Strategic issues in insurance distribution management

Karlyn Carnahan

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May 18th, 2015

Carriers use a variety of techniques for growing the book and most consider distribution management as a key component of their growth strategy. They are expanding channels, adding distributors, moving into new territories, and working to optimize their existing channel to improve customer acquisition and retention. Some carriers are investing in improving the servicing of distribution channels. Others are focused on managing the compliance aspects of distribution management — assuring the distributors have the right licenses, and that state appointments are made in a timely manner. Many carriers are concentrating on using compensation tools and techniques to more effectively stimulate production.

To understand what top carriers are doing in this area, I conducted a survey of carriers around this topic. The goal of the survey was to understand how the carriers are organized to manage the distribution channel, what types of techniques they use, how effective those techniques are, and what challenges they face. Check it out here.

  • In most organizations, a formal Distribution Management organization has primary responsibility for channel management. Managing relationships and compliance are seen as the biggest issues they face.
  • A wide variety of compensation techniques are used by carriers and most say they get value from those programs – although carriers report that it is more important to calculate compensation accurately than to assure compensation is effective at driving desired business. Some techniques such as incentive comp and contests may only be available to top tier or qualifying agents – but receive mixed reviews on their effectiveness. Only 25% of those offering incentive compensation programs see them as effective. “Having an incentive compensation program isn’t highly effective, but not having one would be even worse.”
  • Most carriers rely on a variety of different systems to manage compensation – including Excel and find efficient calculation and distribution of compensation to be quite challenging. For many, the ability to administer a compensation program easily is the key driver as to whether the program will be offered. While they may wish to utilize a particular technique, their technologies create barriers.
  • Compliance is another challenging area with many carriers in the early phase of considering additional automation.  Fewer than half of carriers have automated any of the major processes – validating licenses, processing an appointment or providing self-service to distributors. Those that have automated the processes generally report them as delivering value.

Managing the distribution channel requires discipline in a number of areas – from managing the day-to-day relationship, assuring the distributor is in compliance with the licenses and appointments, and strategically managing compensation. However, carriers face significant challenges in performing these tasks efficiently. Carriers looking to improve distribution effectiveness use technology as a strategic differentiator.

CCC acquires a telematics platform: the story behind the story

Donald Light

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May 12th, 2015

Today CCC announced the acquisition of DriveFactor which provides a device independent platform for telematics data and analysis.

Why is an auto physical damage estimation and analytics firm acquiring a telematics platform provider?

Well, you could say that telematics is hot, and all personal and commercial insurers writing auto insurance are scrambling to build market share. That is true enough.

You could also say that telematics data is going to be increasingly valuable in determining causation and relative responsibility for auto accidents: how fast was each car driving around a corner, who braked first, and how hard, etc.? That is also true.

But that is not the whole story.

The year is 2018. I am driving a new car, and I am in an accident. My car knows it is damaged. It also knows which systems and parts were damaged and need repair or replacement. And it knows the fastest, best, and least expensive way for that to happen. It might even know about the probability of personal injuries among my car’s occupants.

This is all pretty valuable information.

Who is my car going to give this information to?

  • Its manufacturer? My insurance company?  Emergency responders? Towing companies? Auto repair facilities? Or software companies that estimate the cost of repairs?

And what is the value of such data from tens or hundreds of thousands of accidents?

A telematics platform that can order the flow of this information suddenly starts looking quite valuable.

Robotics, bots and chocolate teapots

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May 8th, 2015

Increasingly in operational efficiency and automation circles we’re hearing about bots and robotics. As a software engineer in days past and a recovering enterprise architect I have given up biting my tongue and repeatedly note that, “we have seen it all before.” I’ve written screen scrapers that get code out of screens, written code to drive terminal applications and even hunted around user interfaces to find buttons to press. The early price comparison websites over a decade ago used these techniques to do the comparison. These techniques work for a while but are desperately fragile when someone changes the name of a button, or a screen or a screen flow.

However, they can help. I recall a while ago a manager lamenting ‘the solution’ was about as useful as a chocolate teapot. A useful 10 minutes hunting for this video of a chocolate teapot holding boiling water for one whole pot of tea made the point for me. Sometimes all you need is one pot of tea.

Tea poured from a chocolate tea pot

Tea poured from a chocolate tea pot

So it’s not new, some bots may be fragile and with my “efficiency of IT spend” hat on (the one typically worn by enterprise architects) stitching automation together by having software do what people do is an awful solution – but as a pragmatist sometimes it’s good enough.

Things have moved on. Rather than a physical machine running this with a ghost apparently operating mouse and keyboard we have virtual machines and monitoring of this is a lot better than it used to be. Further machine learning and artificial intelligence libraries are now getting robust enough to contribute meaningfully smart or learning bots into the mix that can do a bit more than rote button pressing and reading screens.

In fact this is all reminiscent of the AI dream of mutli-agent systems and distributed artificial intelligence where autonomous agents collaborated on learning and problem solving tasks amongst other things. The replacement of teams of humans working on tasks with teams of bots directly aligns with this early vision. The way these systems are now stitched together owes much to the recent work on service oriented architecture, component orchestration and modern approaches to monitoring distributed Internet scale applications.

For outsourcers it makes a great deal of sense. The legacy systems are controlled and unlikely to change, the benefits are quick and if these bots do break they can have a team looking after many bots across their estate and fix them swiftly. It may not be as elegant as SOA purists would like but it helps them automate and achieve their objectives. The language frustrates me though, albeit bots is better than chocolate teapots. I’ve heard bot referred to as a chunk of code to run, a machine learning model and a virtual machine running the code. I’ve even heard discussion comparing the number staff saved to the number of bots in play – I can well imagine operations leads in the future including bot efficiency in their KPIs. Personally, I’d rather we discussed them for what they are – virtual desktops, screen scraper components, regression models, decision trees, code, bits of SQL were appropriate, etc. rather than bucket them together but perhaps I’m too close to the technology.

In short bots may not be a well-defined term but the collection it describes is another useful set of tools, that are becoming increasingly robust, to add to the architects toolkit.

Smartwatch adoption: don’t end up as a laggard

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May 7th, 2015

Timex-DataLink_04LLet me present you my first smart watch: Timex Datalink. My mom gave me this as a present when I was 23, back in 1995 (Oh my, I just gave out my age!).

For those that haven’t seen one of these, it was the first watch capable of downloading information from a computer. Co-developed by Timex and Microsoft it was capable of data transferring from outlook calendar and tasks, No email, no voice unfortunately.

It didn’t look very different than any other digital watches from that time (did I mention they were water resistant?), but they were unique because they could synchronise wirelessly through light (using the monitor screen) with the computer and data was transferred from the computer to the watch quickly and easily.

It seemed revolutionary those days. Nevertheless, it was a complete failure (do you see them somewhere today?) While the concept was fine, they were too ahead in time so the functionality was very limited, and there was no integration with mobile devices and apps (they didn’t exist!).

So when everyone started talking about smart watches (again) I remembered my old Timex Datalink. I don’t use watches anymore (smart watch or not), but back then I did. So this triggered my curiosity as what are the chances for smart watches to succeed. I decided to run a small poll between my friends and asked:

  1. Would you use a smart watch?
  2. Why?
  3. Under what circumstances would you consider using one?

This is what I discovered:

  • Some people (10%) don’t know what a smart watch is.
  • 10% said no, my smartphone provides me all I need plus if smart watches connect through Bluetooth they make batteries die fast. They would only consider using a smart watch if it is free (as part of a smartphone purchase for example) and technology improves (and battery life becomes a non-issue).
  • 40% said they don’t use watches today so why start using it now? They recognize that it needs to have a compelling advantage over the other devices we use today (mobile, tablet, laptop, etc.). If it is about health monitoring there are a plenty of devices in the format of wristbands that they would use instead. Video streaming would be another good reason to adopt it.
  • 10% answered that a watch is something related to fashion (and in some cases luxury) so unless an established well recognized fashion/luxury watch maker brand enters into the segment and makes them attractive, there is no way they would use it. Clearly this segment of consumers wouldn’t buy it from Apple, even if they come in gold and with diamonds, but they would buy it from Rolex for example. The good news for them is that Rolex is launching one.
  • 10% said they would use it out of curiosity (this reminds me myself back then with the Timex Datalink smart watch). If smart watches provide much more functionality and convenience than they did before, there is a chance that this segment may continue to use them after the “trial” period.
  • 20% said definitely they would use a smart watch. Even more, they believe that it will become an accessory required for many daily tasks and interaction with business as in health for example. If you get a discount in health insurance (or life insurance) associated to a healthy lifestyle, a smart watch seems an ideal device to combine the monitoring capacity with other daily activities as talking and mailing. For those that today carry a watch it will be a seamless experience compared to when we moved from landlines to mobiles. Insurers moving into the use of wearables, including smartphones, to monitor lifestyle and provide benefits associated to it, will encourage adoption by people in this segment.

Some conclusions around this small and targeted survey are that smart watches don’t escape to the same logic of any other product market introduction. There are clearly some early adopters (30%) but with risk of some dropping out if the product does not convince (those that would use it out of curiosity). Pragmatists, that would only use it if provides a clear advantage (40%). Some of these will fall into laggards (or not adopt it) if they don’t see a real benefit. Conservatives, more reluctant to change as they perceive watches to have a different meaning (and use) than smart watches. Finally, laggards that will see how everything evolvers before jumping in (20%).

Bell curve

We need to see what happens with wearables in general, as there may be other devices and interfaces better than a watch? In my opinion there is still a long way to go before having all the ducks in a row, but no doubt that if linked to real benefits such as savings and convenience the chances of smart watches to succeed increases. Insurers, if not doing it yet, should be considering smart watches and wearables in general as part of its products and its customer experience. Don’t wait to see who the winner is in the wearables segment of the IoT, or you may end on team laggard.

Pushing beyond apps

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Apr 30th, 2015

It struck me while I was driving this morning: First-gen mobile apps are fine, but virtually everyone is missing high-volume opportunities to engage with their customers.

Allow me to back up a step. I was stuck in traffic. Not surprisingly, that gave me some time to ponder my driving experience. I found myself thinking: Why can’t I give my car’s navigation system deep personalizations to help it think the way I do? And how do I get around its singular focus on getting from Point A to Point B?

I explored the system while at a red light. It had jammed me onto yet another “Fastest Route,” disguised as a parking lot. My tweaks to the system didn’t seem to help.

I decided what I’d really like is a Creativity slider so I could tell my nav how far out there to be in determining my route. Suburban side streets, public transportation, going north to eventually head south, and even well-connected parking lots are all nominally on the table when I’m at the helm. So why can’t I tell my nav to think like me?

I’d also like a more personal, periodic verbal update on my likely arrival time, which over the course of my trip this morning went from 38 minutes to almost twice that due to traffic.

The time element is important, of course. But maybe my nav system should sense when I’m agitated (a combination of wearables and telematics would be a strong indicator) and do something to keep me from going off the deep end. Jokes? Soothing music? Directions to highly-rated nearby bakeries? Words of serenity? More configurability is required, obviously, or some really clever automated customization.

Then an even more radical thought struck. Why couldn’t my nav help me navigate not only my trip but my morning as well? “Mr. Weber, you will be in heavy traffic for the next 20 minutes. Shall I read through your unopened emails for you while you wait?” Or, “Your calendar indicates that you have an appointment before your anticipated arrival time. Shall I email the participants to let them know you’re running late?” Or (perhaps if I’m not that agitated), “While you have a few minutes would you like to check your bank balances, or talk to someone about your auto insurance renewal which is due in 10 days?”

What I’m describing here is a level of engagement between me and my mobile devices which is difficult to foster, for both technical and psychological reasons. And it doesn’t work if a nav system is simply a nav system that doesn’t have contextual information about the user. But imagine the benefits if the navigation company, a financial institution, and other consumer-focused firms thought through the consumer experience more holistically. By sensibly injecting themselves into consumers’ daily routines—even when those routines are stressful—companies will have a powerful connection to their customers that will be almost impossible to dislodge. Firms like Google have started down this path, but financial institutions need to push their way into the conversation as well.

You ought to be in pictures – policy information delivered by video?!

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Apr 30th, 2015

An article posted by Reuters pointed out that this week, YouTube celebrates its 10th anniversary and Facebook reported that there are now 4 billion videos viewed on its site every day (up from 1 billion in September).

These facts reminded me of our 2015 Celent Model Insurer case study about Security First Insurance (see Celent Model Insurer 2015: Case Studies of Effective Technology Use in Insurance ). Realizing that their insureds do not read their policies and often do not understand what to do in case of a loss, the company offers personalized insurance videos as a service to policyholders. They are sent to new homeowners insurance (HO3) policyholders to help them better understand their insurance coverage and the steps to take if they need to file a claim. A data file is passed from First Security to a video production vendor. This information allows the video system to customize and determine the appropriate segments based on the specific coverage and location information for each policy.

To date, 75% of the customers who open the invitation email watched the video. Approximately 35% view it to the end (nearly eight minutes of content). Compare this to the number who read the policy (probably zero per cent?)

The demand for information in video content will push insurers to make video an integral part of their customer communication and content management approach. It is good to see Security First Insurance leading the way.

The first step of customer experience transformation

Karlyn Carnahan

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Apr 29th, 2015

The easiest way to grow your book of business is to keep your customers happy. Retention goes up, cross sell goes up, and you will get referrals. This isn’t a big revelation. Carriers know this. The key to keeping customers happy is to create a top-notch customer experience.

But insurance is complex. Consumers have a greater number of choices today than ever before and consumers are accessing carriers through more channels than were ever available in the past. This complicates the picture at the same time that expectations are increasing. Customers expect that the carrier knows the details of every prior interaction they have had. That is hard to do when customer data is fragmented across multiple systems.

Customer experience includes many facets – advertising, the acquisition process, claims and of course, the quality of customer care. Carriers are looking for tools to help them provide a superior customer experience regardless of the channel the customer chooses to use at the time. That is probably why we are seeing a huge increase in the interest in Customer Relationship Management tools especially by small and midsize carriers who haven’t invested in this type of software before.

Customer relationship management systems are one of the components in many insurers’ application maps. Although CRM solutions are not unique to the insurance industry like policy administration or claims systems, they are still key technologies used to manage relationships with customers, whether customers are defined as agents/distributors, claimants, end policyholders, or prospects.

There are literally hundreds of CRM solutions available today from firms large and small, well-known and obscure. I’ve just published a report focused on enterprise solutions for larger-scale organizations similar to most US insurance firms. The report does not include CRM solutions that are appropriate for small organizations such as independent agencies or advisors. It also does not address horizontal solutions that are not specifically targeting the insurance industry with tailored capabilities.

There are a wide range of CRM solutions on the market for insurers to choose from. A wide range of features and functionality are available. These systems are used in various capabilities within insurance carriers — from producer management, to call center support, to managing leads and campaigns. Integration with other systems will be needed to provide the most value to a carrier.

There is no single best CRM solution for all insurers. There are a number of good choices for an insurer with almost any set of requirements. The right solution for a carrier depends on how the carrier plans to use the solution. Some carriers use CRM solutions as a front end to all the core applications. It is the entry point for a call center representative to access all data for those who are calling. Other carriers use CRM solutions to manage interactions with the distribution channel. Still others use it primarily to manage outbound marketing campaigns and may extend this capability to the external distributors.

System selection also may be driven by how the carrier defines “customer.” Some carriers define the customer as their agency or broker-dealer firms. Others define the customer as the final purchasers of the insurance policies and annuities. Some solutions may be better at handling some business models than others (e.g., 20 million end user clients vs. 200 agencies), though most would claim to be able to handle all levels of “customers.” Therefore, the ability to build and maintain appropriate hierarchies (agency or broker-dealer, agent or advisor, household or individual) within CRM solutions is an important aspect to examine.

An insurer seeking a new CRM solution should begin the process by looking inward. Every insurer has its own unique mix of distribution channels, geography, staff capabilities, business objectives, and financial resources. This unique combination, along with the organization’s risk appetite, will influence the list of vendors for consideration.

Some vendors are a better fit for an insurance company with a large IT group that is deeply proficient with the most modern platforms and tools. Other vendors are a better fit for an insurance company that has a small IT group and wants a vendor to take a leading role in maintaining and supporting its applications.

We recommend that insurers that are looking for a CRM system create narrow their choices by focusing on four areas:

  • The functionality needed and available out of the box for the way the carrier plans to use the system and the customer types desired. Check to see what is actually in production.
  • The technology — both the overall architecture and the configuration tools and environment.
  • The vendor stability, knowledge, and investment in the solution.
  • Implementation and support capabilities and experience.

The best Policy Administration system I have ever seen

Tom Scales

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Apr 27th, 2015

Those that know me well know that I am a generally upbeat guy, but can also be piercing in my analysis of technology. This is something that the vendors with which we work expect — absolute honesty in reviewing their systems and technology. They don’t always like my position, but they’ll hear it.

Our insurer clients expect the same, as they are often betting their company on vendor technology.

So let’s just say I rarely gush over a system. I can usually find a pretty major flaw at least in the presentation of the system.

Today I had the opportunity to see a system that was new to me. This is a part of a research report that our team is writing and we are seeing a number of demonstrations. They’re short — just an hour — and scripted to cover some pretty focused areas.

Some of the vendors have nice technology, but really struggled with the hour limitation.

Other vendors manage quite nicely within the hour, but don’t excite me with what they showed.

A demonstration I saw today managed to do both — they managed the demonstration into the time flawlessly and, more importantly, I was just blown away by the system.

There are some fundamentals that we review. Among these are:

Configuration

This is the heart of any system. Many systems are very configurable, but most of them that I have seen are so clunky, or confusing, that configuring them is a chore. They may be advertised as configurable by the end-user, but not any end-user I have ever met.

The system today was incredibly flexible, but they configuration was done in such a way that it expressed the business need to the user in their own terms. There was a lot to configure, but everything was easily reuseable. Even better, it handled the complex chores like multi-language and multi-currency simply, even in the same transaction.

Contact/Customer management

Many systems try to aggregate people, but this system treated every relationship as a powerful contact. Providers, agents, insureds and  companies are managed in a powerful CRM and the information maintained seamlessly changed depending on the relationship.

User experience

So many systems we view look like they screens were designed by a programmer and, worse, could only be used by a programmer. I saw a system recently that was powerfully configurable, but almost indecipherable to use. This system has an easily understandable UI, complete with integrated workflow and management of attachments to any contact. Better yet, it is all HTML5 and seamlessly adapts to mobile devices, particularly tablets.

Reporting

Have you ever dreamed of a system where the end-user could easily pull information out of the system? This is that system. The query tool was simple, but powerful and the entire user experience revolved around personalized dashboards. I can’t comment on whether it can scale with this power, but it was very impressive.

I’ll leave it there, as I could go on, but my colleague and I were both very impressed. The one area for improvement is the cloud — the current release does not run in a major public cloud, but they indicated this is on their roadmap.

I’ll finish with one observation — I’d buy this system for my company. I don’t have a stronger compliment.

If you’re reading this, and you’re with a vendor, and I didn’t see your demo today, well, you have a fierce competitor.

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P2P Economy and the Uberization of Insurance

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Apr 27th, 2015

We are getting used to the sharing economy to an extent where the term uberization is becoming part of our vocabulary to refer to the effect of disruption in a given industry by some sort of peer to peer business model, which seems to defy the rules by which incumbents compete.

In the essence of this shared economy, motorized by peers connecting directly between them, is the concept of disintermediation.

Disintermediation in news: Twitter. Disintermediation in travel: Uber and Airbnb. In the financial services industry there are plenty of cases around lending and crowd-founding, leaving banks wondering if they have to (or will) participate.

Under this concept any industry where intermediation is heavily present should be looking into its next Uber…

Insurance is no exception. Insurance is about risk sharing, so what better model to bring in technology and make that risk sharing as efficient and effective as possible?

Insurance started in many cases by peers getting together to offset the consequences of a loss. This reminds me the story, told to me by an old friend, about how underwriting was born at Lloyds bar in England when captains started betting against their own ships to cover the potential loss of their cargo and vessel. The bookie would take note of the bets entering them one beneath the other on the chalkboard, hence the term underwriter was born. I hope my friends underwriters, whom I have just assimilated to bookies, continue to talk to me after reading this.

Mutuals were created with this same concept of peer risk sharing. Risk management in the base of the pyramid has been found to follow the same scheme.

More recently a German broker introduced the concept using the power of social networks and group risk sharing: Friendsurance. For more on that, check out this great case study by Mike Fitzgerald.

In Colombia a very interesting initiative to take this concept even further: Wesurance, an initiative backed by Suramericana – the leading insurer in Colombia – looking to create groups of people to insure almost anything you want. Please check this video.

Disintermediation by peers connecting between them directly, easily, efficiently, looking for those that share the same concerns (and risks) and being able to create a product as personalized as it gets. I don’t know about you, but to me it raises a lot of questions about how this will change intermediation in insurance as we know it and, much more, it raises the question of which is going to be the role of insurers.

Want a hint? Banks are slowly starting to embrace the adoption of P2P as part of their business models. Suramericana in insurance is doing the same.

My advice: get involved, try, fail, learn, adapt, and shoot for the moon. Even if you miss, you’ll land among the stars.

 

Living with the Internet of Things (and crowd funding)

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Apr 23rd, 2015

Earlier this week some users of the Wink smart home hub found that their smart home hub was more useful as a door stop or brick than as a hub. A fix is being worked on and rolled out to customers but for me this looks like the teething problems of the still nascent Internet of Things movement and one of the hurdles Apple is trying to jump with the Apple Watch.

Earlier this month I received a portable handheld scanner from Dacuda. It’s not unusual for me to receive gadgets in the post but this one was particularly interesting to me as I had been one of the kickstarter funders of the item and have been following it’s creation with some interest. It piqued my interest particularly because I’d seen the technology almost two decades ago in a research lab but not seen it come to market at a reasonable price – a scanner that one moves over the page and software builds a picture of the underlying document.

This isn’t the first item funded via crowd funding I’ve bought. My keys have a tile attached to them and I’m still wearing the original Pebble wrist watch (with e-ink display). I guess this firmly places me as an early adopter in the Internet of Things, wearables and crowdfunding space. I don’t have a Wink hub although it’s sort of appealing but not available in the UK yet.

So far though it hasn’t been all clear pastures and dreams ideally realised. The Internet of Things has it’s teething problems. Let’s take the Tile for instance, a small device that emits a bluetooth and short rage wifi signal so you can track it’s location from a phone or tablet, thus, never losing it. I used to have 3 of them and now have 2, that’s right I lost one. I was rushing out the door, the school run running a little behind schedule and forgot my phone. Somewhere on the brief journey I dropped the Tile and what it was attached to. Had I had my phone with me it would have given me the location of the last place it connected to the Tile, as it was it told me the last time it saw the Tile was at home. No matter, in theory if I retrace my steps I will come in range and be alerted that it is found. This didn’t work either so I assume it was picked up. Since the battery lasts two years perhaps someone with the app will go near it and it may yet find it’s way home – but not yet. Part user error and part an unfortunate series of events perhaps, but another technology found fallible and a dream not quite realised.

The Pebble has been more successful. The fact I answer the phone when it rings is largely down to my smart watch rather than the phone these days and the wrist-borne notifications are hugely helpful. I use the misfit app on it to tell me I’m not doing enough exercise and a Withings smart body analyser at home to let me know the end result of not having done enough exercise – all great fun!

I may still invest in the Apple Watch. I have a standing desk so do stand, something misfit on my pebble doesn’t track and I feel I want to be recognised digitally for this at least.

The little handheld scanner is more work in progress. My son’s somewhat fascinated when it works and hugely interested in the errors it makes and where they are made – such is life as an early adopter. More teething issues there.

No doubt though we as a population are moving to a world where anything we buy could be connected, where we can buy a $50 hub that controls our lighting from an app and it’s failure is covered in the global (technology) press and where we can fund and follow the development of gadgets we’ve dreamt of owning for a couple of decades (even if the software needs a little more work).

So what does this have to do with insurance? The fact is the Internet of Things appears to be running apace, smart homes are being tried out by the early adopters and bugs are being squashed. Did you know with the Wink hub, the app on your phone and this $40 quirky+ge water sensor you can get alerted in real time regarding escape of water events? Ever been out of the house and come home to find the kitchen, bathroom or basement flooded? Indeed just yesterday Karen pointed out this article suggesting insurers are getting involved with smart homes.

There’s a lot of buzz around health and life insurance in part driven by the Apple Watch launch. I’m looking forward to Apple doubling down on the HomeKit API or someone credible getting there first; I’m looking forward to the same boom around the Internet of Things and insurers handing out moisture sensors to home owners. I’m looking forward to prevention and intervention products, rather than selling services after a loss.

Perhaps we just need to squash a few more bugs first.