Mitigation versus Prevention: Three Questions Insurers Must Answer In Order to Evolve in a IoT and Big Data World

Jeff Goldberg

The insurance industry is only just beginning to deal with a host of emerging technologies, including Big Data, the Internet of Things (IoT), and a vast wealth of sensor data such as automotive telematics, smart watches, and fitness trackers. In 2015 it’s likely that the industry as a whole will take some small steps (and maybe a few big ones) towards capturing this plethora of data and applying it towards better underwriting decisions and risk management. But there’s more at stake than just incremental improvements to the existing business model.

There are three key questions that need to be answered in order to move towards fundamental change:

1. Will insurers be able to develop the technology (Big Data or otherwise) to capture and use this growing amount of customer data?
2. Even if insurers can build this technology, will customers be willing to share their growing streams of personal data with insurers?
3. How can insurers use this customer data to do more than just update their current process?

For the most part, the industry has been fixated on the first question. Insurers have been experimenting with Big Data technologies and looking into hiring Hadoop experts, and while there are a few examples of big impact projects, the majority of insurers haven’t made much headway. Doing more with traditional data technologies has been sufficient, partially because–despite all the hype–the bulk of the business is still dealing with “small data.” Everyone knows about how some auto insurers gather vehicle driving data from participating customers, but outside of personal auto examples are rare.

But what happens when all new vehicles in the marketplace capture driving data, not just those where customers have plugged in insurer-provided dongles? And what happens when a maturing IoT means that all customer homes are gathering data about safety and security? And what about when a significant percentage of people are wearing devices that monitor their health and well being?

This leads us to the second question: Will insurers even be able to get access to this data?

Right now many consumers seem to be willing to share personal data with a host of third party companies in return for convenience and cool features. But will consumers be as open to sharing this data with their insurance company? Many fear that their data will be used against them, resulting in higher rates or cancelled policies. That’s a hurdle the industry needs to overcome.

In terms of true goal alignment, the insurance industry is actually much better positioned than many tech companies that currently control so much of the current personal data flow. The main goal of these tech companies is to use personal data to monetize the consumer. Companies like Google and many other less-trustworthy third parties want access to the customer’s data in order to properly position advertisements. Companies like Apple and high tech device makers want access to the customer’s data in order to sell them ever more gadgets. But insurance companies want access to the customer’s data to manage a customer’s risk, not to advertise or continually sell more to them.

But how does an insurer convince a consumer that they will use their data to help them rather than to sell or advertise to them? With automotive telematics we’ve learned that the first step is monetary: provide discounts. But the second step is making use of that data for more than just underwriting and risk management.

This brings us to the third question: How can insurers use this customer data to do more than just update their current process?

As the amount of real-time customer data expands and an insurer’s ability to process and understand that data grows, insurers will find themselves able to make informed insights about a customer earlier in the process. Instead of responding to a burst pipe after a winter freeze, an insurer monitoring home sensors will be able to alert a customer before weather damage occurs, saving both the customer and the insurer time and money. Instead of paying claims after an auto accident, an insurer will be able to make recommendations to a customer about patterns that will help them avoid accidents altogether. A workers comp insurer tracking RFID badges will be able to help reduce worksite mishaps and liability.

Insurers will be in the unique position of looking out for the customer’s well being, helping to prevent accidents, theft, and loss. Unlike most industries, the insurer wants exactly what the consumer wants, and both are happier when claims never need to be filed.

While some insurance companies might lead this charge, it’s unlikely that all insurers will develop the technology to capture and analyze the full range of data. Instead, third party companies will probably emerge that serve as consumer data hubs and begin to monitor and make suggestions to their clients. Insurers who don’t build this technology themselves will have the opportunity to partner with these third party companies, offering discounts and possibly covering the cost of the services for their customers.

The new year is a good time for thinking about longer term change. As multiple technologies converge, insurers should be planning for their role to evolve, migrating from one of just risk mitigation to include risk prevention as well.

As always I welcome your feedback. To send me a note or set up a complimentary 1 hour consultation, contact me via email.

Related Reports

  • Big Data Technologies for Insurers
  • Big Data Lessons for Insurers from Other Industries (Executive Brief)
  • Insurer Digital Capabilities and Strategies
  • Wearable Technologies and Insurance
  • Benchmarking the “New Normal”: 50 Advanced Capabilities for P&C Insurers
  • Telematics in Insurance:Key Issues and Trends in 2014
  • NYT: Insurance Fails to Meet Evolving Needs, Tech Transformation Means Embracing Failure

    Matthew Josefowicz

    I came across two interesting articles in the NYT recently that I wanted to share with our Council members and clients, since they nicely illustrate some of the themes of change and adaptability that have been some prominent in our recent discussions.

    The first, The Insurance Market Mystifies an AirBnB Host describes the challenges that a homeowner had trying to secure coverage that would allow her to operate as an AirBnB host. As the Times sees it,

    …this is mostly the fault of the insurance industry, which doesn’t always want to answer questions about this sort of activity, whose agents aren’t always as knowledgeable as they should be and whose own policy language can be incredibly confusing.

    Whether or not you feel this is fair, or however you feel about the emergence of the “sharing” economy and its attendant risks, the article makes an important point. There are consumers out there who want to manage their risks, and the insurance industry is not helping them. Stuck in old definitions of personal v. commercial, and old product and distribution models, the insurance industry is missing this opportunity to be more demand-led.

    The other article was actually from a few weeks ago. Called Welcome to the Failure Age, the article uses a story about the rapid turnover of innovation enterprises in Silicon Valley to make a larger point about the increased rate of failure that goes along with the increased rate of innovation. While many insurers have proclaimed themselves dedicated to innovation (Novarica research shows that more than 1/3 of large P&C cos now tie innovation to executive comp), few insurers have developed the institutional tolerance for failure that goes along with innovation.The article also talks about the way that information technology advances are changing the nature of corporations themselves:

    Corporations “were created to coordinate and organize communication among lots of different people,” says Chris Dixon, a partner at the venture-capital firm Andreessen Horowitz. “A lot of those organizations are being replaced by computer networks….If you had to know one thing that will explain the next 20 years, that’s the key idea: We are moving toward a period of decentralization.”

    This is an incredible challenge for companies in every industry, not just insurance. The central problem of the corporation, of coordinating the work and capital of thousands of individuals, is changing.
    The article closes with this thought:

    We are a strange species, at once risk-averse and thrill-seeking, terrified of failure but eager for new adventure. If we discover ways to share those risks and those rewards, then we could conceivably arrive somewhere better.

    In my mind, this is a hopeful thought for the insurance industry. Currently, there’s no set of institutions better positioned to manage risk. But the way the industry manages risk in the future will not look like the past.

    Related Research

    Lessons from Peter Drucker

    Paul Ptashnick

    As I was reading our latest report: Benchmarking the “New Normal” 50 Advanced Capabilities for Property & Casualty insurers, it reminded me of a few famous quotes from management consultant, author and educator Peter Drucker. Below I have highlighted a few of his quotes and how they relate to the insurance industry.

    “The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.”

    As technology evolves it’s going to have a revolutionary impact on the insurance industry over the next few years. Some of these areas include the “Internet of Things,” Social Media, Big Data, Cloud, Mobile, Security and Digital. With the rapid changes in technology-enabled capabilities, it’s imperative for organizations to have access to the latest research and subject matter experts to stay on top of the latest trends.

    “The best way to predict your future is to create it”.

    We’re seeing larger insurers creating their own future by widening their lead in advanced capabilities in analytics, data, digital channels, modern applications and innovative business practices. In addition, some midsize insurers are also creating their own future by deploying more advanced capabilities than their peers.

    “What gets measured gets improved”

    As saavy insurers start deploying new capabilities in underwriting, product, distribution, analytics, etc., it’s vital for them to be able to track their own progress. Novarica is helping insurers to “measure and improve” their own initiatives with our new benchmarking tool.

    “The purpose of business is to create and keep a customer.”

    Technology is playing a vital role for Property & Casualty insurers in creating and keeping customers. Below are a few advanced capabilities being deployed by insurers in 2015 to help with these efforts.

    • Customer: Mobile app to view customer relationship details, balances, key documents, etc.
    • Distribution: Mobile app/mobile optimized web for producers to provide access to customer, book of business, or sales materials
    • Product: Analytics-driven product design
    • Product: Products designed to optimize buying/selling experience through one or more of the following: (a) use of pre-fill data, (b) elimination of unnecessary questions, (c) streamlined underwriting process matched to control of risk/coverage levels
    • Distribution: E-Signature
    • Underwriting: Predictive scoring based on models leveraging internal and third-party data
    • Marketing: CRM-driven campaign management that shares information across distribution, underwriting and service channels
    • Billing: Electronic bill presentment and payment
    • Analytics: Self-Service analytics based on verified and accessible enterprise data
    • Analytics: Use of Big Data tools to mine enterprise data effectively (Hadoop, NoSQL, etc.)
    • Claims: Mobile FNOL with video/GPS data capture and pre-fill

    “If you want something new, you have to stop doing something old”

    The capabilities listed in our Benchmarking the “New Normal” 50 Advanced Capabilities for P&C Insurers are widely available to insurers and are deployed more or less widely by them today. These advanced capabilities are being driven by a combination of five elements: analytics, data, digital channels, modern applications and innovate business practices. Successful organizations in the future will re-imagine and re-conceptualize their product, service and operation strategies in light of technological changes.

    As always I welcome your feedback. Send me a message at email or to learn more about Novarica’s Benchmarking the “New Normal” 50 Advanced Capabilities for P&C insurers, download a preview

    Related Reports

    IBM and Apple Announce First Wave of MobileFirst applications

    Tom Benton

    In July, IBM and Apple announced a partnership to combine their strengths to “transform enterprise mobility through a new class of business apps—bringing IBM’s big data and analytics capabilities to iPhone® and iPad®.”

    Last week they announced the first wave of MobileFirst for iOS apps, including one for insurance, Retention.

    The Retention app provides tools to agents for access to customer records, analytics-driven retention risk scoring and customer interactions such as e-signature and collection of premiums. Apple also announced AppleCare for Business, providing 24/7 support for business users of the apps and their iPads and iPhones, and additional services for integration and leveraging IBM’s cloud and analytics capabilities.

    While some insurers may find the initial app release of interest for agents in their distribution networks, the underlying improvement to enterprise-level capabilities is a key to further adoption of iOS apps and devices for insurance business users. Smartphones and tablets have typically been deployed using BYOD models, with support managed on a limited basis by internal IT. The IBM support services could take on that burden, freeing up IT resources.

    We’ll keep monitoring the progress of the partnership and future MobileFirst app releases. As always, feel free to contact me at email if you are interested in talking about using mobile and other digital channels for customer engagement.

    Related Reports

    Novarica Webinar: Change, Legacy, and Disparity

    Matthew Josefowicz

    If you missed yesterday’s webinar on Change, Legacy, and Disparity in Insurance Technology, you view the replay here. Novarica clients can also download the presentation slides.

    The webinar examines the themes of change, legacy, and disparity in the way insurers are reacting to rapid evolutions in the technology landscape. It includes a high-level summary of data from Novarica’s 2015 Insurer IT Budgets and Projects study, and concludes with four guidelines for insurers to thrive in this new age.

    What do Enterprise Architecture and Underwriting Guidelines have in Common? A lot more than you think!

    Mitch Wein

    A lot of people view enterprise architecture as a bunch of sign-offs and permissions but it’s really a lot more than that. In reality, enterprise architecture should be viewed as a set of underwriting guidelines for IT. Here’s why….

    Enterprise architecture is about taking a holistic view of risk, avoiding long-term unforeseen consequences, and making informed decisions to manage total company risk to within pre-defined appetites. Sounds a lot like underwriting guidelines, right?

    Enterprise architecture, conflicts with the desire to move fast without regard for long-term consequences. Sound familiar? Underwriters vs. Agents…IT vs. Project Management

    Although often maligned, enterprise architecture’s purpose is to ensure long term success for insurers. Below is a checklist (or maybe we should call them guidelines) based on the direct experience of Novarica Principals and Research Council Members that can help CIOs to determine their architectural governance maturity.

    • Identify key business and IT strategic drivers and create reference documents that will arbitrate technology decisions
    • Establish a target technology reference architecture that reflects all possible investment needed without economic constraint.
    • Link architecture governance to funding governance through logical gates.
    • Create a standard template to capture all dimensions of the architecture review and highlight the tradeoffs that may be needed.
    • Gain commitment in writing for future projects and investments.
    • Adopt a test-and-learn culture for architecture. Test the proposed solution and its expected benefits, implementation complexity, and its technical feasibility.
    • Support the architecture process consistently.

    The dependence on complex technology architecture is increasing and in order to be successful, CIOs need to create a strong architecture governance function to ensure that each project is consistent with the overall technology direction of the firm.

    A strong architecture process will guarantee that an insurer will be simplifying the IT landscape over time, deploying more agile business capabilities quicker and future proofing the solutions as technology continues to evolve rapidly in the years to come.

    As always I welcome your feedback. Send me a message at email or to learn more about Novarica’s executive brief on Architectural Governance, download a preview here.

    Silicon Valley Ventures

    Rob McIsaac

    I recently had a chance to spend a week in the San Francisco Bay Area, which offered an opportunity to combine business and pleasure. My son and daughter in law are scientists working for startups, which gave us a chance to get better perspective on the elements driving the local economy. It also proved to be a bit of a dream trip for my “inner geek”, as we explore the history of Silicon Valley. What application do I see this having for insurance? Plenty it turns out.

    The Valley is a hotbed of activity and the path to getting from its birth to today is surprisingly clear. According to the California Historic Marker, the birthplace is actually at the garage where Bill Hewlett and Dave Packard began their famous collaboration. Their first major customer was Walt Disney and the garage is only a few blocks from Stanford University. HP was where Steve Wozniak worked when he and the other Steve began the Apple journey and the garage they worked in is a short hop from HP’s. There’s an energy in the air that recognizes and rewards both innovation and risk taking.

    Google is a short distance away, adjacent to Moffett Airfield, home of the Ames Research Lab (NASA) and the site of many aircraft innovations from the early part of the last century. This is also the home of the famous Hanger One, where the US Navy kept monster airships in the 1930′s. What do you do with an 80 year old building designed to house Zeppelins? Google is taking it over so they can fly things indoors, of course. And test self-driving cars with advanced features and capabilities away from prying eyes.

    For the better part of a century, the area has been a focal point for innovation and creativity. Each new advance and breakthrough is a combination of new ideas built out by the next generation of technologists on a foundation that was framed by those who went before them. The next innovative idea may come from a big company with a long track record of success or a small one that is scrambling in the same mode as Hewlett and Packard … or Jobs and Wozniak … or Brin and Page.

    In any case, people are surrounded by an environment of creativity, risk taking and a willingness to tackle big problems. Watching as an outsider from “back east” is engaging, particularly when you consider the financial, technical, educational and legal structures required to keep the engine of innovation running. There is clearly a case of a rising tide lifting all ships. If you want to see what the future may hold, visit The Valley.

    Clearly, some others are catching this message. Pharmaceutical companies are setting up and / or investing in research labs. Auto manufacturers are moving work into the area, with BMW now being one on Google’s new neighbors. At least one P&C carrier has an operation there, putting them in close proximity to leading edge thinking and access to technical resources. It turns out things like the application of Big Data Analytics are unencumbered by notions of industry specific barriers.

    Some remarkably innovative banks are also located in the same area. While my trip to Silicon Valley started as a family vacation, it became a thoughtful point of introspection on insurance.

    Seeing the interaction of business elements, combined with the life changes spawned by technology advances, calls into question the potential viability of legacy systems, operations and processes. While the changes may not happen with the flip of a switch, the best defense, as always, remain a good offense. The list of companies that failed to heed this advice reads like a roll call of spectacularly failed brands. Even recognizing that changes were coming, and in possession of capabilities that could have changed their trajectories, companies like Kodak and Polaroid and DEC (to name but three) found that they could not trade the comfort of the past for the potential of future success. This Success Trap issue is one that should be a point of concern for carriers, as they contemplate both the potential for new forms of competition and the demographic shifts now underway in traditional markets.

    Recognizing the value of the phrase “seeing is believing”, Novarica is in the early stages of planning a Research Council meeting to be held in Silicon Valley. We will be targeting mid-year for an event that promises to be both thought provoking and perspective expanding. To quote William Gibson, “the future is already here, it just isn’t evenly distributed”.

    For more information on the Silicon Valley meeting, drop me a note at email or give me a call.

    Sometimes The Best Way to Speed Up … is to Slow Down

    Rob McIsaac

    I was recently reminded of this old adage while racing through A New York area airport. I had allowed a meeting to run a little long, which ate into my traveling “margin for error”, which had then caused me to get caught in rush hour traffic. One small event led to a much bigger one and now, bag in hand, I was rushing toward security. And then I hit a double whammy. The security line on a Friday night looked like a pre-release event for a new i-Phone … and my boarding pass didn’t include the magic words “TSA Pre check”. Spending the night at the airport now seemed a real possibility.

    The temptation? Jump in line and hope for the best. The smart play? Go back to the ticket counter and get them to issue a new boarding pass that was my “Get Out of Jail Free Card”. Slow down even more, on the chance it would speed me up on the overall process.

    At the counter the agent blamed the issue on a software bug (nice irony there) and dutifully printed the new pass. With no one in the Pr-check line I sailed through security and into a blissful repose at the back of a regional jet winging my way toward home. Victory was mine.

    Which got me to thinking about some of the work we, at Novarica, do with carriers. Increasingly we see companies across all lines of business recognize that their existing core systems don’t have the ability to properly position them to deal with imminent competitive threats. Implementing new products takes too long and is too expensive. Supporting new channels presses existing technology past the breaking point and support for a 24×7 world creates an architectural model that only Rube Goldberg could love. With time to market pressure high and business leaders trained by Apple and Google to be dazzled by new features, the idea of slowing down to speed up may seem inane. On the other hand, pursuing the current course may ultimately be the world’s biggest game of “push the wet noodle”. Entertaining but hardly productive.

    Which leads to the search for alternatives. A quick scan of many carrier IT organizations finds that they don’t have the institutional memory for knowing how to do an effective vendor selection. In many cases the process, unaided, can start to look like painting the Golden Gate Bridge. About the time it is done, you need to start over. Fundamental things have changed and what was once a good answer or approach may no longer be. Slowing down this much doesn’t speed anything up! It just leads to indecision.

    A better alternative? Using a structured and repeatable process that allows a carrier to leverage industry expertise so that it can focus internal SME’s on the things that create real competitive advantage for the carrier itself. This can be where a process like Novarica’s can make a significant difference. A typical vendor selection can be done in 10-12 weeks, a pretty far cry from what many carriers experience when they “roll their own”. Armed with better process and tools can lead to a much faster end to end process.

    The ultimate irony, of course, is that I was late to the airport in the first because we were wrapping up a carrier vendor selection effort … and enjoying a protracted discussion around how we’d met a self-imposed goal of selecting a new core system in ten weeks. All is well, it turns out, when it ends well!

    The Experience is the Product

    Matthew Josefowicz

    I had a chance to present on customer experience in insurance recently at the Insurance Performance Association. It was an interesting event featuring several engaging speakers from outside the industry as well as business leaders and consultants from within.

    My presentation focused on the role of technology in supporting customer experience, especially in a technology-transformed world where customer expectations are set by other, more advanced industries like banking and online retail. This is an important are of research for us at Novarica: our report on Insurer Digital Capabilities focused heavily on customer and stakeholder experience, and one of our recent Research Partner Program reports focused on this topic, especially related to ECM.

    But even more important than deploying technology-enabled capabilities effectively is the incorporation of experience into the insurance product itself. As the slide below from my presentation illustrates, the overall experience of feeling covered is what insureds are buying, not just risk transfer.
    (R)Evolution in Customer Experience in Insurance

    Rather than start from a coverage and price, insurers may want to start with the customer’s need.

    This is also the topic of our latest “Novarica Quick Quote” slideshare.

    Novarica Impact Awards 2015

    Matthew Josefowicz


    Today we announced the nominating committee for the 2015 Novarica Research Council Impact Awards.

    This will be our 4th annual celebration of case studies of effective technology initiatives by insurers, as recognized by a peer jury of hundreds of insurer CIO members of the Novarica Insurance Technology Research Council.

    An average of 40 case studies per year are submitted for publication in our annual Case Study Compendium, and the best ones are nominated for awards by our committee of CIOs. Unlike other industry awards, no vendors, journalists, or consultants (including the Novarica team) have a vote in selecting nominees or winners.

    Past nominees and winners include: AIG, American Safety, Allstate Life & Retirement, Amica, Assurant, Brickstreet Mutual, Capitol, Cincinnati Financial, Encompass Insurance, Erie Insurance, Foresters, Great American Insurance Group, ICW, Legal & General of America, Oregon Mutual, Patriot National, Penn Mutual, PURE Insurance, RLI Insurance, Tokio Marine, XL Group, Zurich North America, and others.

    Rules and submission forms are online at http://www.novarica.com/impact2015

    We’re looking forward to hearing about your successes and honoring them next spring! Please contact us at inquiry@novarica.com with any questions.