A Journey to Digital Transformation: Collaborative Innovation in the US Insurance Industry

With the evolution of bank-FinTech narrative from competition to collaborative innovation, the insurance industry was bound to follow the steps, re-evaluating risk management frameworks in place, re-building customer experience, and overall, taking a fresh look at the insurance value chain to explore opportunities that technology companies offer.

InsurTech innovation is occurring across the entire insurance value chain – from distribution and marketing, product design, underwriting, claims management & balance sheet management, and across all lines of insurance – property and casualty, life and health. Distribution is the area of highest focus. InsurTechs are reaching new customers through new distribution mediums – addressing generational shifts in the way people communicate, access information and make decisions – while not disturbing traditional channels. – NAIC

In the past few years, more than 75% of funding deals in InsurTech have been led by traditional insurance incumbents. Such investments enable them to evaluate the capabilities of these startups and then go for a strategic partnership via a pilot/actual implementation. The MEDICI Team recently analyzed InsurTech partnerships of 25 insurance incumbents, categorized in the following major areas of operations:

  • Digital Distribution

  • Digital Claims Management & Fraud Detection

  • Smart Underwriting & Risk Management

  • New Product Development

  • Customer Engagement (Bot/Voice)

  • Connected Insurance (IoT + Telematics)

In total, there were 95 partnerships established by these 25 incumbents with several InsurTech startups. Digital distribution was the most active area of collaborative innovation, with 20 strategic partnerships between incumbents and InsurTech players.

It appears, IoT is one of the most prominent use cases in the insurance industry: we found 17 partnerships in the Connected Insurance (IoT + telematics) space. Given that out of 28 billion connected devices forecasted by 2021, 16 billion will be related to IoT, the importance of leveraging the connectivity is hard to overestimate. Moreover, out of the total number of IoT devices, 1.5 billion will have a cellular subscription by 2021. Wearable devices will be playing the critical role in enabling precision in insurance and, fortunately, by 2018, over 250 million smart wearable devices are expected to be in use.

InsurTech startups have the potential to strengthen the tech infrastructure of incumbents and deliver value in terms of enhanced UX, data-driven decision-making, consumer-responsive product development, etc. As InsurTech startups continue to emerge across various components of the insurance value chain and business lines, incumbents and investors are evaluating opportunities to deploy these applications in the insurance industry today and in the future. – Gearing Up For Transformation – Insurance Incumbents Up Their Investment Game, Diwakar Mandal, MEDICI

Let’s look at some particular examples of US insurers expanding their capabilities or testing technology solutions in existing areas of operations.

Speaking of IoT, American Family Insurance, for example, partnered with TrueMotion, a provider of turnkey, smartphone usage-based insurance (UBI) technology, to make it a part of the insurance company’s new app-based, driver safety program – KnowYourDrive. American Family customers who download and use the app can receive discounts on their premiums based on their actual driving. In addition, American Family offers TrueMotion Family, an app focused on helping teens become better and safer drivers.

The mobile app offered as a part of the KnowYourDrive program allows customers to receive discounts on their premiums based on driving behavior. TrueMotion Family engages the whole family to become safer and more responsible drivers by tracking distracted driving and other risky behaviors. The app scores and ranks each driver and shares the results with each member of the family, and also includes location awareness, so parents can know the whereabouts of their teens. The app enables parents to see how their teens are driving, even when they are not in the car with them.

The same insurer also partnered with wireless home security provider Frontpoint to make it easier and more affordable for customers to protect their homes and families. Starting October 2017, American Family customers could purchase a $600 basic wireless Frontpoint home security system for $99.95 with a 36-month monitoring price lock guarantee. The system is professionally monitored by Frontpoint – with alerts sent to customers’ mobile phones – and customers can also use the Frontpoint app to personally check their sensors and cameras.

A passenger fleet insurance company called Atlas Financial Holdings is working with Nauto, whose auto safety and data platform is making driving safer and fleets smarter, to deploy Nauto’s dual-facing cameras, telematics, and data platform across multiple fleets of its taxi, livery and paratransit customers. Under the agreement, Atlas will work with key fleet customers to install Nauto’s proprietary devices – windshield-mounted internal and external-facing cameras packed with AI sensors and telematics – in customers’ taxi, limousine, and paratransit fleets located throughout the United States. With Nauto, Atlas will gain a greater ability to price and insure commercial fleet risk. In addition, Atlas and its customers will have access to Nauto’s data network and insights, which could dramatically improve the determination of who was at fault in a collision and streamline claims handling.

Smart Underwriting and New Product Development were the other two areas of operation with 17 partnerships in MEDICI study. Nationwide, for example, partnered with Sure to pilot mobile-based renters insurance in California and Washington. Since more Americans are conducting e-commerce via mobile apps, Nationwide decided to enable its consumers to purchase renters insurance as they shop for an apartment or condo. Using the Sure app, consumers can get a renters insurance quote, purchase a policy, and pay their Nationwide renters insurance premiums via a mobile app.

Nationwide also partnered with LexisNexis to deliver the insurer’s next-generation insurance telematics program, SmartRide Mobile. This usage-based insurance program provides discounts for safe driving for members who choose to participate. All members save an average of 10% for joining and can save up to a possible 40% after six months with no penalty for joining.

Many insurers have partnered with InsurTech players to launch new products across the insurance value chain.

Digital claims management and fraud detection had 13 partnerships in our study. To help clients address changing liability insurance needs, XL Catlin, for example, has enlisted Praedicat and its emerging risk models and software for casualty insurance. The multi-year engagement will include access to Praedicat’s latency risk model and mass litigation scenarios, its software on emerging risks called CoMeta, and its portfolio modeling software Oortfolio. Praedica’s models and software analyze risks that emerge over time. They called latent risks since these risks can build up in an insurer’s portfolio.

Allstate Insurance enlisted an ally in the fight against insurance fraud. The insurer started working with Carpe Data, a California-based company whose use of analytics will allow Allstate to apply highly predictive online data to claims processing. Carpe Data’s fully automated data and predictive scoring products allow insurance carriers like Allstate to leverage online information as a tool for risk assessment and decision-making across their book of business.

The official press release had a curious example on how Carpe Data: in one recent example, a third-party claimant said they could not work due to injuries from an accident. Carpe Data’s analysis of public social media accounts found a video of the same claimant rock climbing as well as photos of the person horseback riding during the time they had said they were too injured to work. This provided Allstate with more information about the claim and the chance to potentially identify fraud faster and more effectively than ever before.

Customer Experience is another important area where insurers are exploring opportunities to enhance existing channels and strategies. John Hancock’s Lab of Forward Thinking (LOFT), for example, collaborated with ConsenSys and BlockApps in the LOFT’s first Ethereum blockchain PoC. The LOFT will apply blockchain technologies to enhance the onboarding of new wealth management clients in order to enhance one of the critical drivers of customer satisfaction.

Genworth Mortgage Insurance, a subsidiary of Genworth Financial has forged an exclusive partnership with Roostify, a web and mobile platform that streamlines and accelerates the home buying process. Roostify’s platform allows consumers to submit a complete and accurate application in under 20 minutes, allowing loan officers to spend more time focused on closing loans rather than searching for information and documents. It also serves as a networking tool, allowing for interaction among loan officers, real estate agents, underwriters, and consumers all in one digital hub.

Allstate, for example, has teamed up with Openbay, an online marketplace for non-collision auto-repair and maintenance services, to help consumers with a faster and more efficient way to service their vehicles. Consumers have access to a national network of service centers, including dealerships participating in the Allstate Dealer Agency program, to schedule anything from an engine overhaul to a new set of tires, to an oil change.

The amplitude of the digital transformation happening in the insurance industry is widespread and encompasses all of the phases of the insurance value chain, from underwriting to claims, Matteo Carbone emphasized in his article called The Future of Insurance Is InsurTech. I’m convinced that insurance companies will still be relevant in the future, or will become even more relevant than they are now, but these companies will have to be InsurTechs or players who use technology as the main enablers for reaching their own strategic objectives.