Insurance: Understanding and responding to the Internet of Things

Social media, mobile, cloud and big data are all driving incredible change in the industry at present, and the Internet of Things (IoT) uses all of these things. While the Gartner Hype Cycle shows all of these elements, as well as additional concepts such as the connected home, autonomous vehicles, data science and mobile health monitoring, as separate notions, they are in fact heavily intertwined from an insurance perspective.

“The IoT will drive change in existing core business models, generating new models that unlock additional sources of revenue using IoT data and digital solutions,” says Rhys Collins, Head of African Operations for SSP. “Insurers are currently focused on the Connected Car, the Connected Home and Connected Self. As we begin to understand the data provided by these connected devices, the nature of risk will change and they will be reduced through new behaviours – better driving, better security, better health. In other words, risks can start to be managed by the insurer proactively. New insurance products will emerge as a result. The Internet of Things will shift market boundaries and lead to new value propositions.”

However, according to the FC Business Intelligence, IOT Insurance Survey 2015, although 57% of the insurance companies surveyed ranked IoT as a top priority for insurance, only 33% say they have a clear plan for implementing IoT into their business model.

“Digitisation and distribution of operations is vital for insurers to stay competitive, and it’s even more vital now that IoT generates massive amounts of data that must be analysed and understood for responsive development to take place,” says Collins. “Startups and other new companies that are able to analyse the data and create tailored consumer products accordingly will create an unprecedented level of disruption in the industry.”

Gartner’s definition of digitalisation has a technically oriented component, dealing specifically with digital transactions, and a business-oriented component, meaning the overall digital experience. “However, insurers often fail to embrace digitalisation holistically, mistakenly interpreting the term as simply meaning more internet sales or more self-service, thereby focussing on the technical aspect of digitalisation only. This means that while they are looking at digital transactions, the fundamental business models are not changing.”

The second element of Gartner’s definition of digitalisation, digital experience, focusses on the degree to which the business model relies on digital capabilities to generate value. A digitalized insurer can increase client satisfaction, improve collaboration with intermediaries or generate additional premium income by applying digital resources to create a new type of value proposition. This will generally extend beyond mimicking analogue-based business models.

Still today many insurance CIOs focus on support for running the business, dealing with legacy systems and automating internal business process. As a result, there is not much IT leadership related to front-office, customer-facing activities and digital products and experiences. However, for an insurance organisation to become truly digitised, information and technology needs to add more value in the front office, beyond transactional mid- and back-office processes. “Insurance CIOs have the opportunity to take a more leading role in shaping digitalisation strategies and implementing an enterprise wide strategy. Based on several sets of insurance IT benchmarking data, Gartner estimates that 70% of the average insurer’s annual IT budget is already spent on front-office-related activities. Insurance CIOs will eventually risk losing control of these budgets if they do not proactively address the business priorities of internal stakeholders,” explains Collins.

So how can insurers better position themselves to understand the implications and respond to the IoT? “Assess the current degree of digitalization in your enterprise, and the strategic role it will play in your future strategy. Identify the relevant stakeholders, their interests in digitalisation, and potential gaps between expectations and current status. Implement an appropriate change culture within your organization to foster further digitalisation.”

Collins says a new chief digital officer (CDO) role has emerged, the person who is seen as a change agent leading and coordinating digital input into corporate strategy and the stakeholder digital experience. However, if your organisation is not in a position to create a new Chief Digital Officer role, consider the possible benefits of having your CIO claiming digital leadership. Evaluate credibility, skills and capacity for performing this role. If some areas are lacking, get an understanding of what training and direction is required for your CIO or IT leadership team to fulfill this role.

Finally, resist the temptation to either manage digitalisation tactically or spread digital leadership among too many different organizational units, such as marketing, IT and customer service. “This approach is likely to lead to suboptimal results,” advises Collins.

It’s inevitable that tech giants like Google and Apple will step into this space, and if insurers want to keep a large share of new business and in fact broaden the scope of business linked to IoT, Collins recommends that they start putting IT solutions in place that will ready them to do so.

Brokers provide critical partner for African commercial insurers

With tough market conditions providing so little opportunity for growth, commercial insurers are starting to focus on brokers at the more profitable end of the market, either through niche products,  or by working with regional community brokers  who typically know their clients better, resulting in stickier, more profitable business.

“Commercial insurance can be highly complex because it needs to be more specific and tailored to the individual needs of businesses,” says Clinton Brown, Business Development Manager at SSP. “As a result, brokers are far more crucial partners for insurers in the commercial space than the personal one,” explains Brown, referring to a recent SSP white paper, Where next on the distribution journey?”.

Other insurers are looking at accessing emerging opportunities through UMAs (Underwriting Managing Agents) which have increased in popularity in the recent soft market conditions. The majority of UMAs focus on commercial insurance, and their smaller size and often specialist nature make them more agile and responsive to the broker channel. Brown says UMAs enable insurers to access products or services that the insurer would not be able to provide themselves. “This is especially true in terms of niche lines, where the cost of developing specific underwriting experience could otherwise be prohibitive.”

Alternatively, insurers may be looking to provide access through a greater number of brokers, but at a lower cost, through the networks and strategic partners underpinned by a technology solution. “Networks play a key role in the distribution of commercial insurance, providing value for both insurers and brokers alike. However,” cautions Brown, “insurers must work with a network or strategic partner that is easy to do business with and which offers the most value to their business in terms of greater efficiency, cutting costs and driving profits, rather than simply providing an aggregation of brokers.”

While brokers are the dominant distribution channel in the commercial space, they start to lose market share when it comes to SMEs and micro-SMEs, as business owners look to repeat their personal lines purchasing experience in the online space.

“Customers are open to using different channels concurrently or along the buying cycle, which means the industry needs to provide a seamless experience and recognise which channels a particular customer chooses to use. In the UK, for example, we are seeing a change in the way business owners purchase insurance, with a 35% increase in direct channel usage and a 22% increase in those who purchase their insurance online,” says Brown.

According to the white paper, while 51% of SMEs are still using brokers for their commercial insurance needs, 28% are likely to change channel at their next renewal date, with over half of microenterprises set to use aggregators.

“All of these factors are leading to a more digital commercial landscape, which mirrors the transformation that is taking the personal lines world by storm,” says Brown. “We’re seeing different buying behaviours from consumers who are more aware of the need for cost-effectiveness coupled with transparency, ease of doing business and faster turnaround.”

While this increased digitisation of the SME commercial market can be perceived as a threat, there are immense opportunities for insurers who can adopt a flexible, agile and simple approach to meet these demands from the new generation of purchasers. However, Brown advises insurers not to simply duplicate their existing business processes online. “Instead they need to deliver differentiated customer experiences and engagement by developing a well-thought-out, omni-channel approach for each segment that puts the customer at the heart of everything they do.”

With access to such a large number of successful brokers, commercial insurers can make the most of this dominant method of distribution while examining how they can exploit emerging channels such as digital. The challenge for insurers and brokers is to develop and implement a strategy that explores both the broker and digital distribution channels and enables them to realise their growth ambitions.

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Commercial insurance seeing an increased demand for digitalisation

A number of insurers have successfully transformed their personal lines purchasing process into a more customer-centric, digital experience. SME business owners who have become accustomed to this level of customer intelligence in their personal capacity are looking to replicate the experience in the commercial space, too.

“Customers are open to using different channels concurrently or along the buying cycle which means the industry needs to provide a seamless experience and recognise their customer regardless of which channel they choose to use. In the UK for example we are seeing a change in the way business owners purchase insurance, with a 35% increase in business owners opting to use a direct channel and a 22% increase in those who purchase their insurance online,” says Rhys Collins, Head of African Operations for SSP. “While brokers are still the dominant distribution channel in the commercial space, they are starting to lose market share when it comes to SMEs and micro-SMEs as business owners look to repeat their personal lines purchasing experience.”

This is according to a recent SSP whitepaper, “Where next on the distribution journey”. The paper explains that while 51% of SMEs are still using brokers for their commercial insurance needs, 28% are likely to change channel at their next renewal date, with over half of microenterprises set to use aggregators.

“All of these factors are leading to a more digital commercial landscape, which mirrors the transformation that is taking the personal lines world by storm,” says Collins. “We’re seeing different buying behaviours from consumers who are more aware of the need for cost-effectiveness coupled with transparency, ease of doing business and faster turnaround.”

While this increased digitalisation of the SME commercial market can be perceived as a threat, there are immense opportunities for insurers who can adopt a flexible, agile and simple approach to meet these demands from the new generation of purchasers. “However, this does not mean that insurers should simply put their existing business processes online,” Collins cautions. “Instead they need to deliver differentiated customer experiences and engagement by developing a well thought out, omni-channel approach for each segment that puts the customer at the heart of everything they do.”

Insurers and brokers will have to decide whether they are capable of providing the omni-channel experience that businesses are coming to expect. If they are not capable of providing a convenient, consistent and interconnected service across all of their customer touch points, then consumers will see through the cracks, become frustrated, and go elsewhere to fulfil their insurance needs.

Collins explains that brokers and insurers need to ensure they have the systems and processes in place to enable this. With insurers and brokers of different sizes adopting diverse business models, some will need to focus on the digital capabilities required to operate effectively on a B2B basis, while others will want to immerse themselves fully in the digital world of the new consumer.

“In summary every insurance enterprise needs a digital strategy, knowing where in the changing market they will focus, which capabilities they need for the medium to long term, and how to manage the transition from their existing business model. They also need to set out the immediate actions required to make sure that they don’t get left behind in the short term, because the change is happening now, and it’s happening at a blistering pace,” concludes Collins.

Targeted innovation that resonates with all target audiences

Insurers who are able to innovate when it comes to the design and delivery of products and services will not only be fostering greater loyalty amongst their consumers, but they will also be helping to change the perception that the insurance industry is still playing catch up.

“African insurers have a great opportunity to improve business models and solutions in order to improve their experience and increase customer satisfaction,” says Clinton Brown, SSP Business Development Manager. “A recent Celent survey on innovation showed that consumers expect a high degree of innovation from their financial service providers, especially when it comes to service delivery. However, while most financial services professionals agree that innovation is essential for relating and engaging with customers, only a minority identify innovation as a critical part of their companies’ strategies.”

This is particularly true for “digital” consumers who are active in managing their finances and expect their insurers to be innovative. These consumers reported that they used technology-driven tools such as GPS location, online purchasing, mobile and video streaming, etc. Conversely, consumers who were less digitally inclined reported that they used three or fewer of these technologies.

“Innovation will be most widely accepted and celebrated amongst your early digital adopters consumers, so focussing technological improvements on this target group will have the highest probability of success,” Brown explains. “However, even within the digital consumers, enthusiasm for these initiatives varied by age group, suggesting that a broader; more experimental approach might most successfully resonate across the entire customer base.”

When it comes to appealing to the less digitised consumers, innovations should be positioned as simple, non-technical solutions to everyday problems. “Invest some resources in surveying and polling this customer base to find out what these solutions could be,” advises Brown. “Simply by starting these conversations, you begin to raise this target group’s awareness of the value of innovation.”

Administration service areas such as claims, online and mobile services, represent the most immediate innovation opportunities. Sales and product innovations will appeal to certain consumers, but for broad consumer resonance the clear focus should be service. Brown cautions that innovation around products and new ways of doing business will require more buy-in from the consumer, especially if it requires a change of behaviour and necessitates the consumer giving up their personal data in exchange for the benefit.

The expectation to innovate is forcing insurers to question how they relate and engage with their customers and in a landscape where more and more consumers are becoming digitised, they are also becoming more aggressive in their demands for improved services. Insurers that illustrate progress in this area will win and keep their customer’s loyalty.

SSP pursue expansion strategy with new investment deal

SSP, a market-leading global technology systems and solution provider, has successfully completed a management buyout backed by LDC and led by Chief Executive and founding Director, Laurence Walker.

Founded over 30 years ago, SSP provides market leading technology systems and solutions across the entire general insurance industry value chain and the wider financial services market, enabling customers to upgrade their systems and benefit from SSP’s advanced data analytics services to improve their customer service, distribution and profitability.

SSP operates globally, processing more than 10 million electronic policy transactions each year for a diverse, long-standing customer base including 8 of the top 10 UK Insurers and Broker operations that equate to more than 40% share of the UK Broker market. LDC, which has taken a majority equity stake in the business, is a well-established private equity firm with a leading position in the mid-market sector.

The existing management team, which brings a combination of industry and specialist expertise, will work with the new equity partners.

The investment will support the management team and create the platform to accelerate the growth of SSP in the UK and internationally, building on its strong customer base and introducing intelligent data services, including telematics and fraud detection, to the market to help insurance organisations better assess risks.

Laurence Walker, Chief Executive at SSP, said “LDC’s investment is a strong endorsement of the attractiveness of SSP and the strength of the business. LDC will help us pursue our growth strategy, both organically and through M&A activity, and our customers will see the benefits of our continuing investment in SSP. Having worked previously with them I am looking forward to working with the LDC team again. It creates a great platform for further expansion of our business, in line with our business plans.”

Dale Alderson, Investment Director at LDC, said: “The global insurance industry is under increasing pressure to modernise its use of data to become more efficient, cut down costs, expand distribution and secure more accurate risk analysis. SSP is at the forefront of this market, and with our support, will help transform the way that insurers operate and dramatically improve customer experience.”

John Garner, Director at LDC, said: “Over the last decade, SSP has evolved into a truly global leader that has capitalised on the ever-increasing technological demands of the insurance industry, as well as the financial services sector. Laurence leads a highly ambitious team that is eager to build on the success of its international network. We are excited to back the business once again and support it through another era of growth.”

Achieving digital success: What insurers need to consider

Whether you are reading this on your PC, tablet, smartphone or on paper, as a savvy insurance professional you don’t need anyone to tell you that the world is becoming more digital. More and more of what we do as members of society, consumers and business people is enabled – and in some cases challenged – by the vast flood of data and the changes in all manner of interactions that are part of everyday life.

We’re all aware of the pace of change, so we’re no longer surprised by findings like those from PwC’s recent research, which showed that around 70% of consumers carried out some form of digital research before buying insurance and over a quarter bought their policies online. Customers are better informed and more connected every day, and their service expectations are ever more demanding and sophisticated.

“The practical challenge for insurers and brokers is to work out what all this change means for their customers and their businesses,” says Rhys Collins, Head of African Operations for SSP. He says they need to work out how best to align their strategic strengths with opportunities in the marketplace and question where they should innovate and focus their efforts. They also need to determine where they are better off just stepping back and giving up ground to other players with the right capabilities or position in the market/value chain? “Knowing where NOT TO focus will be as important as where TO focus,” says Collins.

Distribution will be a key battleground. Insurers and brokers will have to decide whether they are capable of providing the omni-channel experience that consumers and businesses are coming to expect. If they are not capable of providing a service across all of their customer touchpoints that is convenient, consistent and joined up, then consumers will see through the cracks, become frustrated, and go elsewhere to fulfil their insurance needs.

Risk selection and pricing will change beyond recognition. Digitisation provides a huge range of opportunities to form a deeper understanding of a risk and the best price to offer in a particular set of circumstances, as well as the ability to make real-time changes to the product and pricing offered to customers. Collins says the winners in digital insurance will be those organisations that can apply insights drawn from rich data sources, and do so across their integrated channels.

He says service and claims fulfilment will also be transformed in the digital world. Product features and cover will be adjusted without customer or insurer intervention to suit needs and circumstances. Losses will be notified to the insurer automatically. In some cases, customers and insurers/brokers will be notified proactively of a change in the risk, providing an opportunity to avoid the loss altogether.

“There is no one-size-fits-all approach for implementing a digital strategy, so a key question is how ambitious an insurance company wants to be,” says Collins. With insurers and brokers of different sizes adopting diverse business models, some will need to focus on the digital capabilities required to operate effectively on a B2B basis, while others will want to immerse themselves fully in the digital world of the new consumer.

“In summary every insurance enterprise needs a digital strategy, knowing where in the changing market they will focus, which capabilities they need for the medium to long term, and how to manage the transition from their existing business model. They also need to set out the immediate actions required to make sure that they don’t get left behind in the short term, because the change is happening now, and it’s happening at a blistering pace,” concludes Collins.

Cutting through the haze of cloud computing

While the evolution of existing technologies has led to increased demand for cloud services, there is often confusion about what exactly this approach entails and what firms need to consider.

Despite this lack of clarity, Forrester Research, one of the most influential technology research and advisory firms globally, expects the global cloud market to reach $113.9 billion in 2016, with further growth to $241 billion in 2020, as companies look to benefit from increased efficiency and agility, while focusing on their core business rather than their IT operations.

Rhys Collins, Head of African Operations for SSP says “the commoditisation of products and the emergence of new channels to market plus the drive for cost efficiencies means that cloud computing is particularly pertinent to the insurance industry”. “Furthermore,” says Collins, “ with IBM research showing that only 16% of insurers felt they lacked the relevant skills, and cloud computing expected to account for 25% of the average insurer IT budget this year, insurers would seem well-placed to make the most of the benefits available.”

Yet a further report by Novarica, a well-known global IT Consultancy, demonstrated that while over half of insurers use software-as-a-service (SaaS) in some ancillary applications, only 20% of general insurers have active or planned pilots for core applications via SaaS. In addition, IBM noted that almost three times more insurers than the cross-industry average (11% compared to 4%) have no plans to adopt cloud computing in the foreseeable future.

Collins says “given the advantages that can be obtained in terms of managing budgets and resources, it would be valuable for these insurers to re-evaluate their approach”.

“One of the significant benefits of cloud computing is the confidence it provides around IT costs. By renting a virtual server rather than investing in network equipment, insurers can exchange set capital expenditure for operating costs that adapt to meet their requirements. Moreover, packaging up the infrastructure, electricity and disaster recovery with the actual virtual server provides firms with further certainty over their forthcoming outlay.”

As demand for services increases or decreases, the cloud system responds to these changes, ensuring that insurers have the right size provision available and pay no more in IT costs than is strictly necessary. In addition to the economic benefits this flexibility provides, there is the advantage of operational responsiveness to the opportunities and challenges insurers face.

“Of course, all of this requires a change in business attitude to accept the technology and models behind cloud computing. One aspect of this is the need for insurers to have policies in place to adopt cloud-based services in a joined up way to reduce costs through economies of scale,” says Collins.
Insurers also need to manage where their data is stored and ensure they are comfortable with the regional regulations that govern this. It is also not just the physical location that needs to be considered, as regulations often extend beyond national boundaries.

So where is the insurance industry currently in terms of adopting cloud technology? While it is still at the relatively early stages, SSP is already seeing the use of cloud infrastructure as a test environment, and it is only going to be a short period of time before those further core capabilities beyond just policy administration are being adopted through an as-a-service model.

Insurers are also starting to look at using cloud computing for production services and data, and this trend is set to continue as more propositions come to market, in particular the use of big data and management/business intelligence as services.
“Insurers need to be ready to accept the way technology is moving and have policies in place to adopt these services as they come along. This strategy is no different than the outsourcing trends of the past – it’s just that the technology has evolved and the legal aspects are more mature,” concludes Collins.