Ben Luckett would be first to admit that insurance has a reputation for being a traditional industry with a core model that puts a price on risk and charges a premium for assuming it on behalf of the customer. But technology is disrupting the insurance arena, challenging the old order and catalysing transformation that is literally turning the market on its head.
Aviva serves 33 million customers and promises them the confidence and control to be ready for life’s opportunities and challenges. So we’re interested to hear from Ben, as the Managing Director of Aviva Ventures to understand how he sees the role of technology helping to fulfil this promise.
Ben, tell us a little bit about the role of Aviva Ventures within the Aviva Group.
Aviva Ventures is a corporate VC fund and it’s our job to find and invest in businesses that have the potential to impact the future of insurance. Insuretech is really taking off and we’ve been very busy – having made 15 investments since 2013 and with more in the pipeline. We’re not investing on behalf of our customers, (a different part of the group offers that service). The fund I manage is investing on behalf of our business. We’re seeking out opportunities that promise strategic returns directly to Aviva’s business as well as offering actual financial returns on the capital we’re employing.
So how is insurance feeling the impact of new and emerging technology?
In the past, insurance has been perceived as necessary evil by customers. Our customer relationships have revolved around a couple of key touchpoints and neither has been perceived as particularly positive. The first is agreeing on a price point for a premium. The other is connecting with customers when something goes wrong and a claim is triggered. In all honesty, customers would probably prefer not to talk to their insurer at all. And under these circumstances who can blame them?
But technology is beginning to change all this.
Data has always been at the heart of the insurance business – because the way we model risk and return relies on data to drive decisions. But the growth of IoT and the emerging ubiquity of sensors in consumer land as well as in business is prompting exponential growth in the amount of data available to insurers. In turn, that is prompting a shift in the insurance business model along two important dimensions. Firstly, a shift from being responsive to being predictive. And secondly, a pivot to being able to take advantage of data in real time.
Tell us more about how Aviva plans to use data and technology as a means of ‘prevention’ in insurance.
If you follow the logic of the ‘old’ model in home insurance, a customer would experience an event – such as a leak. This would trigger a claim once the damage is done. The insurer responds in ‘fix’ mode. But the solution may be costly to the insurer and potentially inconvenient to the customer.
Run that same scenario with a sensor that identifies the drip when the leak starts. The event can be averted with timely remedial action, at a fraction of the cost and with a lot less hassle to the customer. This is the power of prevention over cure. It has the potential to radically reduce insurance pay outs; which in turn could drive cost savings for the customer and transform their whole experience. It may be that anything up to 80% of events of this type could be prevented in the future as the IoT becomes more pervasive in our daily lives.
A second example is in health, where we could see a shift from paying our for care in the event of a serious illness to using sensors that monitor wellness, diagnose complaints early and increase the incidence and effectiveness of early treatment. If insurers are able to reduce claims in this way, inevitably premiums will also come down. But perhaps, more importantly, the insurer can cultivate multiple positive touchpoints with the customer thanks to sensors, data and the insights they are able to generate.
And how is the impact of data in real time influencing the insurance market?
For insurance purposes, the more data you have, the better able you are to predict events. But with the event of the IoT, there will be an option to receive an almost constant stream of data in vast quantities.
This prompts a whole host of questions and challenges for our industry. Insurers will need the capability to handle data at volume. But perhaps more importantly, they will need to be able to drive insights from that data in ways that contribute to sustainable business models and represent a win-win for insurers and their customers.
It’s likely that insurance pricing is going to become much more customised in response to customer data. But a truly personalised product is still a long way off, with specific challenges of customer privacy and data security playing important roles in how products and solutions develop.
Early indications show that customers do have an appetite to share more data with insurers if it means they get cheaper, better insurance solutions. A recent survey by Lexis Nexis suggested that up to 70% of consumers might be prepared to share more personal data in pursuit of these positive outcomes.
What solutions is Aviva Ventures currently exploring?
We have a host of investments covering the areas I’ve already mentioned. So we’ve got products that provide smart protection for homes. We’re exploring opportunities in health. And we have projects in automotive – a massive sector for us – which includes a co-investment in Appy Parking with Breed Reply.
But it’s not all consumer facing tech. We’re also interested in B2B applications, so we’re looking at predictive maintenance in industrial settings. Prevention in that space really multiplies the cost-benefits at the point of a claim, so it’s a key area for us to explore.
With all of these developments, how do you envisage the future of insurance?
First and foremost, I believe insurance will become much more about prevention, than about fixing problems after they’ve occurred.
I also think that our future will be very much oriented towards partnerships. We’re already heavily involved in partnerships with organisations that help us to sell our products. But in the future I see these partnerships extending to include start-ups that can deliver smart technology in support of our objectives, but also platform providers and companies that can help us deliver insight from data. Basically technology partners who can help us to transform and deliver better services that deliver dynamic pricing and give customers more control will all be part of the insurance ecosystem.
But I do think there will continue to be a strong human element – so there really is no risk of our industry becoming fully automated. There is still a role for genuine expertise in the insurance industry in calculating and underwriting risk. But also as our propositions shift from being premium driven to being protection driven, insurance will become even more of a people business. The key is harnessing technology appropriately to continually enhance the insurer’s relationships with its customers.