connected insurance:
Applications
Health Industrial risksAutomotive Building Life
insurance solution that provides the use
of sensors for collecting data on the state of an insured risk and
telematics for the remote transmission of the collected data and
their use on the Insurance value chain
Surce: Connceted
Insurance Observatory
#InsurIoT
Matteo Carbone

Black-box
More than 4 Millions of
insurance black boxes fitted in
the cars +4
Penetration
Telematics represent 16% of the
auto insurance contracts sold
and renewed at Q4 '1516%
Best practice
One of the main Italian insurance
Groups reached a penetration greater
than 40% on his auto insurance
portfolio
>40%
Insurers
26 Insurers are offering a motor
third part liability cover
telematics based on the Italian
market
26
Insurance telematics is mainstream in Italy
65% NOW!
65% of the Insurers at the Connected Insurance
Observatory have already seen a material impact of
telematics on the Italian auto insurance marketSource: Connected Insurance Observatory
#InsurIoT
Matteo Carbone

Who is the buyer of a insurance with black box?
#InsurIoT
Matteo Carbone
Source: Bain elaboration on "RCA e black box: analisi degli acquirenti", Sergio Desantis. Connected Insurance Observatory
Telematics penetration on MTPL policies by age
Age

Who is the buyer of a insurance with black box?
Source: Bain elaboration on "Clausole sulla Black-Box: trend temporali e canali di selezione/controllo dei rischi", Marco Cosconati. Connected Insurance Observatory
Note: Cars personal line (not included motocycle, boats, trucks and commercial lines), representing 70% of the MTPL contracts
Market breakdown by MTPL premium level Telematics penetration
16%
26%
22%
18%
16%
13%
#InsurIoT
Matteo Carbone

The client perspective
MTPL +
theft (discounted) + black box MTPL (discounted) + black box
When the value increase is positive and material, there is an effective use case for the
client and a selling speech for the distributor
#InsurIoT
Matteo Carbone
Source: Connected Insurance Observatory

Why motor insurance telematics?
“I am the Career Genie.
I grant 3 wishes that help people
along with their jobs.”
“For my first wish, I would like safe drivers
to buy my Motor insurance product”
Source: From an Andrew Dart's article originally appeared in the Asia Insurance Review, September 2014 edition
Image: Courtesy from cliparts.co
"Genie, I'm an Insurance CEO"
“It’s done, now you have the black box”
#InsurIoT
Matteo Carbone

The insurer perspective:
benefits on the insurance bottom line
Matteo Carbone, 28 April 2016
#InsurIoT
Matteo Carbone
MTPL
claims frequency
-20%
Surce: Connceted Insurance Observatory

Why motor insurance telematics?
“I am the Career Genie.
I grant 3 wishes that help people
along with their jobs.”
“For my first wish, I would like safe drivers
to buy my Motor insurance product”
“OK Genie, for my next wish, I want you to
reduce claims costs and fraud – make my
motor line of business really profitable”
Source: From an Andrew Dart's article originally appeared in the Asia Insurance Review, September 2014 edition
Image: Courtesy from cliparts.co
"Genie, I'm an Insurance CEO"
“It’s done, now you have the black box”
“Your wish is granted, your claims handlers will
receives the telematics data real time”
#InsurIoT
Matteo Carbone

The insurer perspective:
benefits on the insurance bottom line
Matteo Carbone, 28 April 2016
#InsurIoT
@mcIns_
+100%
Insurer's body shops usage
BOX
-11% average
cost of claims
Source: Connected Insurance Observatory

• Ability of box to auto-select risks and
influence behaviors
• Efficiency of information usage in the
claims handling process
• Reduced thefts claims
• Usage of external partners (TSP) allowed to:
- achieve relevant quick wins with limited
investments and limited impact on the system
- have direct access to innovation
• Effectiveness of the commercial act which is
maximized by:
- Visual effect of the reach of the RCA discount
- Explicit cost paid by the client (mix of rate, services
and assistance premiums)
• Remuneration to the intermediaries
Value sharing with both clients and agents
Traditional
lifetime
value
Benefits for
insurance
bottom line
Services &
assistance
rate
Customer
discount
TSP
Lifetime
value
telematics
Company
LTV
•
Telematics business case
1
1
2
3
2
3 5
44
Intermediary
#InsurIoT
Matteo Carbone
5
Source: Connected Insurance Observatory

Why motor insurance telematics?
“I am the Career Genie.
I grant 3 wishes that help people
along with their jobs.”
“For my first wish, I would like safe drivers
to buy my Motor insurance product”
“OK Genie, for my next wish, I want you to
reduce claims costs and fraud – make my
motor line of business really profitable”
“OK Genie, for my last wish, I want to find a way to change
charge the behaviors of my clients improving over time my
profitability”
Source: From an Andrew Dart's article originally appeared in the Asia Insurance Review, September 2014 edition
Image: Courtesy from cliparts.co
"Genie, I'm an Insurance CEO"
“It’s done, now you have the black box”
“Your wish is granted, your claims handlers will
receives the telematics data real time”
“Your wish is my command, you have a behavioral-based tariff”
#InsurIoT
Matteo Carbone

Basic black-box PAYD PHYD
0
20
40
60
80
100%
10
Premium adjustment
17 9
At renewal
At renewal
Premium
adjustment
Tariff benchmarking – March '16
Number of products
The market was not focused on pricing telematics-based,
but the approached are becoming more sophisticated
Market offer evolution
Number of products
Flat discount
#InsurIoT
Matteo Carbone
Source: Connected Insurance Observatory

Why risk-based pricing?
Premium adjustment based on the
behaviors, with a mechanism
understandable and communicable
Risk-based pricing to offer a competitive
renewal rate to the low risk client, in
order to retain them and improve the
technical profitability of the auto
insurance telematics portfolio
Make clients less risky
Retention
of low risk clients
• How to engage the client?
• Is a discount on the insurance rate at
renewal enough?
• Other reward could be used?
• Which variables are really effective to
identify the low risk clients?
• With the discount diffusion on the low
risk clients, how to manage the technical
equilibrium of the part of the portfolio
without telematics?
#InsurIoT
Matteo Carbone

Other ways to change behaviors
Economics auto telematics
Traditional
lifetime
value
Partners
contribu-
tions
Discounts/cash back to
the client
Fee for ecosystem
of partners
Fee for the intermediary
Lifetime
value
telematics
LTV for the Insurer
Benefits on
the
insurance
bottom line
Additional
fees
Weather alert based
on geo-localization
5
Antitheft service if
the box registers a
different-than-
usual driving
style
3
"Live"
concierge
supporting
navigation
1
Alert if the vehicle exits a
"safe area" (or enters an
"unsafe area") of the
city, defined by the client
(e.g. parental control
options)
4
Alert in case
speed limits are
exceeded
2
Highway/ parking
area tolling
6
Road or
medical
assistance via
dedicated button
7
Simplified claim
notification,
including automatic
form fill-in based
on telematics data
8
Damages
Photo
Claims feature
Claim
certification
at client's
disposal
Automatic
assistance to
the client on
the premises in
case of severe
accident
9
10
11
Client assistance
and personalized
case management
in case of crash
Parking
localization
Street
sweeping
alerts
Alert if the car
is hit when
parked
Antitheft service
if the box is
removed/
uninstalled
Alert in case
the vehicle
is moved
when the
engine is off
(e.g.
tow-away)
14
15
16
13
12
Stolen
vehicle
recovery
17
The insurer can
keep more value
with use cases
based on a broad
suite of services
and rewards
#InsurIoT
Matteo Carbone
Source: Connected Insurance Observatory

Connected insurance market adoption
requires defined sequential steps
Which is the best
way to do it for
my company?
Does the
approach make
sense?
There is a
ROI of the
use case?
•First pilots •Roll out on few
pioneers
•Pilot phases diffusion
over the greatest part of
players, by using a "me-
too" approach
•Only few top players
understand telematics
full potential (UW,
claims, VAS), define
their own approach
(eg: big data) and push
the selling phase
•Commercial offer
differentiation
•Telematics potential
fully understood and
increased commercial
push by all players
•Differentiating
solutions / providers
over top players
•Telematics approach is the
standard for the insurance
business
•Relationship consolidation
between top players and
providers, best practices
cross-country diffusion
#InsurIoT
Matteo Carbone
Incubation
phase
Growth
phase
Maturity
phase
Exploration
phase
Learning
phase
Source: Connected Insurance Observatory

Italian Market is starting the insurance IoT adoption
Where do you think the sector is so far in the race towards IoT implementation?
(business lines different from auto insurance)
The industry is already
embaracing this change
The next 12 months will
be critical
This is a long term goal
Not clear the applicability
It will never become reality
29%
45%
24%
2%
•
•
0%
#InsurIoT
Matteo Carbone
Source: Connected Insurance Observatory

House and health insurance are hot now
Will be the connected insurance the most relevant innovation in the next 12 months?
(business lines different from auto insurance)
(% of positive answers)
Surce: Connceted Insurance Observatory
#InsurIoT
Matteo Carbone

Insurers can incentivize IoT for consumers, ensuring both
parties get the most out of the partnership
Is this approach able to select a less risky
customer base for your life insurance product?
#InsurIoT
Matteo Carbone
Source: Connected Insurance Observatory

Strategy first!
What is the greatest challenge slowing insurance IoT adoption?
(business lines different from auto insurance)
Lack of a clear
strategy
38%
Customer
readiness
Privacy issues
Data
management
Implementation
costs
23%
18%
13%
7% Surce: Connceted Insurance Observatory
#InsurIoT
Matteo Carbone

Connected insurance is a journey,
not a destination
Surce: Connceted
Insurance Observatory
Telematics
strategy
Value
proposition
What strategic goal to achieve by
introducing connected insurance?
How to position the product within the current
product offer? What target client to reach?
Hardware
and
operating
model
• Which user experience at sales point?
• What pricing approach to introduce at underwriting and renewal?
• What services and loyalty systems to include in the product?
• How to leverage the communication channel with client?
• Which data and how structure the data gathering approach?
• What devices and which delivery user experience?
• How to evolve processes to strengthen the effectiveness of the impacted
Company functions? (e.g. claims, actuarial, UW…)
• How to capitalize on the cumulated experiences and activate a path of
continuous improvement?
#InsurIoT
Matteo Carbone

Insurance IoT connects Insurer
with people and their risks.
Data is the new oil!
Matteo Carbone
@mcIns_
London, June 13
#InsurIoT