Picture this scenario: You install a device in your car that keeps tabs on your driving performance — whether you’re traveling within the speed limit, signal before changing lanes, begin breaking at a safe distance before a stop, and so forth.
The device communicates the vehicle data to your life insurance company, then assigns you a score. Securing a high score, an indicator of a superior driver, entitles you a discount on your life policy. A low score, conversely, results in a surcharge on your premium.
Sound futuristic? Actually, it’s already happening in Japan, where insurance companies are among the early adopters of telematics: a branch of science focused on tech gadgets that transmit information over long distances. Case studies showcasing applications of the technology, which have implications for insurers in both the life & health and P&C worlds, were explored during a morning session of Summit Professional Networks annual Insurance Executive Conference, held Dec. 4-5 in New York City.
The talk’s presenter, Mike Fitzgerald, a senior insurance practice analyst at the research and consulting firm Celent, told the assembled attendees that insurers can gain a competitive edge in the market by deploying these and other technologies. But to do so they have to be willing to experiment with new ideas, and to expect failures on the way to success.
“Companies are leveraging emerging technologies that, we believe, are giving them a big advantage,” said Fitzgerald. “These companies are making bets based on their distribution model, product set, and corporate culture about what they think will work. They’re also funding these efforts separately from their usual IT operations.”
Underpinning adoption of the emerging solutions, he added, are rising consumer expectations driven by the “Amazon effect” (the ability to fulfill a transaction with minimal or “optimal” effort); and by the “Internet of Things:” a data-connected world in which everything from clothing to home appliances to retail point-of-sale terminals are linked to a server in the cloud.
Helping to spearhead this technology push is General Electric, which is now WIFI-enabling all of the products it makes. GE dubs the new manufacturing model the Industrial Internet. The data connectivity enabled by the change — transforming dumb devices into smart ones — has big implications for insurers.
“Those of you who write business insurance should do a thought experiment about what the industrial Internet will do to your book of business,” says Fitzgerald. “Ask yourself, ‘What does it mean to insure a business that knows what every machine in the company is doing now?’”
To illustrate the power of the emerging technologies, Fitzgerald showcased Tokyo Marine, which now has several “continuous customer engagement” initiatives underway. Example: event insurance.
If, say, an individual is driving to an airport in a storm using a borrowed car (many young Japanese do not own a car and drive only occasionally) he or she might wish to buy a one-day auto insurance policy to cover potential liability or medical expenses incurred during the trip. Using only a mobile phone, the driver supplies three pieces of data, and the policy is issued.
Tokyo Marine also offers health insurance that covers basic and extended medical expenses for women with critical illnesses, such as breast or ovarian cancer. Since 2011, the product has been tied to an awards system that offers policyholders points for following disease-prevention measures.
In partnership with NTT Docomo, a major telecommunications carrier in Japan, the insurer avails the policyholder of smartphone avatar that interacts with a thermometer used to measure temperature in a resting position. The avatar also provides advice on living a healthy and comfortable life (e.g., recommendations as to dietary changes or using aromatherapy and acupuncture). Those who follow the advice can redeem accrued points for smart phone accessories from NTT.
“With this telematics solution, Tokyo Marine is taking customer engagement from the level of ‘renew your health policy’ to something that’s with these women every day,” he says .And the company is trying to solve a significant societal issue, for rates of cervical and ovarian cancer among Japanese women have skyrocketed since 2000.”
Turning to the U.K., Fitzgerald highlighted how AXA S.A. used data to proactively interact with policyholders during rioting taking place in 2011. After the first night of rioting, AXA gathered digitized police reports, data about spontaneous events orchestrated via social media, plus internal company data to develop maps indicating where policyholders were located in relation to the rioting. That information enabled company reps to reach out to people in affected areas to inquire about their well-being and whether they incurred losses covered under their policies. The reps also suggest steps for protecting themselves and their property.
These and other innovations examined during the talk would not have been implemented, said Fitzgerald, absent a corporate culture that is ready to try new ideas, experiment with “small bets” and risk failure. He insisted, too, that a culture of innovation has to start at the top: with the CEO.
“Winning in the marketplace is about placing small bets consistently and placing enough of them,” said Fitzgerald. “It’s about divorcing the funding of bets from general business operations.
“It’s also about establishing partnerships,” he added. “And it about protecting the weak: making sure that legacy systems or business processes don’t crush whatever it is that you’re experimenting with.”