By Andrea Silvello

Being connected has become the talk of the town and insurance companies are surely one of the main

interested parts in this discussion, some of them being actual promoters of change and innovation.

Traditional players will have a more tough time in adapting to the new paradigm but my view is that they

will have to adjust on the long term to the new rules of the game if they want to stay competitive.

Consumers are becoming more and more connected whether it is at home, at work, behind the wheel,

when they engage in sports & leisure activities and so on. This is happening quite fast due to the adoption

of smart devices and thus the companies have to be able to react accordingly in order to maximize value

both for its clients and for itself. The surrounding environment is becoming smart and is being incorporated

in the connected ecosystem thus creating new opportunities for insurance companies, opportunities which

must be managed appropriately in order to maximize value. Here big data analytics plays a huge role, as

the number of collected data & variables is getting higher and higher. To be precise, the discussion focuses

on how companies will be able to read the data in order to identify patterns and optimize their business

models by controlling loss, perfecting risk assessment and prevention etc.

In one of my previous articles I talked about connected health insurance and how the industry players

should adapt to the new paradigm created by IoT and Big Data by learning from insurance motor

telematics which is one step ahead. But in order to have a complete picture of where insurance is headed in

the age of connectedness we have to take a look at all its components - Health, Motor and Home – and try

to address both the opportunities and its limits in the current context by keeping in mind the customer

which is after all the most important piece of the connected puzzle – not forgetting about the effects on the

company’s P&L.

Insurance motor telematics is currently at a different evolutionary stage around the world, with Italy leading

the race and South-African player, Discovery, representing one of the first companies to show that

insurance telematics can directly impact P&L if managed correctly.

The image below, presented by Carbone – an insurtech expert- in one of his articles , shows the various

phases in which different countries find themselves in and tries to predict the pace of adoption up until

2020. Italy is currently leading over US, UK and South Africa. This is because the circumstances created by

Italy’s strong automotive industry and also because they are pioneers in working with telematics starting

way back in 2002. Even if the initial stage was costly enough the Italian market managed to absorb the costs

due to high prices of insurance rates at the time . In a couple of years, new-comers like Brasil, China and

Russia will be coming up strong behind insurance players from France and Germany, as they will have

learned from the experience of previous players and will be accelerating towards the “exploration phase”.

https://www.linkedin.com/pulse/insurance-telematics-only-ubi-matteo-carbone

Another key to the Italian motor telematics model that is now entering the growth phase is that now the

market is able to offer low-cost, self-installing solutions for vehicles. We see Italy still leading the race in the

2020 forecast precisely because it had a head start facilitated by the above-mentioned circumstances and

also because it takes more than a couple of years for newcomers to appear on the motor telematics map

and to go up the scale.

The other pillar is health insurance, a topic I’ve widely discussed in my other article Idea insurance:

Connected health insurance, so I will just make a brief review of the current state of affairs.

The “talk of the day” is the fact that health insurers are trying to transition from the traditional role as a

simple player to a more central role where they become the point of reference for customers in health-

related matters. Wearables, m-health and telemedicine are the new trendsetters and this wave will almost

surely last because it has benefits for everyone – insurers and insured alike. Take for example the high costs

involved in the treatment of chronical patients and taking care of the elder - here connected health will

have a lot to say in the next years.

Insurers have the possibility to control loss by focusing on the less risky clients and offer them a customized

value proposition that they can’t refuse. In order to do that the companies will need to create a network of

partners which will allow them to diversify and to manage profitability levels. By concentrating on the

“young” category of customers which are more healthy and device-smart, companies can use strategies like

gamification in order to loyalize, guide behavior and focus on prevention instead of reaction - thus

controlling loss. The lessons learnt from motor telematics become obvious at this point and they will have

an important role in reshaping the health insurance business model like it did in with motor insurance

telematics.

The future of connected healthcare will also be influenced by new emerging models like seamless care,

shared care, collaborative care and home hospitals, even if it may take some time. The attribute all these

models have in common is the “customer-centric” trait which will probably become a driver of change,

precisely because the current health systems seem to be having difficulties in coping with the current needs

of the overall population, especially in over populated countries.

The third piece of the connected insurance puzzle is the “home insurance” of market which is expected to

reach $235 billion in 2016. Data shows that last year two in five insurance firms have invested in some kind

of project based on connected devices and 45% of insurers believe that connected devices will help drive

growth in the next three years. On the other hand, consumers are for now a bit skeptical given the high

costs still associated with home telematics and devices. Companies will have to overcome this obstacle, as it

has been done in motor telematics, by coming up with lower cost solutions for the connected home - as

adoption rates will start to go up slowly.

Some players are already making steps forward: take for example Octo Telematics which, not by chance, is

one of the leading players in motor telematics and is developing projects with three insurers – Aviva,

Groupama Assicurazioni and Poste Vita. Also startups are beginning to come up with solutions at an

accessible price. One such example in Italy is Innotech Connected Solution – a Newco founded by the

insurtech start-up Digital Tech together with highly innovative content manufacturer MR&D - who are

capable of offering an integrated and complete user experience to the customer while answering the

insurer’s current needs for collecting data, creating opportunities for cross-selling and having a valid

communication channel with their policy holders. Even the colossus Google is active in the field thorough

its company Nest, but their partnership with insurer American Family is for now a mere co-marketing

initiative meant to test the Nest smoke detector solution on a bigger scale in Minnesota, US .

From the insurer’s point of view, connected homes and access to data gathered from smart sensors and

devices, will provide valuable insight that can lead to: higher customer satisfaction, lower costs and risks,

improved efficiency and prevention, also allowing companies to have real-time data regarding the

conditions of a property prior and after a risk alert. The advantages are numerous and the customer can

also benefit, first of all by having more control over perilous events starting from gas leaks to fire hazards or

even theft. For example insurance companies can offer property insurance premium discounts, based on the

customer’s actions when a hazard alert occurs and on the measures it takes after the event in order to

minimize the possibilities of repetition.

Clearly the new paradigm in connected insurance – motor, health and home – will face several challenges

posed by rate of adoption, cost barriers, resistance to change and privacy aspects but nevertheless the

benefits are numerous for both insurance companies and customers alike and motor insurance telematics

confirms that the models can be successful. The three pillars of connected insurance will have to stand

within an ecosystem of partners, service providers and interconnected devices that the insurance company

will have to foster in order to deliver the ultimate user experience to the customer. In the background: a

system based on big data analytics that can identify patterns and provide optimized solutions based on

real-time input; up-front: a seamless user-friendly interface that will transform the way companies

communicate with policy holders.

Written by Andrea Silvello, Founder and Managing Director of Business Support Spa - a Strategy Consulting &

Financial Advisory "boutique" which focuses on SME's in Italy - with the contribution of Celia Carina Clinciu - Digital

strategy and innovation consultant at Business Support SpA.