Get in the Game

The launch of new products and technologies are having – and will continue to have – a big impact on daily life. From health care to financial services, electronic manufacturers, automakers and software developers are participating in these new innovations.

But where is the insurance industry?

Connectivity, mobility and data intelligence were key themes at the recent CES, formerly the Consumer Electronics Show, which has evolved from an electronics science fair to a consumer technology conference where, increasingly, disruptive technologies such as 3D televisions, driverless cars, personal fitness trackers, drones and the sharing economy are being launched.

With little insurance representation at the conference, this could be a missed opportunity, since those themes could certainly disrupt the insurance industry. The disruptive technologies now unfolding will have a huge impact on both insurance products and consumers’ expectations for their personal coverage.

CONNECTIVITY

There are billions of connected products today: televisions, thermostats, smoke detectors, light bulbs, automobiles and refrigerators are all devices that can be connected. The immediate value to consumers is to make life more efficient with anytime, anywhere access to the devices.

Consider just a few current possibilities:

• a person can use a smartphone to turn up the heat on a connected thermostat before getting home so that the temperature is just right upon arrival;

• a connected smoke detector can alert both a homeowner and the fire department to an issue, even when the person is not home;

• a connected car can send an alert to a smartphone if there is a mechanical issue or the battery is running low; and

• from one’s car, which is connected to one’s home, a delayed driver can use voice command to access the house intercom to greet visitors and open the door remotely to let them inside, while the car’s autopilot plots the optimal route to avoid traffic and get home quickly.

Connectivity is a game changer in insurance. Insurance companies largely evaluate risk of the policyholder using statistics. Connectivity is paving the way for usage-based insurance (UBI) for cars, where insurers build a product and price it based on actual utilization and driving behaviour, something that makes more sense for consumers.

Now with billions of devices connected and working together, risk and the monetary value of mitigating that risk can be computed in real time. A connected smoke and carbon monoxide detector – working together with a fitness activity tracker with heart monitor – can provide vital data to the fire department and ambulance before help arrives. This type of access can decrease response time of emergency medical services and save lives.

From an insurer’s perspective, accessing data to test that the process is working and using this data post-incident, coupled with the fact that broader access to vital medical data saves lives, should reduce the number of claims and the magnitude of loss.

MOBILITY

Mobility is rapidly becoming a global challenge to solve. Rapid urbanization and growth of the middle class has contributed to 1.2 billion people worldwide spending an average of 50 minutes a day driving. Faced with the challenges related to air quality, moving more people more quickly and changing consumers’ transportation expectations, several areas of disruption are happening and are about to happen: the sharing economy and the electric autonomous car.

Sharing economy

The rise of the sharing economy is providing an unused resource (for example, a parked car) that is in demand for a much lower price. With regard to ride-sharing, it offers the potential for efficiencies and enhanced safety.

In California, for example, MADD has recently reported ride-sharing services have reduced crashes caused by drinking and driving by 60 incidents per month for drivers under the age of 30.

The sharing economy has moved ahead of insurance. Drivers started making money on ride-sharing without any special licence or insurance, sparking considerable debate and review of current rules, and insurance companies are only now catching up. Recognizing they cannot stop the speed of technological advancements disrupting insurance, some insurance companies are moving forward and creating new products to answer the demonstrated customer need.

Drones

Activity is also escalating with respect to the use of drones. In the United States, for example, the Consumer Technology Association estimated that more than 400,000 personal-use drones were sold over the holidays this past year.

Commercial uses range from deliveries to search and rescue operations, with proponents maintaining that the former can reduce congestion and traffic in urban areas while the latter can help save lives.

Though there are some products that support commercial-use drone insurance, drones for personal use is something that insurers should not overlook. In Canada, some insurers have personal drone coverage products under development.

Driverless car

How open are Canadians to driverless cars? A recent Kanetix.ca survey revealed that one in four respondents are looking forward to the driverless cars, with 51% reporting they believe these vehicles will be safer and 61% saying they think the vehicles will reduce speeding and drinking and driving.

The race is now on among automakers, software developers and electronics manufacturers to build the technology. The product offers promise: addressing the air quality issue by being fully electric; mitigating crash risk by being smart and connected; and being accessible to all, regardless of age or ability.

Automakers are looking very closely at ride-sharing platforms. Some have even made large investments to promote their development and respond to the belief that ride-sharing could be the largest customer of the driverless car.

How will the insurance industry play a role in the development of the driverless car platform?

INTELLIGENT DATA ANALYTICS

Intelligent data analytics is the glue for connectivity and mobility. With billions of devices connected together, and billions of users, the wealth of data being collected is enormous. Experts in data analytics suggest the data being collected in real time can be used to build cognitive machines that can learn. These machines can be used for both scientific discovery and to make better decisions.

The insurance industry in Canada is just starting to understand how data collected can be used to determine premium and risk.

Starting with UBI, the insurance industry has been providing incentives to drivers with premium discounts. This will, no doubt, evolve to real-time underwriting and premium rating.

MEETING EXPECTATIONS

Connectivity, mobility for everyone and intelligent data analytics will rapidly change consumer expectations. New technologies will not only disrupt current business models, they will help make lives more efficient, healthier and safer. Changes are imminent and consumers are driving this change.

The insurance industry needs to participate and provide thought leadership as new technologies are developed.

That means industry must team up with driverless automakers and work with regulators to commercialize the new technology. They must also continue to build insurance products that are relevant and meet the needs of rapidly changing consumer expectations fuelled by advancements in technology.