The use of data and technology in pricing has been a ferocious battleground for insurers for years.
Customers are won or lost on the quality of risk selection and pricing.
Insurers and their distribution partners are always looking for the next edge; the way to gain competitive advantage at point of sale through clever use of data and technology.
They can then cherry pick the risks they want to underwrite, delivering value to customers through pricing that reflects a view of risk.
Where companies have special insight, preferred potential customers get lower prices.
However, when those new customers get in their cars or go back to their homes, they’re just as risky as they were yesterday.
Accidents and incidents happen and insurers are there to pick up the pieces.
So what can we do?
Experts predict that by 2025 the IoT (Internet of Things) will have penetrated all areas of our lives with sensors in cars, buildings and wearables connected to the net and able to send and receive data.
The opportunity for insurers in a connected world is to engage customers with relevant, timely, thoughtfully-presented, personalised risk management information, so that we can try to stop bad things happening in the first place.
While in some areas the insurance industry has been slow to respond to technological developments, there’s no doubt about the excitement around connected devices and the wealth of opportunities presented.
Insurers like RSA are already helping reduce accidents, injuries and deaths on the roads through young driver telematics products.
Products are personalised and young drivers are rewarded for driving responsibly.
Using driving data customers can be advised on the difference between dangerous and safe driving.
Young drivers are happy as they get cheaper premiums.
Their parents are happy as they have an informed peace of mind.
This new game doesn’t stop at young drivers and car telematics.
The IoT will allow insurers and customers to see things they couldn’t before – and to do something about them before they go wrong and cause damage and heartache.
It will allow insurers to see problems before they progress into claims and even when there are claim events, new data and technology, harnessed skilfully, will stop the bad stuff being as bad as it could have been.
Escape of water in home insurance is around 25% of total building and contents claims cost.
Detecting hidden leaks has always been problematic and costly, yet solutions such as Leakbot’s smart water leak detector are an example of how owners of connected homes and offices could benefit from more informed peace of mind and a sense of control to mitigate risks.
It’s not just buildings, cars and objects that could benefit from connectedness – wearable devices could report on the physical location of policyholders and their health or current emotional state – a life saver for the elderly or disabled.
Even pets can benefit. Devices such as the Pit Pat activity monitor for dogs give owners and insurers valuable insight into the health of the animal, and can help promote and encourage improved exercise regimes, tailored to a customer’s specific dog.
Where will that leave the insurance industry?
It means we’ll be using data and technology to try to prevent customers needing to make a claim in the first place.
Insurers will be able to personalise products, giving customers information that’s useful to them and helping them to understand and manage their own risk.
In the long run, it also means insurance premiums will decrease, with clever use of data and technology shrinking mature insurance markets.
The market size is a function of the amount of the bad stuff that happens – thus fewer claims mean a smaller market.
The insurance industry will need to learn new tricks and deliver different services that will in turn create new challenges and opportunities.
How will customers react to this?
Well, they’ll just think of it as technology that puts them in control and helps stop the bad stuff happening.
When the bad stuff does happen, insurers, like RSA, will be there for them, like always.
Kenny Leitch, RSA global director of Connected Insurance says: “The really exciting future we’re now moving into, is one where insurers like RSA can begin to help our customers and our partners’ customers avoid traumatic and emotionally draining claims events from happening in the first place. A future where we can deliver personalised value to our customers every day to make their lives better, rather than us just being there when it all goes wrong.
An insurance company that stops the bad stuff happening in the first place? Now, that’s something to shoot for isn’t it?!”