The new normal: digital’s growing impact on the insurance industry by Matt Edwards

08/11/2014 11:30

Mobile apps and social media only represent a small portion of the digital revolution and its influence on the insurance industry. A bigger piece of the equation—and one that’s much more ambiguous and concerning to carriers—is the influence and role that digital companies will have across the insurance value chain over the short and long term.

Google’s 2011 acquisition of BeatThatQuote, a company that allows customers to shop and compare auto insurance rates, was the beginning of a growing trend that has many insurance companies feeling anxious. BeatThatQuote not only significantly influences consumers’ purchasing decisions, it also collects a multitude of data around these consumers and the carriers with whom they partner.

This doesn’t necessarily mean that BeatThatQuote will be making inroads in the U.S. anytime soon, but it does prove a model that should put insurance companies on alert.

In addition to the sales, marketing, and distribution space, disruptive technology companies are also influencing the development of personal and commercial products. Telematics are essentially usage-based insurance products that give insight into how people drive and interact with their vehicles.

Companies like Google and Mercedes Benz are experimenting with driverless vehicles, adding a whole new dimension to the telematics discussion. The sophisticated sensors on these driverless cars not only track performance; they can also capture information about the surrounding environment, such as weather and traffic conditions, performance of vehicles in the immediate area, and more.

That data alone can provide a great deal of insight for product managers to better refine underwriting criteria. But when combined with driver telematics, insurance companies have access to a world of data about the driver, vehicle, and geography that helps them significantly improve underwriting accuracy.

As if driverless vehicles weren’t enough, consider vehicle infotainment systems—technology that Google, Microsoft, and Apple are all heavily investing in. Besides the obvious benefits of extending the single user experience and platform beyond PCs, tablets, and smartphones into the vehicle, infotainment systems provide yet another rich resource of consumer data that’s invaluable to insurers.

This could be yet another disruption on the road ahead. Instead of contracting with your insurance carrier to have a telematics device installed in your vehicle, for example, technology companies that capture the data from your factory-installed telematics device could offer this data as a service for carriers. This presents some privacy concerns (e.g., what data is captured, how much, and how that data is shared and used by the carrier), but these are similar issues that have already been addressed by telematics companies that are installed by carriers today.

The property industry also has an avenue for a more usage-based pricing model. For some time, commercial carriers have placed a premium on underwriting insurers that have centrally monitored alarm and fire safety systems, which provide information to a central location on the status of the property and the equipment used to protect it. Today, there is limited data sharing between monitoring companies and carriers, but it could be an avenue to move away from more generalized underwriting to specific, data-based decision-making for individual property risks. This, in turn, would provide more accurate—read: cheaper—pricing for these types of risks.

The personal insurance world has also had this capability for some time, but in a more limited fashion. Most personal alarm systems have traditionally only provided monitoring. With the introduction of connected home management and monitoring products, such as those offered by Nest, a company which Google recently acquired, the ability to monitor the workings of a home become more readily available and make the usage-based model a new reality for personal property.

Do all of these developments mean that we should be expecting technology companies like Google, Microsoft, and Amazon to start up insurance businesses in the next 12 to 18 months? Probably not. More than likely, they will continue to expand in the sales, marketing, and distribution space, developing deeper relationships with established carriers and giving consumers better access to information about insurance offerings.

The big takeaway is that leading technology companies will become essential data and service providers to the industry, providing access to consumer data—and new approaches to that data—that will drive innovation in product development, underwriting, and pricing.

One thing is certain: digital disruption will continue to play a larger and more influential role in how insurance products are constructed, priced, and sold.

Matt Edwards is part of Slalom’s National Insurance Practice. With 15+ years of industry experience, he partners with our local markets and national delivery teams to develop and implement solutions that address our insurance clients' most strategic business and technology challenges.