IoT Internet of ThingElevating the insurance value proposition at the intersection of IoT and ecosystems
It is clear that traditional end-to-end business models are breaking down in every industry, including insurance. In the digital era, the standards of service are continually rising, making it increasingly more difficult for any single firm to deliver the seamless experience that customers expect. As customer demands for flexibility and integrated experiences grow, more insurers are recognizing and leveraging digital ecosystems to reinvent their products and services. With benefits such as better risk management, reduced claim cost, and new sources of revenue, digital ecosystems can drive greater economic value and relevance for today’s insurance companies.

However, most insurers are not yet ready and even lack the foundations to successfully execute insurance ecosystems. Rooted in legacy systems and siloed business structures, the majority of insurance organizations will likely struggle in transitioning from traditional insurance offerings to tailored, ecosystem-driven customer experiences. Nonetheless, insurers should have a plan for incorporating ecosystems into their business model to better compete in the growing digital landscape. It’s time for all insurers to become insurtechs.

As opposed to the traditional business model where insurers create and distribute end-to-end products and services, an ecosystem model is characterized by unified/digital platforms that incorporate third-party products and services, as well as collaborate with segment-focused distribution partners.

To deliver meaningful value, carriers must either bundle value from others with their products (e.g. providing IoT-based real-time risk mitigation services) or provide value to a bundle that someone else is creating (e.g. insuring the service performance delivered by an IoT service provider). Based on the IoT Insurance Observatory research—a think tank focused on North America and Europe with almost 60 members, including many of the largest insurance and reinsurance groups and prestigious tech players like ValueMomentum—the adoption of IoT is a business transformation that requires a robust and articulated set of capabilities as represented in the following figure.

Carbone_1_feb21(Source: IoT Insurance Observatory)

Any insurance IoT programs is a multi-year journey that requires overcoming functional silos, coordinating the different stakeholders, and developing a collective intelligence to drive the IoT-based transformation of business processes. Partners can significantly contribute to insurers’ IoT journey. The adoption of IoT will enable insurers to achieve four different kinds of goals:

  1. Positively impacting core insurance activities (assessing, managing, and transferring risks) by using IoT products and services for continuous underwriting, claims management, and risk reduction. This goal was investigated in depth in our previous article, “Chloe and Insurance: A Love Affair”;
  2. Providing positive externalities to society, a topic more and more relevant due to the current focus on ESG investments (environment, social and governance);
  3. Generating new knowledge about policyholders and their risks. This knowledge has allowed carriers to insure current risks in a different way, enable up and cross-selling actions, as well as insure new risks;
  4. Improving customer experience by enhancing proximity and interaction frequency with them, therefore moving beyond the traditional risk transfer. Many players are selling additional services for a monthly fee, others have found new ways to sell insurance coverages thanks to IoT.

Even to enable new ways to sell insurance coverages, partnerships are a key differentiator. Some insurers recognize the importance of partnerships to expand their market reach and have recently announced bold initiatives to exploit this ecosystem opportunity. One such insurer is Nationwide who recently disclosed its partnership portal where they expose their services and protection products – including UBI auto insurance and connected homeowner insurance – to partners.

With more than half of insurers delivering on their core systems modernization projects in recent years, it’s time insurers leverage data coming from their core systems to grow their business. By integrating IoT devices data to the core system data and leveraging this data fusion, insurers will have the opportunity to build a more holistic view and understanding of their customers and their risks. This digital twin of the policyholder represents the enabler for exploiting the full potential of these data. Mastering digital twins not only will help insurers tailor their services and offerings and improve their customer experience, ultimately leading to better customer retention, but also to overcome the business lines silos, enabling upsell and cross sell of their products and services.

Many senior insurance executives acknowledge that the world will be more and more hyperconnected, and that they have to define their organizations’ role in this connected world. And although many insurers today have ecosystem as a topic in their agenda, the vision of how to exploit the usage of IoT in their business processes has not yet been realized and integrated in a meaningful way. To lead an IoT-based business transformation, a clear vision and a structured and well-communicated plan on how to achieve it are necessary.

Technology is one of the key enablers of this transformation. However, insurers will have to carefully investigate, determine, prioritize, and experiment with a range of IoT business use cases to develop an IoT-based Business Model that will orchestrate and extend their value proposition. Many insurers are exploring a range of scenarios beyond connected cars, including connected homes, health and lives, infrastructure, factories, and transportation. A comprehensive approach to help insurers build out the required capabilities for IoT is below. This insurtech approach takes insurers from business model definition to vendor partner strategy, to platform implementation and finally to IoT insights across the insurance value chain.

carbone 2 - febrero21A main challenge for insurers when it comes to leveraging IoT is building the technology architecture to aggregate, normalize, and analyze data to make it available for the IoT platform to draw data-driven insights. A big question for many is: how do I get started? An effective way to develop your architecture is by leveraging frameworks.

The framework below breaks down the broad portfolio of technology components, services and capabilities required to provide the computing need to arrive at real-time or offline sensor-driven insights for a multitude of insurance IoT use cases. The components are arranged in three layers -Edge, Fog, and Cloud computing- addressing where data should be stored and processed for speed, cost, and effectiveness, depending on the type of data and purpose of the data.

The collection of managed and platform services shown in the framework, across Edge and Cloud computing layers, connects, monitors and controls IoT assets and the processes that generate data for insights & analytics to integrate with the insurance value chain. These services work together across multiple layers that includes the IoT ecosystem -such as sensors, devices, industrial sensors- and connect to the computing infrastructure at Edge, Fog or Cloud persistently or intermittently.

Carbone3_feb21Data collected by the IoT ecosystem is then processed and analyzed at the Cloud Computing layer, along with enterprise data sets such as customer, policy, claims & billing data. All of this data forms the inputs to the digital twin, which can then be turned into actionable outcomes using the latest computing techniques.

For insurers who are currently investing in IoT, and for many more who are considering doing so, this framework can help act as a guide to plan your approach as well as develop an ecosystem strategy that is grounded on a strong architectural foundation.

As new waves of technology or sudden social shifts bring disruptions or opportunities to the industry -similar to telematics or digitalization- an insurer’s ability to rapidly capture opportunities as they present themselves is critical. Today, success -and survival- are interdependent. Insurers who can reinvent themselves as key players in the digital era by leveraging data, including the IoT data, and forming ecosystems to bring additional and new value streams to their customers, will be the ones who are successful.

After all, the digital economy is a “made for me” economy and the digital twins allow insurers to better deliver a tailored insurance experience. Customers will continue to reward organizations that understand their needs and provide them personalized value.

There are already examples of successful insurers -in different business lines and different geographies- that have been able to effectively integrate IoT in their business strategy. Their stories are based on the usage of IoT data to improve the insurance activities, and demonstrate that mastering the usage of IoT is an achievable target for insurers without investing hundreds of millions, but instead by leveraging the right partnerships along their innovation journey.

Matteo is Non-Executive Director, Co-Founder, Insurtech Thought Leader, Keynote speaker and writer on insurance innovation.


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I’m working in Bain Financial Services practice and spent most of my time advising many of primary Players on Italian market. I’m recognized by the client and team as expert on key issue and emerging trends in insurance and wealth management sector. I dealt with Mid-level and Senior Clients, developing advisor status with Executive and earning confidence for contribution to quality output and recommendations. I have wide experience with major International Insurance Groups.