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.