The Evolution of Property & Casualty Insurance

Data was, is, and always will be the lifeblood of the insurance industry; but data is evolving faster than most of the industry tools that are used to capture and measure it. A dynamic insurance carrier must gain insights into new forms of data that will prove to be valuable as new technology and social norms emerge.

Property and casualty carriers should begin crafting products that reward consumers for responsible behavior, such as safeguarding their homes and employing smarter practices that provide less risk and thus warrant better value in the form of reduced premiums. For instance, mobile apps can capture claims, billing and policy data; and should also capture when a homeowner consistently behaves responsibly, resulting in reduced premiums. After all, the average insured will measure their relationship with the insurer by premium cost and in some cases by the claims experience.

Behavioral norms such as leaving the thermostat on high and the alarm system unarmed are examples of opportunities to lower the risk of claims for theft, fire and other statistical liabilities. Ambient technology can provide valuable insight to underwriters and insurers who can then provide additional value to insureds via usage-based premiums or additional rebates for responsible behavior. The P&C insurance industry is on the verge of adopting these strategies as many policy systems use Geo coding data, as well as drone technology which is giving companies a better insight into an insured’s property, such as unreported structures, pools and even trampolines.

Other insurance lines have begun to employ usage-based insurance and telematics as a cost-effective option for consumers, including auto carriers; mobile device interaction with “smart” home technology; smart home alarm systems; and the pending release of Amazon’s Echo, which will potentially operate as a home-based concierge to control and interact with all aspects of your home. Currently, digital assistants like Siri, Cortana and Echo are closed ecosystems, integrated with only a few select services, which limits their capabilities. By opening up the API so other services can easily plug into voice assistants, an ambient computer can compare the options provided by multiple services and contextually present the best options, using what it already knows about you as data points, i.e. home address and work address.

Diversify to Survive

In order to stay competitive, P&C carriers must consider diversifying their product lines. For most companies, product lines have remained stagnant, largely driven by the inability to maintain various systems and data sources necessary to pursue a multi-line strategy, plus the technical infrastructure necessary to support it. As products become more complex and diverse, the industry has struggled with the strategy of enabling or updating technology to facilitate it, and is challenged to find talented CIOs and CTOs with the background to support it.

Some of the emerging concerns facing insurance carriers in all lines were well laid out in a recent article by Deloitte, which projected 80% of companies will make a move to another core system or architecture in the coming year. Deloitte noted, “…As insurers accumulate more and more data, the threat of cyber-crime and growing privacy exposures are likely to keep insurance company chief information officers up at night as they ponder more effective risk management techniques.”

Many companies have begun the daunting task of procuring new systems, performing lengthy and protracted data migrations from old main frame systems to newer cloud-based SaaS or datacenter hosted systems, and finding partners and integrators to support them. The ever-evolving landscape of the Internet of Things makes pinpointing a long-term strategy a daunting and difficult task for C-level executives whose careers hinge on the successful implementation of these initiatives.

How might insurers be more innovative to counteract the trend toward a slow-growing and commoditizing market? Diversity has never been the life’s breath of the industry, but now with a sluggish economy and slow growth, insurers need to look at diversity to bring in other sources of revenue rather than settling for their cut of an already diminishing pie.

How might an insurer gather and synthesize new types of information to gain actionable insights, such as from telematics or social media? The industry needs to look outside of the normal channels and seek to find expertise in an area that has largely been ignored by many carriers, allowing companies like Esurance and Progressive to establish a strong foothold on the internet and solidify their leads as industry pioneers of diversity and social media dominance among younger insurers who are seeking “instant gratification” as opposed to a long-term commitment with any company.

“Whatever the challenge, this outlook indicates that simply maintaining the status quo is likely no longer a sound business strategy, no matter which operating model is employed by a particular insurer, given the macro- and micro-economic trends buffeting the industry from all sides,” says Gary Shaw, U.S. Insurance Leader for Deloitte LLP.

It is clear that necessity is truly the mother of invention. The consumer has now become the broker in any and all things in a world where the Internet of Things has become a stark reality.

Maintaining the norm and staying the course will result in stagnant, if any growth at all. If carriers want to capture a larger share of a dwindling market, it will behoove them to look outside of the way the business of insurance has been conducted for the last 50 years and begin to adopt new models and product differentiators that mesh with the way technology and the public at large consume what is largely available in an increasingly mobile and internet based society.

Insurance has been a specialized industry up until now, but as the ability to do business in a global economy increases, it is only a matter of time before consumers begin to look at insurance as a brand extension or just another product they can add to a growing repertoire of products like tax returns and financial services, which are already creeping into major retailers.

Certainly any company that wants to survive this changing landscape needs to evolve to become one of the relevant “things” in an “internet of many things.”

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