By ANAND S. RAO, partner at Diamond Management & Technology Consultants; and JAMIE YODER, managing
What happens when the fastest growing sector, mobile apps, meets one of the slowest growing sectors, the $1 trillion insurance industry?
Mobile devices, mobile apps and mobile downloads have been the "buzz" in the industry over the past couple of years, even amidst the most severe downturn in the global economy since the great depression. The mobile app marketplace, a sector that did not exist three years ago, is today estimated at $4 billion and projected to grow to $17.5 billion by 2012. Mobile app stores--led by Apple's iTunes store with 150,000 mobile apps and the newcomer Google's Android marketplace with 30,000 mobile apps--is fuelling a phenomenal growth in downloads, projected to increase from 7 billion to 50 billion between 2009 and 2010, a staggering growth rate of 92 percent, according to the GetJar mobile app store operator report.
The insurance sector on the other hand, a slow-moving "gorilla" of an industry, actually saw its size decrease from $1.39 trillion in 2008 to $1.36 trillion in 2009. Yet it has embraced mobile apps with great enthusiasm. An industry that has been traditionally considered dull and boring, a sector where the product has to be sold to the customer as opposed to being willingly bought, is discovering that it can also play in the young and fast growing mobile sector.
Early pioneers amongst the insurance carriers are now being joined by the fast followers, creating a mobile apps bandwagon within the industry. Plenty of opportunities abound for employing mobility in all aspects of the insurance value chain across the property/casualty sector.
PRICING AND UNDERWRITING
Vehicle telematics (or in-vehicle mobile devices) use the location identification of mobile devices to determine driving patterns (location, time and speed of travel, for instance), which have been used to price pay-as-you-go or mileage-based insurance.
Progressive with its MyRate Insurance has been one of the pioneers in this area. It tracks annual mileage and at what times of the day those miles are driven to offer discounts to drivers. The technology was first field tested by Progressive in 1998 and is now available in 15 states. The Hartford, Travelers and other insurers also have similar programs.
Such in-vehicle mobile devices have been popular in commercial fleet management and logistics too, producing significant savings to insurers and their clients.
This world of in-vehicle, "black-box" mobile devices, which had been proprietary in nature, is now being transformed by open-standard personal mobile platforms, where third-party insurance carriers, telecommunications carriers or app developers can plug in new functionality. SK Telecom's mobile telematics (or MIV--Mobile In Vehicle), Mercedes Benz and Hughes Telematics iPhone and BlackBerry application mbrace, and Ford's Sync all have started offering telematics services using standard mobile phones. This trend will continue to open up a larger market for mileage-based insurance, as well as to enable the addition of new value-added services, such as roadside emergency assist, crash response and vehicle maintenance alerts.
While telematics and its impact on insurance pricing and underwriting is well known and has been around for more than a decade, a relatively new technology called Reality Mining will transform the use of external information in insurance pricing and underwriting. Pioneered by Sandy Pentland from MIT Media Lab, Reality Mining infers human behavior and relationships by applying data-mining and machine learning algorithms to information collected by mobile phones and other mobile devices that can measure location, physical activity and other attributes.
This analysis is not restricted to mobile phones or people, but can be used with any mobile device or smart sensors. For example, smart sensors or "smart dust" (tiny devices that can measure temperature, humidity, light and other environmental conditions) can be used to detect, prevent and manage disasters such as forest fires, floods and tornadoes.
In addition, to pricing risk by determining the vulnerability of assets to symptoms of disasters, reality mining can also be used for real-time management of disasters and for reducing losses from catastrophe. These applications change the relationship between the insured and the insurer; insurers would no longer have to react to events but could prevent or contain losses during unavoidable situations.
MARKETING & DISTRIBUTION
Access to customers and the complexity of its products have been the bane of P/C insurance.
By going wherever the customer goes, mobile apps provide greater access to customers' mind share. No doubt, some of the early insurance apps are informational apps. State Farm's Pocket Agent, Nationwide's Nationwide Mobile, GEICO's Glovebox and many others are providing information such as the closest rental car locations or tow-truck points, tips on what to do when you meet with an accident and where to find your closest agent. But the industry is also moving toward real-time information and transactional capabilities for these mobile devices--all of the apps mentioned above as well as others to allow a customer to get quotes, file claims, view policy information, make policy changes and more.
While the attention of the mobile app world is focused on the consumers, insurers are also using smart phone and other mobile devices for agents, brokers, advisors and other intermediaries. Aflac, for example, has enabled its field sales force to access a variety of information through their mobile devices. MassMutual's E4 (or Electronic Enhanced Enrollment Experience) that uses smart phones to enroll participants in retirement plans has successfully delivered one of the highest on-site enrollments (close to 90 percent) consistently since 2005.
Mobile apps coupled with the next generation of Augmented Reality (AR) applications can have a significant impact on increasing the efficiencies of claims processing, reducing losses and decreasing claims fraud.
In addition, AR applications can determine damage impact and repair estimates based on the photographs of accidents or property damages. AR applications such as Layar Reality Browser and Wikitude can be adapted to provide such functionality. With the total incurred losses in private passenger liability and private passenger physical damage amounting to slightly over $100 billion in the United States, even a 1 percent improvement from these technologies could result in significant savings to the industry.
For these reasons and more, the convergence of the fast-moving mobile apps sector and the giant but slow-moving insurance sector is promising.
September 15, 2010
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