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Jun 2021

The Geneva Association - From risk transfer to prevention services

Source: Asia Insurance Review | Oct 2020

A study from The Geneva Association and the Insurance IoT Observatory is looking at the transformation of traditional insurance risk transfer to technology-driven risk reduction and prevention services. The Geneva Association’s Dr Isabelle Flückiger and the IoT Insurance Observatory’s Mr Matteo Carbone provide some expert insights.

Isabelle Fl├╝ckiger   Matteo Carbone

IoT: A global paradigm shift
The adoption of internet of things (IoT) by all industries is steadily growing and, according to a recent report of Kaspersky , 61% of enterprises already use IoT applications. The IoT market is maturing in both corporate and consumer businesses. 
The COVID-19 crisis propelled companies to maximise the use of their IoT devices to maintain their production and services remotely. People working from home are growing accustomed to the advantages of this technology.
The world is moving to more and more connected devices, and IoT will increasingly enable better business, production and working models. 
IoT in insurance: Benefits for the industry and society alike
The insurance industry cannot ignore this paradigm shift. IoT and insights from the generated data can enable new, positive customer experiences beyond the benefits that come with insurance, and the industry must define its approach to leveraging the technology’s abilities; for example, by synergising risk transfer (ex post payment of the claim) with the ex ante loss prevention. 
The Geneva Association is collaborating with the Insurance IoT Observatory to conduct the first research to address this new paradigm, looking at the global insurance industry across all lines of business, stages of maturity and applications along and beyond the insurance value chain. The two think tanks represent companies in 26 countries that manage $17.9tn in assets; employ 2.6m people; and protect 2bn people. This allows an evaluation of the IoT opportunity from multiple lenses:
  • C-level perspective
  • Deep understanding of the insurance fundamentals
  • Innovation obsession
  • Specialised IoT knowledge 
The research initiative involves analysing best practices through nearly 100 hours of discussions and interviews with academics and the executives of more than 50 insurers, reinsurers, InsurTechs, tech companies, IoT technology providers and other institutions. Through this approach, researchers have gained an unfiltered and deep understanding of all the aspects of the learnings, and of the real success stories.
IoT adoption in the insurance industry
Although IoT has not yet been adopted by the large majority of insurers, and maturity levels are still low on average, there are several successful ?early adopters’ and all interviewed insurers are working on corresponding value propositions.
Several main barriers have been observed: A lack of awareness and insurance IoT literacy, the absence of a clear vision and strategy and the need for a different approach compared to the traditional insurance business. 
This means that the majority of incumbent insurers are still in an early phase of identifying and developing a vision for IoT data usage. There are numerous experimentations and pilots without feasibility conclusions. Many programmes have not gained traction, and only a small percentage have successfully launched in the market. 
There are also geographical differences, in terms of how countries focus their programmes and how advanced they are in specific lines of business. Myths about insurance IoT as well as knowledge bias are prevalent in single local markets. Other markets are not aware of best practices. 
Stories of successful application
However, there are promising cases across all business lines and countries. What they have in common is that their approaches are comprehensive: The IoT data are used across their business processes. 
With IoT, insurers can connect clients and risks, providing benefits on four axes:
  • Improving the customer experience by enhancing proximity and interaction frequency with them, and moving beyond providing risk transfer services
  • Positively impacting core insurance activities (assess, manage and transfer risks) by using IoT solutions in risk selection, pricing, claims management, real-time risk mitigation and incentivising behavioural change
  • Generating new knowledge about policyholders and their risks
  • Providing positive externalities to society
This highlights the potential long-term gains for the insurance industry, or, if ignored, its potential loss of relevance for their customers. 
Despite the new paradigm, the objective is not new. It fits coherently into insurance’s purpose to provide protection and financial wellness. 
The topic is relevant for other stakeholders, as well:
  • Customers: Insurance IoT aligns their interests in risk prevention and better services
  • Tech companies: Insurers are a valuable ecosystem partner to serve clients better with new, distinctive services related to safety and risk mitigation 
  • Society: Insurance IoT has a positive effect by preventing risks and incentivising behavioural change toward safety and health
IoT data is also being used to reduce risk, by either promoting less risky behaviour of policyholders or by providing real-time risk mitigation (e.g. real-time alerts for avoiding an incident). 
Both approaches promote services that extend the insurance value proposition beyond traditional risk transfer. They not only represent an opportunity for the insurance sector to reduce expected losses, but also to better serve policyholder interests, generating significant positive externalities to society comparable to smart cities approaches. 
Insurance IoT use cases
The bigger picture
The Geneva Association’s research will also elaborate on 
  • the real goals of the business transformation journey 
  • IoT insurance best practices to date, i.e. these are not futuristic or exotic ways to manage fluctuating premiums
  • the consistent focus of those interviewed on creating a better world, and thus, debunking common concerns that insurance IoT usage is equivalent to pricing discrimination
There have already been successes across all line of business, i.e. auto personal and commercial lines, property personal and commercial lines, and life and health, showing that with current available IoT technology, it is possible to achieve results that have value for all stakeholders. Demonstrating this may boost levels of acceptance for these services as well as the whole industry’s ambition to stay relevant in a world where IoT will be pervasive. 
Finally, the report will provide recommendations to insurers, regulators and tech companies, including providers of IoT technology, to effectively adopt insurance IoT solutions, especially for real-time risk mitigation and for behavioural change programmes. A 
Dr Isabelle Flückiger is director new technologies and data with The Geneva Association. Mr Matteo Carbone is founder and director of the IoT Insurance Observatory.
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