- Cars don’t crash?
- People don’t die?
- Insurance products are service contracts, based on the avoidance of loss, rather than on indemnity?
- Pricing is determined by activities and instead of basing rates on rating categories, they are based on behaviors?
- Technology and social norms allow individual risks to socialize their coverages and seek partners to share in deductible / low loss payments?
“…a penniless, immigrant, orphaned kid who came out of nowhere and his achievements were monumental…he creates the first fiscal system, the first monetary system, first customs service, first central bank…”Without these innovations, the modern economy as we know it now would look very different. Anyone working in financial services today is aware of the challenges we face responding to changing customer expectations and new technology opportunities. Vast sums of money and time are being spent on innovation, looking for answers. However, Celent’s research shows a widely held view that the financial services industry cannot innovate very effectively. So how do we improve? The theme of our Insight and Innovation Day event this year will take inspiration from Hamilton’s work and use it as a guide for our future efforts. By the way, if you want to go to Hamilton while at the Celent I&I Day, I suggest you get your tickets now. It’s the hottest ticket in town.
- a practical understanding of how the very basic assumptions underlying traditional insurance products are changing and what impacts this will have
- firsthand information of how insurers can respond, gained through a series of experiential, structured exercises
- networking opportunities with peers which allow for comparisons with like organizations
Our research shows that despite much is being said about innovation there are still important barriers to overcome; noticeably “lack of top level leadership” stands out as #1.
- These practitioners report that they sense that the velocity of change around IoT is different than what has been seen before. Unlike other changes in insurance, decision-makers cannot wait for the data to roll in and the “case to be proved” or it will be too late to respond. Companies reported that they have lost partnership deals with start-up firms because they were unable to make a decision in a timely manner. This dynamic supports the need for a “dual governance track” that has been reflected in Celent’s innovation research.
- Donald Light presented Celent’s model of IoT, and the group engaged in a good deal of discussion about what part of that ecosystem insurers will want to “own”. There was recognition of the incredible predictive value of the data that will be produced by IoT. However, it was pointed out that what has happened in commercial lines fleet IoT applications is that insureds prefer to retain control over the data as the value for them of using it to manage their fleet vastly outweighs any premium discount that might be awarded. It remains to be seen if this will play out in other lines of business.
- Regarding commercial lines applications of IoT, it was notable that the group spent as much or more time discussing these opportunities as it did discussing the usual suspects – auto telematics, connected home, and health/lifestyle. Celent sees this as a further maturation of IoT in insurance. The consensus of the group was that commercial IoT is not yet widely addressed and is beginning to be a focus for their companies going forward.
- A lack of cross-industry integration standards was recognized as a significant barrier to expansion. The participants expressed that there is a need (and opportunity) for a data standards group to facilitate this between insurers and potential device providers. Without such agreement, progress will be more expensive and will take longer than it should.