Mutli-line / Multi-year approach: which reduces volatility
D&O (Executive) policies continue to evolve and adapt to changing risks. The tailor-made is put on this profitable and dynamic market (new regulations, cyber risks, etc. which increase the risks for managers).
There is growing interest in combined fraud / cyber collateral, although these mounts do not always yield the best proposals. Note: It is understandable that customers are always looking to hedge against an unknown risk, but perceived as critical .
Kidnap & Ransom products are in full swing, because of an international geopolitical context that is sometimes hazardous.
Conclusion: My opinion
This report is a mine of information, very technical, but essential to a good understanding of the complexity of heavy risks. A disadvantage on the bedside table, but imperatively under the elbow!
In hollow, one sees there appear, as often, the insurance products which could be generalized tomorrow. The trends observed, especially on cyber, fraud or regulatory aspects are in this sense good indicators of the future.
Here is a little overview of articles that caught my attention and deserve to appear in the “press review January 15th, 2018”!
O’Reilly offers books on data and artificial intelligence
The famous publisher of computer science books has a library of 80 of its publications on big data, artificial intelligence and data science, published between 2012 and 2016. Essential detail: the download is free, in pdf, epub or mobi.
Remember: when it’s free, you’re the product! O’reilly asks for your name, first name and email to download, but nothing forces you to enter the real …
Not so accidental road accidents
Mathieu Grossetête is a researcher at the university research center on public action and politics. We propose in the Diplomatic World a reading interestingly, accidentology by car.
It appears that the prevention policies of Road Safety may now reach their limits because they are poorly targeted! Or when the art of data analysis becomes essential to better control a phenomenon, and treat it correctly!
Exciting article to read, which makes us rethink the notion of risk analysis, the perception of events. Finally, it simply invites us to change our way of thinking.
Typologies of wearables
Evan Kirstel, one of the leading thought leaders in connected health, offers us a panorama of typologies of connected objects for health, aka wearables. This one goes a little further than the usual dichotomy watch and bracelet vs balance!
Deloitte: human collaboration – machines
A visual of a Deloitte study, found on Twitter, gives an interesting reading of the symbiotic relationship that can develop between humans and machines. All thanks to the service rendered!
Axa and telemedicine
Jacques de Peretti, CeO of Axa in France announced this week the launch of telemedicine in companies and openness from service to experts.
The second service is the extension of the current service (which I had the opportunity to test personally and which is very good). On the other hand, the first one supposes major investments and questions around the model chosen by Axa.
The question of danger, posed by Olivier Harmant, is in my opinion not relevant.
However, what is the return on investment of this model for a complementary insurer? Indeed, a teleconsultation at the expense of the complementary supposes a cost support higher than the usual part. In order to be financially attractive, such a service needs to be either cheaper than normal consultation or to reduce risks. For now, teleconsultation is a vector of brand image and carries a demarcation line with respect to the competition. However, when everyone will do it, it will be necessary to consider the business model that goes with it!
Finally, should not this be the role of an intermediary platform? The latter would make this service available and look for the insurer who answers it. On the contrary here, it is carried directly by a complementary insurance? What does this say about our public health insurance? A lot of questions, few answers for now!
A conjunction of elements led me to reflect lately on the link between insurance, innovation and behavioral evolution! It is an opportunity to give you my point of view on the issue.
Insurance is often considered reactive. Indeed, it reacts to events called claims to compensate for the residual loss.
Campaigns, sometimes famous (I think about road safety), are intended to transform behavior upstream to reduce downstream losses. For the insurer, it is an initial investment that finds its ROI in reducing the indemnification. We are here in a model in which the insurer is a preventer and no longer just a compensator.
However, a lot of debate has taken place in recent years to give the insurer a more proactive societal role upstream to reduce risks and thus change behavior. The embedded telematics (with Pay-How-You-Drive offers for example) has often been seen as an incentive for good practice: if you drive better, I make you pay less. Ditto for connected bracelets of health: if you play sports, you will have a reduction.
However, we note that these approaches do not always work or that they are not effective. However, do not we say “chase the natural will come back at a gallop”? The challenge is therefore twofold:
Find new ways to influence behavior.
Adjust offers to better stick to individual behaviors rather than standardizing responses.
Nudges at the service of behavioral change
It will probably not have escaped you that the last Nobel Prize in economics (2017 ) was awarded to research on the so-called behavioral economy. To learn more, read here . This is also called benevolent manipulation.
I will not attempt here to detail fully the possibilities offered for insurance, because it deserves to think seriously about it. Anyway, I invite you to read the very good article from one of my competitors on the issue. Here is the example cited:
For some American motor insurances, the declaration of the mileage achieved in the year (n) conditions the premium for the following year (n + 1). The average rate of under declaration is estimated at 15% compared to the Km actually made. A Nudge has been tested to try to improve the statements. Instead of signing the declaration on honor at the end of the document, the researchers put it on the heading of the document, before the declaration. This simple change results in a 10% increase in the number of Km declared, a gain for the insurer of $ 48 per insured. The simple reorganization of the structure of the document, the architecture of choice, makes it possible to modify the behavior of the insured and thus to increase the income.
Some examples of nudges for insurance
Here are some examples of nudges that are or could be relevant to insurance depending on the objectives:
Reducing risks: The incentive to drive better.
The solution implemented by Liberty Mutual and relayed here consists of a mixture of gamification and information to drivers. Thanks to embedded telematics, the solution allows everyone to consult their driving information and to consider how to drive better and therefore how to reduce their premium, the discount rate being updated live every day for 3 months before being fixed.
By extending the exercise outside the pure scope of intervention of the insurer, we can note that tracing, on the road, shorter white stripes gives the impression of going faster and encourages you to slow down without even realizing it.
The incentive to subscribe:
A study relayed in the book above (London Economics and YouGov in 2013 for the FCA) showed the impact of the presentation of the insurance offer in parallel with another product. This is the case for example when buying the insurance when buying a mobile or cancellation insurance.
Beyond the questionable ethical aspect, this shows the influence of the distribution strategy on the choices of insured.
Segmenting the populations can be done according to a probability of underwriting. By identifying 3 segments (low, medium and high effort) using artificial intelligence, we can then determine who has the strongest probability of traveling the last mile to the subscription. These populations, for which the effort is small, will be treated differently and maybe receive, when the time comes, a little nudge! This can be a text message, a small message on the screen or a welcome email when giving the little extra that will be enough to convince them.
I will come back to these questions later with other detailed use cases to imagine more precisely how to use these methods.
Most of the current offers are very standardized. They take into account a need considered identical for all insureds. At the time of individualization, why could not we consider adapting the coverage more finely according to the real risks of the insured. I can already hear the reactions: “This is the essence of our job”, “We already do it”, the contracts offer options and choices of levels to ensure according to his needs. “Very good, but in truth, can one think otherwise?
The Wilov speech is very interesting on this point. Most auto insured drivers drive less than 50 days a year. Yet they are covered full time. By inventing the “Pay-When-You-Drive”, their starting premise is to charge drivers only when they drive! The price is not necessarily much lower, however, the feeling of the insured is much better (provided that the user experience is the appointment of course!).
The approach of Inspeer goes in a similar direction. Starting from the premise that changing the behavior is complicated, Emmanuelle Mury and her team are working on the notion of affinity groups that go around the use. Clearly, they identify similar behaviors, and create the corresponding supply. I will come back to this in a dedicated article!
In short, the notion of supply is still too much seen today as unique, identical for all. Indeed, IT systems did not allow to easily and quickly deploy variants and customization, or the illusion of personalization was at the marketing level. It’s time to move to a higher level!
And you what do you think? When do we start to revamp your offers?
As it is frequent at the beginning of the year, I too will fall into the game of predictions for the coming year. With my 6 topics for 2018, here are the 6 points that I think will be 2018 on innovation in insurance:
I think the moment is good to launch complete offers around telematics embedded in cars, smart homes or wearables. When I think of complete offers, it does not just mean capturing user data. It is also, above all, and before all, providing services to these policyholders or using these tools to implement new prevention policies.
This may be the consequence of the previous point, but a little wider, a redesign of offers. It’s time to think about offering insurance products as the structuring element of the insurance value chain, from prevention, to disaster, to adding service. For example, the improvement of claims management will only pass a complementary course when products are designed to be managed quickly and simply.
I often talk here about decomposing the value chain with the setting up of experts at all levels, namely, risk bearers, distributors and managers, for the purely insurance part, but also service providers. ecosystems that will need to be mobilized intelligently. The advent of the platforms will aim to move towards this type of organization where everyone will find his place!
As a direct consequence of the previous point, if the same contract must concern multiple interlocutors, the notion of interface between them is essential. Maturity on these issues has greatly increased in recent years. Simple EDI flows (like those still used for third-party payment for example), we moved to advanced webservices but sometimes complicated to set up. Then, we now come to expose real complete services, through webservices or APIs to access the data without necessarily changing the technical architectures in a structuring way.
The needs in this segment are exploding, and it will be an intelligent response that avoids the pitfall of systemic risk! For me, here more than elsewhere, it means helping to prevent and reduce risks upstream to avoid the most frequent attacks. On the technological side, the weakest link is always first and foremost the human, it is about takins this into consideration! By the way, how do you manage your passwords?
A user experience at the heart of all steps
The last few years have been mostly devoted (except for the more advanced ones) to work around the efficiency of processes, and how to do it for less! It is now to be interested in doing better for the same price, or better for less expensive. Better means here better from the point of view of the customer, because the essential thing is to simplify his life, to eliminate irritants. It is therefore customer demand that must be at the center of future optimizations.
It goes without saying that Siltéa and I are able to accompany you on these 6 topics for 2018! Feel free to contact me .
According to them, 4 steps are necessary for a product creation of this type:
Design and development
So far nothing transcendent, isn’t it? Let’s check it out!
Successful ideation assumes that two conditions are met: a strong sponsorship and a cross-functional team.
The responsibilities of this team are as follows:
Identify and validate the business problems to solve
Generate ideas on how to solve these issues with predictive models
Select the best ideas
Highlight the benefits of predictive models
Calculate implementation costs
Determine the ROI and justify the use of predictive models in relation to another solution
Establish acceptance of the topic among the teams.
Design and development
The report is focused on contracts / products for small businesses. The suggestion is then to go through an “insurance score” to analyze and estimate the risk and to price it, according to a probability of losses.
3 steps are needed:
Data mining : nature of data, sources, refresh frequency, etc. For example, it is possible to use historical loss experience data ( Note: obviously …! ), but also credit data, or public data about the company. In a more detailed way, the geographical location is relevant. ( Note: at this point, note that we do not use anything complex! )
Model creation and validation : This is to determine, on the basis of a set of data, patterns or correlations that recur. We are here in deductive mode, we start from data to deduce a model. The challenge is to identify which data plays a role in achieving the desired goal . Then, it is possible to test the identifier models on data and production processes, to ensure that, when capturing the data, it is possible to categorize a new customer using the defined models.
Here is the kind of report that can be generated to define a number of groups to automate the subscription with 3 possible actions: acceptance (right), visa application (center) or automatic refusal (for worst groups).
Regulatory review : This aspect specific to the American market (but finally quite close to the regulatory aspects valid everywhere), suggests to compare the required data with the specificities of each state, and to apply, where applicable, restrictions.
The implementation is based on a few key steps
Finally, monitoring the relevance of the model assumes, on the one hand, to track the use that is made of this product, but also to measure its effectiveness.
Finally, monitoring the relevance of the model assumes, on the one hand, to track the use that is made of this product, but also to measure its effectiveness.
Tracking : Scores must be tracked when applied and when modified before application. In these latter cases, it is important to understand why and possibly modify the model iteratively to improve it.
Efficiency : The most important thing is to make sure in the long run that the model is good for achieving the business objectives that were originally defined. If this is not the case, it must either recalibrate (keep the mechanisms, but readjust the valuations), or rebuild it!
Small bonus on best practices for predictive modelling
Moreover, on this subject and always by Lexis Nexis, I invite you to consult this video, which includes some of the fundamentals:
Innovation is essential, but to identify new answers, I remain convinced that we need to understand the state of the current market. This type of report is therefore essential to refine the grid of reading of what is happening in the world around us! This is particularly right as they give valuable insights into innovative solutions!
The four main themes covered in this document are:
Continued cyclical economic recovery at the macroeconomic level, although risks of instability persist;
Obviously, a big subject on the natural disasters of the year! These are causing great difficulties for all the systemic insurers in the area and therefore even more so for reinsurers;
Life insurance re-insurers adapt to the new deal;
Stable emerging markets in non-life and strong growth in life.
Key Points from the 2017 Global Insurance Review
More globally, here are the 10 points that SwissRe puts forward:
The rise of protectionism in large markets: in the United States, but also Brexit or the situation in Catalonia. This phenomenon is however not uniform (for example Latin America is liberalizing)
Monetary policy : what about the gradual end of quantitative easing?
Cyber risk : The market is growing rapidly, and the stakes are high, particularly in terms of the quantity and quality of data needed for risk monitoring and pricing. A particular focus is to read p15 of the doc on this subject. Indeed, an estimated growth of 30% per annum of this market over the next 5 years should not be underestimated.
Increasing auto claims : More and more miles traveled, more traffic and distracted driving are the first drivers. The key is always technical results.
Brexit and the UK insurance market: Depending on the UK exit format, premiums should be reduced by 8 to 20%. This is a considerable shock on the market.
Innovate to increase the scope of insurability, especially in the “commercial” segments: I come back to this point just after
Losses related to Natural disasters (hurricanes).
Protecting Floods : Tools now exist to assess flood risk, and collaboration with states is needed to ensure the best coverage of this risk.
IFRS17 : Investments will be needed around the data to ensure good data collection and analysis.
Insurtechs in China : I’ll come back to this point below.
On the perimeter of the “commercial” contracts (on which I am working rather seriously lately), innovation brings new solutions.
Swiss Re cites, of course, parametric insurance solutions, coupled with a global vision of risk, that solve complexities of the process at the time of the claims. On the other hand, it does not bring any real additional value talking about premium reduction for example.
The most important point about these contracts is that it is now possible to insure elements previously impossible to cover. This offers interesting growth opportunities. For example: image loss, product recalls, weather protection, or financial risks of increasing energy prices. This is now possible thanks to better access to risk data and a better assessment of its consequences.
Insurance can therefore strengthen its position as a protector of corporate investments and offset the risks of earnings volatility.
Insurtechs in China
A small recap is proposed on the issue of insurtech in China, where the growth of Zhong An is particularly impressive (insurtech largest insurer of the world).
2 successive waves took place in China:
A first from 2001, around the online distribution, which brought the online market share to almost 8%;
Prospects can still open up to cover the ecosystem of e-commerce, and even consider the entry of new players outside the insurance world.
The Chinese regulator seeks to constrain certain segments (such as online lending), but it is generally rather a support for innovation.
My opinion on the global insurance review 2017
Always of very good quality, the Swiss Re reports are full of information and figures. One could blame them for their lack of pedagogy and the austere aspect of their reports, which prevent a diffusion to the greatest number. It may be the price of quality!
The report is based on a survey of 400 industry managers around the world. The first lesson is that the vast majority of actors are working or planning to work on a restructuration of the distribution model, including by leveraging the benefits of digital. Only 1 in 5 actors do not think about it.
Accenture brings out six trends:
User experiences improved by customer knowledge
Changing the role of the agent
Future of aggregators
The role of ecosystems
The Internet of Things.
Besides, Accenture gives insights on what they call the “living services”, all the services that the insurer can provide in addition to its customers based upon collected data in particular.
1. Digital channels
All stages of the distribution chain are affected by digitization and a search for omnichannel. Thus, this trend does not question traditional networks, but questions what should be the respective place and added value of each. Accenture also confirms the rise of selfcare, which has two objectives: satisfaction of customer demand and a desire to reduce distribution costs.
2. Customizing the customer experience
Insurers are clearly switching from a” product-oriented” posture to a” customer-oriented” one. ( Note: By the way, it will be necessary for Accenture to explain the difference between the concept of sales of products based on the needs and the notion of customer-oriented model, because I am not sure to understand… ).
This involves mastering the collection and use of data for:
To estimate correctly the potential of each one
Choosing the right channel for each customer
Identify the best time to initiate a contact
Choose the best offers and the right messages.
This involves the use of predictive models to adapt to a changing population.
3. Changing the role of the agent
Almost 2/3 of insurers work with their agents to ensure the best positioning in the value chain. It is about bringing them in when their added value is the most important. Another essential element with these populations, 79% of insurers rework the models of remuneration in a digital and omni-channel context.
Thus, the remuneration should aim to encourage a certain number of activities, around the customer relationship.
Finally, this type of questioning brings another trend, heavier and longer term. This involves reviewing the profiles sought for new recruits. ( Note: a legend in Figure 8 would not have been a luxury to ensure understanding … )
4. Future of aggregators
The aggregators confirm a dominant position and still growing. Respondents believe that they will be even more used, especially in the upstream phases of the distribution (search for information or tariff).
Therefore, the question is to choose the strategy to adopt against these actors: use the brand to generate commitment or use a dedicated brand or sell white label. The answer is very variable according to the geography and the penetration rates of the comparators. There is therefore no single answer. On the other hand, we still see a tendency to favor the use of a secondary brand for these channels. ( Note: One nuance, it does not seem relevant to me to treat in the same way the respondents who say they may be ready to do it within 3 years, and those who do not know. It affects seriously the result).
Finally, last step observed, the creation of proprietary aggregators. ( Note: I do not dwell on this point, too few details are given by the report on what is understood in this terminology, it is too vague to be exploitable! )
5. Ecosystems: end-to-end experiences
One point on which I agree with the conclusions of the report: the future of insurance goes beyond insurance. It is the emergence of service ecosystems that aim to improve the response to customer needs by offering new services or products. It’s about building partnerships and thinking more about what can generate engagement.
Note: This point is a really insufficiently treated.
6. The Internet of Things: The New Paradigm
Whereas the focus was previously on the embedded telematics (of which I speak regularly), connected objects now move the lines. In 1 year, investments have exploded and the number of services or associated products has been multiplied by 2 or 3. It affects all types, including smart homes, health or other wearables.
This allows a change of posture, from the role of indemnifier to the role of prevention, more positive. In addition, insurers can now offer their clients self-assessment of their risk, thanks to tools whose prices have fallen significantly.
Digital leaders show the way
Accenture reveals a difference between digital leaders on one side and followers on the other. Where the former seek to truly transform their profession, the latter are more willing to catch up.
By comparing the relative positions of each one, it makes it possible to better appreciate the differences between the most advanced actors and the others.
On the question of connected objects, we can also better measure the difference in taking into account the problem.
A recommendation: become a digital insurer
Accenture’s recommendations focus on four areas:
Choose your business and distribution models, and stick to them!
Define the desired position in ecosystems, models of cooperation or partnerships (yes!)
Switch from a compensation mode to real-time protection
Make innovation and customer focus the cornerstones of distribution strategies
Seeking simplicity first and foremost for access, transactions or offers
Emphasize the human contact of agents on advice, value-added and more complex customer relationships.
Conclusion of Reimagining insurance distribution: Transforming to Secure the Future
Conform to the standards of all reports of this kind, Accenture does not know how to close a report! To write:” The only thing we are sure of is that the insurance company of tomorrow will be different from today’s” is of an appalling banality …
In short, since the results are based on studies and surveys, it provides a confirmation / disregard of a number of concepts. In this sense, this report brings real interesting points. However, being too hand-to-mouth, swallowing the analysis and for all that depriving oneself of carrying convictions is very disappointing for this type of player on the market. If Accenture hopes reimagining insurance distribution will be that simple, they’re wrong: it will take a little more.
Deloitte published in November 2016 a European study on car insurance entitled The growth of connected cars insurance. This study is carried out for the second year in a row on approximately 15,000 consumers and in 11 European countries (Austria, Belgium, France, Germany, Ireland, Italy, Poland, the Netherlands, Spain, Switzerland and the United Kingdom) .
Briefly, Deloitte believes that these products are promising, that customers are ready, and that it remains to work the business model by moving towards services. One of the main elements to remember is the notion of service platform, presented at the end of the study .
Current situation of the European market
Deloitte presents the figure of 97 billion euros for the size of the European market (premiums issued) of motor insurance in 2015. They also present a potential of connected cars insurance by 2020.
Three lessons are to be remembered:
Overall, the potential is 17% (or € 15bn) of connected cars insurance, with two countries far ahead: Italy (see Swiss Re case study on this topic ) and to a lesser extent the UK. These two countries have a potential of respectively 27 and 23% of their market. Note, in Italy, there are already 4.5m insurance policies concerned.
The study shows a significant change between 2015 and 2016: the intention to change insurer increases more than 15% in Europe. For the authors, this indicates a transition towards a more volatile market, and therefore a necessary transformation. (Note: In France, we observe it through the consequences of the law “Hamon”)
28% of respondents are willing to share their data with their insurer. At the extremes, France and Germany were the most cautious (27% and 25%), and Belgium, the most interested (40%).
Short summary sheets are presented by country and make it possible to explain specific local situations.
While insurers do not always have good press, customers are nevertheless rather ready to share their data with them. Insurers have a relatively better image than many other types of actors.
In an increasingly standardized, competitive and fluid market, this shows the appearance of a momentum for insurers. It could be interesting for them to exploit these good conditions to position themselves in this market and thus set up criteria differentiating from their competitors.
Nevertheless, it’s impossible to talk about connected cars insurance without talking about analyzing and processing the data collected. It is therefore a question of organizing the transition to more big data in order to benefit from real targeting skills.
Which potential customers?
6 categories of customers are identified by the study, with a very different interest towards connected insurance contracts:
Segment of curious elderly policyholders
Refractory aged insured categories
Versatile young people insured
Young faithful insured
If these categories deserve a little refinement, they already allow the authors of the study to make an international comparison.
What motivations for underwriting connected cars insurance?
Several scenarios were proposed to the respondents.
Consumers appear much more likely to share their driving data than data from social networks. In addition, as expected, price reduction is the main motivation that can encourage sharing of information. On the other hand, the provision of complementary services is well reflected in the expectations of customers.
The study then presents two interesting visions showing the correlation in the valuation of services and the confidentiality of data, first by country, then by population segment.
We will note here different profiles for the two most advanced countries (Italy and United Kingdom).
Is connected automobile insurance, in addition to an opportunity for differentiation in the market, the opportunity to renew or develop the service offer. This is what the authors of the study think.
Categories of Services
3 categories of services were studied:
Automotive related services : troubleshooting assistance, theft notification, etc.
Non-automotive services : geolocated promotional offer, etc.
Data analysis and driving behavior services : Travel and expense information, comparing driving with friends, etc.
Respondents then had to indicate whether they would agree to share their data in order to benefit from one of the 17 services offered.
4 services are therefore clearly of significant interest (more than half of the respondents would be willing to share their data):
free troubleshooting assistance
automatic assistance in case of emergency
theft notification / tracking of stolen vehicles
free oil change or vehicle maintenance services
These services (in relation to the automobile) could then serve as levers for insurers in order to gain maturity on the other 2 categories of services.
Case / smartphone application
Finally, the study shows a preference in almost all countries for a box installed in the vehicle rather than a smartphone application. A nuance is to be brought: the versatile young insureds show a rather opposite behavior (54% of preference for the application). As it is in this segment that there is a strong potential for development, this nuance is important!
As the choice of equipment is fairly structuring, insurers will have to choose the segments of the population they want to target as a prerequisite for any approach.
The usual worries of the insured are not excluded from this study.
The issue of transparency in the use of data is therefore essential. In addition, three approaches are to be taken into account by insurers to integrate social responsibility issues:
ethical dimension of data usage
possibility to feed a new type of relationship with the insured
taking into account real risk prevention / loss reduction.
In the end, it should be clear to insurers that the data collected should be used for risk reduction and not just for risk selection. We find clearly in our study that the assessment of services is related to security issues.
The service platform
One of the main elements of this study is the notion of service platform. Insurers have the opportunity to move from a value proposition focused on claims management to a wider range of services around the mobility experience.
Connected cars insurance could be the product that will allow the insurer to renew its relationship with the insured, adding more frequent touch points.
This implies for the insurer to be interested, beyond tariff benefits, in the entire ecosystem of car insurance. More specifically, the insurer will probably have to participate more deeply and invest these new segments to reinvent the user experience.
The choice that presents itself is simple for the insurer:
Either do nothing and take the risk of being overwhelmed by new players that will spill over into its business segment
Either position itself as a service platform, which will allow the insured to access an ecosystem of partners.
The experience of a few players in other markets (eBay, Uber, TripAdvisor, etc.) shows the potential of such an economic model. These entities are indeed able to operate light and flexible structures that adapt quickly to the needs of consumers.
Auto insurance is already mature enough, and offers a clear environment. This will surely be one of the first branches for which we will have to reinvent the operational model. The first to launch will have a certain competitive advantage.
Deloitte is presenting a proposal for a range of services that could be addressed.