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IoT Insurance Paradigm

Onramp key takeaways: 1) Same Insurtech brutal truths 2) The future of the Insurers will be insurtech 3) Reasons why for adopting IoT in the insurance sector 4) The IoT Insurance Observatory mission

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April 12th 2018
Connected insurance paradigm
Matteo Carbone
Founder and Director, IoT Insurance Observatory
@mcins_
2
Why have we to talk about insurance innovation?
Insurance is about protecting the way people live
Since 1347 Insurance has been a contract
where someone promises to indemnify another
against loss or damage from am uncertain event
as long as premium is paid to obtain this coverage
Insurtech can make the insurance sector stronger and therefore more
capable of achieving its strategic goal: to protect the way people live!
How can
InsurTech
help do
this?
3
Some insurtech storytellings are terrific
Let be frank: frequently these are whishes, not current capabilities!
“if Lemonade is 80% cheaper it must lose
money on every policy. That is not true”
“we also apply behavioral economics to
reduce fraud”
“we’re playing a version of the trust game”
Note: Claims ratio are gross of reinsurance
161% loss ratio vs 75% market average
$1.6 paid for each 1$ earned
“we aren’t the first company to use telematics.
We’re just the first to do it right”
“we using data and technology to…give good
drivers the rates they actually deserve”
“founded in the principle of fundamental fairness”
156% loss ratio vs 71% market average
$1.6 paid for each 1$ written
4
All the insurance players will be InsurTech
It’s unthinkable for an insurance company
today not to pose the question of how to evolve its
own model by thinking which modules within their
value chain should be transformed or
reinvented via technology and data usage
I believe all the players in the
insurance arena will be InsurTech,
meaning organizations where technology
will prevail as the key enabler of the
achievement of their strategic goals
Insurtech is the “superpower” for
assessing, managing and transferring risks
5
I love insurance
Matteo Carbone
InsurTech Investor and co-funder
Founder and Director of the IoT
Insurance Observatory
+11 years strategic consulting
(former Principal with Bain & co.)
Keynote speaker and writer on
insurance innovation
Global InsurTech Influencer
• This Insurance think tank has aggregated more
than 50 international insurance groups,
institutions and tech firms between Europe and
North America
• The initiative has three concrete outcomes:
‒ The most pragmatic multiclient research
specialized in the insurance IoT domain
‒ One-to-one workshops dedicated to each
member to discuss research outcomes
‒ Plenary symposiums with all the members
together around the same table
I’m helping incumbents to concretely address the IoT opportunity
6
Why is IoT relevant to insurers?
Today more than 1 connected
device per person in the world
You can leverage these sensors or ignore them!
In 2025 more than 10 connected
devices per person in the world
In 2050 …
The world will be more and more connected, you can not stop that

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IoT Insurance Paradigm

  • 1. April 12th 2018 Connected insurance paradigm Matteo Carbone Founder and Director, IoT Insurance Observatory @mcins_
  • 2. 2 Why have we to talk about insurance innovation? Insurance is about protecting the way people live Since 1347 Insurance has been a contract where someone promises to indemnify another against loss or damage from am uncertain event as long as premium is paid to obtain this coverage Insurtech can make the insurance sector stronger and therefore more capable of achieving its strategic goal: to protect the way people live! How can InsurTech help do this?
  • 3. 3 Some insurtech storytellings are terrific Let be frank: frequently these are whishes, not current capabilities! “if Lemonade is 80% cheaper it must lose money on every policy. That is not true” “we also apply behavioral economics to reduce fraud” “we’re playing a version of the trust game” Note: Claims ratio are gross of reinsurance 161% loss ratio vs 75% market average $1.6 paid for each 1$ earned “we aren’t the first company to use telematics. We’re just the first to do it right” “we using data and technology to…give good drivers the rates they actually deserve” “founded in the principle of fundamental fairness” 156% loss ratio vs 71% market average $1.6 paid for each 1$ written
  • 4. 4 All the insurance players will be InsurTech It’s unthinkable for an insurance company today not to pose the question of how to evolve its own model by thinking which modules within their value chain should be transformed or reinvented via technology and data usage I believe all the players in the insurance arena will be InsurTech, meaning organizations where technology will prevail as the key enabler of the achievement of their strategic goals Insurtech is the “superpower” for assessing, managing and transferring risks
  • 5. 5 I love insurance Matteo Carbone InsurTech Investor and co-funder Founder and Director of the IoT Insurance Observatory +11 years strategic consulting (former Principal with Bain & co.) Keynote speaker and writer on insurance innovation Global InsurTech Influencer • This Insurance think tank has aggregated more than 50 international insurance groups, institutions and tech firms between Europe and North America • The initiative has three concrete outcomes: ‒ The most pragmatic multiclient research specialized in the insurance IoT domain ‒ One-to-one workshops dedicated to each member to discuss research outcomes ‒ Plenary symposiums with all the members together around the same table I’m helping incumbents to concretely address the IoT opportunity
  • 6. 6 Why is IoT relevant to insurers? Today more than 1 connected device per person in the world You can leverage these sensors or ignore them! In 2025 more than 10 connected devices per person in the world In 2050 … The world will be more and more connected, you can not stop that
  • 7. 7 The most pragmatic multiclient research specialized in the insurance IoT domain One-to-one workshops dedicated to each member to discuss the research outcomes Plenary symposiums with all the members together around the same table I have created a think tank which provides to the members the access to the most relevant insurance IoT knowledge globally
  • 8. 8 The protection of a connected home: how could it look in a few years? The prevention of the risks which could occur to the house Proactive actions to limit the damages and fix them The monetary reimbursement will be necessary only in case of a "service failure" For a monthly fee someone will offer the consumer:
  • 9. 9 Will Insurers be relevant in this kind of future? ILLUSTRATIVE Supermarket Relevance Frequency Hair dresser Telecom operator Traditional insurer Doctor Dentist Social media Real estate agent Notary Search engine Bank Credit card provider Lower risks to cover, invisible insurance ancillary to a product purchase, …)
  • 10. 10 In 2017, I had more than 350 hours of discussions with the Observatory members around the globe Think Tanks One focused on the North American markets and one dedicated to the European markets 2 Organizations Involved hundreds of executives from almost 35 Insurance and Reinsurance Groups and 15 Tech players and Institutions 50 Plenary meetings 6 full days of keynote speeches, discussions, roundtable. A terrific networking opportunity 6 Hours of workshop More than 120 "one to one" workshops (meetings dedicated to each company which has joined the Observatory) >350 4 Business insurance areas addressed Unique research based on innovation thought leadership and insurance acumen on all insurance business lines
  • 11. 11 Will Insurers be relevant in this kind of future? ILLUSTRATIVE Supermarket Relevance Frequency Hair dresser Telecom operator Traditional insurer Insurance Iot Doctor Dentist Social media Real estate agent Notary Search engine Bank Credit card provider Irrelevancy is only a choice for an Insurer, not his inevitable destiny! Insurance IoT is about connecting the insurance sector with clients and their risks Lower risks to cover, invisible insurance ancillary to a product purchase, …)
  • 12. 12 One Observatory member has chosen to proactively address the threat of the future of mobility Mobility a service: this Insurer has taken the bull by the horns! REAL CASE Roadside assistance, maintenance, crash support a bundle of other services telematics based Full coverage auto insurance with 0 deductible (personal line priced on driver and car characteristics) For a monthly fee its tied agents are offering the consumer: A new car (with a 24/60 months contract)
  • 13. 13 IoT is an incredible opportunity for the insurance sector IoT improves insurance profit & loss and allows insurers to share part of this value with the customer in order to deliver superior value propositions It enhances proximity and interaction frequency with the customer while creating new customer experience, increasing retention, and expanding relationships Value creation Interaction frequency 2 1
  • 14. 14 Each Insurer can create and sell his own insurance IoT value proposition: insurance contract + IoT data + services The Insurance players have a unique competitive advantage vs any other IoT players: • Because the same data used to deliver services allows to improve the insurance activity (assess, manage and transfer risks) • This way IoT allows to create value on the insurance P&L • this value can be shared with the client creating a valuable bundle between insurance coverages and IoT solutions Value sharing Connected insurance pardigm The bigger the difference between insurance premium and service cost, the higher the potential of the insurance IoT
  • 15. 15 Value Creation Levers SERVICES… -…based on sensor data to deliver enlarged value propositions for the clients orchestrating an ecosystem of partners -…concerning information about insurance coverage and insured risks IoT data can have a extraordinary impact on the way you assess, manage and transfer risks
  • 16. 16 Earned additional service fees A home insurance product with annual fee for the professional safety and security services (and device renting), integrated with optional property services offered “a la carte” by an ecosystem of partners REAL CASE Safety/Security oRemote monitoring and emergency services (all the solutions discussed before to prevent and mitigate insured risks) to provide peace-of-mind Property services oConcierge with a platform of certified services providers to manage the house: ‒ Home maintenance ‒ Home services (cleaning, gardening, ironing …) ‒ … Solar panel Lighting Intrusion alarm Heating/ cooling Thermostat Flower control Computers & electronics Mould detector Camera Refrigerator and freezer Fire detection Camera Lock Electric meter Vacuum cleaner Washing machine Heat exchanger
  • 17. 17 The value creation framework Traditional bottom line Hardware Services IoT costs Service fees paid by the customer Partners contribution
  • 18. 18 RISK SELECTION: -Low-risk customer acquisition due to the storytelling of the IoT insurance product -Improved quality of underwriting process based on sensors data (including constant insights on exposure) -Increased underwriting process efficiency Value Creation Levers IoT data can have a extraordinary impact on the way you assess, manage and transfer risks SERVICES… -…based on sensor data to deliver enlarged value propositions for the clients orchestrating an ecosystem of partners -…concerning information about insurance coverage and insured risks
  • 19. 19 Self-selected risks due to product features An auto telematics value proposition focused on the claims monitoring has a terrific effect on the acquisition of low risk clients Market average (20%) Claims frequency (district average) Black box effect on claims frequency (risk adjusted) Black box impact by district Market average -20% 3.0 6.0 6.5%Market average 4,8% 4.5 REAL CASE
  • 20. 20 The value creation framework Traditional bottom line Risk self selection Service fees paid by the customer Partners contribution Hardware Services IoT costs
  • 21. 21 RISK SELECTION: -Low-risk customer acquisition due to the storytelling of the IoT insurance product -Improved quality of underwriting process based on sensors data (including constant insights on exposure) -Increased underwriting process efficiency LOSS CONTROL • Usage of the device information in order to anticipate claims management and improve reimbursement valuation • Initiatives acting directly in real-time on single situations to: -mitigate risks before damages occur -contain damages • LAE reductions • More accurate reserving Value Creation Levers IoT data can have a extraordinary impact on the way you assess, manage and transfer risks SERVICES… -…based on sensor data to deliver enlarged value propositions for the clients orchestrating an ecosystem of partners -…concerning information about insurance coverage and insured risks
  • 22. 22 Enhanced the effectiveness of the claims evaluation and the efficiency of the claim process Claim dynamics reconstructed through telematics data are represented “near real time” to the claim handlers on their desktops Photo credit: UnipolSai REAL CASE
  • 23. 23 The value creation framework Traditional bottom line Risk self selection Claims cost reduction Service fees paid by the customer Partners contribution Hardware Services IoT costs
  • 24. 24 RISK SELECTION: -Low-risk customer acquisition due to the storytelling of the IoT insurance product -Improved quality of underwriting process based on sensors data (including constant insights on exposure) -Increased underwriting process efficiency BEHAVIORAL CHANGE -Indirect impact on risk level through: -positive behavior reinforcement (including gamification) -culture creation - Loyalty systems based on detected behaviors (retention of low risk clients) LOSS CONTROL • Usage of the device information in order to anticipate claims management and improve reimbursement valuation • Initiatives acting directly in real-time on single situations to: -mitigate risks before damages occur -contain damages • LAE reductions • More accurate reserving Value Creation Levers IoT data can have a extraordinary impact on the way you assess, manage and transfer risks SERVICES… -…based on sensor data to deliver enlarged value propositions for the clients orchestrating an ecosystem of partners -…concerning information about insurance coverage and insured risks
  • 25. 25 Nudged clients to less risky behaviors Instant reward to life policyholders for performed healthy behaviors REAL CASE
  • 26. 26 The value creation framework Traditional bottom line Risk self selection Claims cost reduction Service fees paid by the customer Change of behaviors Partners contribution Hardware Services IoT costs
  • 27. 27 RISK SELECTION: -Low-risk customer acquisition due to the storytelling of the IoT insurance product -Improved quality of underwriting process based on sensors data (including constant insights on exposure) -Increased underwriting process efficiency RISK-BASED PRICING - More accurate rating: based on measured "quantity" and "level" of risk exposure - Value propositions more attractive to the customers BEHAVIORAL CHANGE -Indirect impact on risk level through: -positive behavior reinforcement (including gamification) -culture creation - Loyalty systems based on detected behaviors (retention of low risk clients) LOSS CONTROL • Usage of the device information in order to anticipate claims management and improve reimbursement valuation • Initiatives acting directly in real-time on single situations to: -mitigate risks before damages occur -contain damages • LAE reductions • More accurate reserving Value Creation Levers IoT data can have a extraordinary impact on the way you assess, manage and transfer risks SERVICES… -…based on sensor data to deliver enlarged value propositions for the clients orchestrating an ecosystem of partners -…concerning information about insurance coverage and insured risks
  • 28. 28 Reduced the premium leakage 12.00 24.00 20.00 6.00 Cheap telematics auto insurance for teenagers, eventual night hour driving charged on top on their credit card by km REAL CASE
  • 29. 29 The value creation framework Incentives and discounts are ways of sharing with the customer part of the value created in order to deliver superior value propositions Traditional bottom line Risk self selection Claims cost reduction Service fees paid by the customer Bottom line with IoT Discount and incentives to the costumer Value sharing Intermediary additional remuneration Change of behaviors Partners contribution More accurate pricing Hardware Services IoT costs
  • 30. 30 IoT is an incredible opportunity for the insurance sector IoT improves insurance profit & loss and allows insurers to share part of this value with the customer in order in order to deliver superior value propositions It enhances proximity and interaction frequency with the customer while creating new customer experience, increasing retention, and expanding relationships These approaches create and consolidate knowledge about risks and the customer base which will lead to the next generation of products, but also enable further data monetization opportunities through the creation of ecosystems Value creation Interaction frequency Knowledge creation 2 1 3 Insurance IoT enables a new virtuous role for Insurers by providing positive externalities for a more sustainable society Sustainability4
  • 31. 31 Who is the more reliable player for providing a bundle of an insurance contract and services? You are the more reliable player for providing a bundle of insurance coverages and services ! Source: SSI survey for the IoT Insurance Observatory, US market Auto telematics insurance (insurance coverage + services) IoT home insurance (insurance coverage + services) 13%All the customers: Millennials: 22% 5% 8% 56% 70% 59%54%
  • 32. 32 I believe (some) insurers will succeed in the IoT war and they will stay relevant in the life of their clients These insurers will create their insurance IoT proposition: insurance contract + IoT data + services Photo credit: Jay Byers
  • 33. 33 I’m supporting this evolution through the Observatory Objectives Scouting and rationalizing qualitative/quantitative knowledge on Insurance IoT Sharing a critical point of view of key trends and spreading innovation culture Encouraging members to discuss experiences and exchange ideas about innovation The scope Any insurance solution based on sensors for collecting data on the state of an insured risk and telematics for remote transmission and management of the data collected Health and life Industrial risks and workers’ comp Auto… Home and commercial property
  • 34. 34 We have just started the activities of the 2018 Observatory edition Mar Apr May Jun Jul Aug Sep Oct Nov Dic Research One to one workshops Research One to one workshops October 1nd Research One to one workshops tbd May 15th Jan Feb April 17th Tbd Research One to one workshops Research One to one workshops Research One to one workshops tbd European North American European North American
  • 35. 35 I’m proud to serve these 16 Organizations with the North American IoT insurance Observatory To join the Observatory feel free to write at matteo.carbone@iotinsobs.com