As noted in my last blog, an article on radical innovation in the insurance industry in a German insurance journal helped convince me that insurance companies need to keep raising the bar on innovation. A particularly thought-provoking comment was made by one of the interiewees, Volker Andelfinger of Palatine Consulting. He said that insurers seem not to be aware of the impact that the evolving “Internet of Things” is going to have on their businesses—nor what the opportunities are.

Just what are these opportunities our industry is missing, and what does it tell us about the need for radical innovation?

First let’s just define the Internet of Things. As usual, I turned to Wikipedia—which is so useful it sometimes even help me explain things to my kids, something every parent knows is rare these days. The Internet of Things, it explains, consists of “uniquely identifiable objects and their virtual representations in an Internet-like structure”.

In other words, the Internet of Things aims to give every object or device its own unique Internet protocol address. It’s giving rise to what some are calling Industry 4.0, which includes concepts like smart cities, smart homes and so on.

These connected devices would then create an unimaginably vast stream of data—the “big data” we hear so much about—that could be used by companies and individuals, for example, to monitor the performance of equipment and, from there, pre-order spares and services or predict outages before they happen.

In the commercial and industrial space, the Internet of Things could be used by insurers to transform the way they approach the risk assessment and management of, say, utilities clients. Moreover, this data could be used to provide value-added services to customers—alerts about predicted equipment failure, say, or a plant’s capacity to accommodate extra load to take advantage of a spike in demand. This last service would be relevant to a power utility selling energy on the spot market, for example.

In the property and casualty market, the Internet of Things has tremendous applications when it comes to motor insurance—rewarding good driving habits is only the beginning. Insurers could offer driving tips, route guidance, weather alerts and so on. A car-lover like myself can see a myriad ways in which the Internet of Things could enable an innovative insurer to become part of its customer’s lifestyle. For example, take a look at the BMW i initiative, which is clearly looking beyond a great driving experience to provide a total lifestyle experience.

Insurers need to decide whether they want to lead in this area or leave that to the car manufacturers.

(In a slightly contrarian spirit, my classic Mercedes-Benz 1966 coupé seems even more attractive because it offers a total escape not only from today’s reality but also tomorrow’s one of connected things!)

Another example could be using a carpet sensor to alert a health insurer that an elderly customer has fallen, and trigger a response to her doctor or a neighbor. This might seem like a somewhat over-designed example, but it demonstrates the kind of thinking an insurer needs to become indispensable. (Accenture Interactive acquired companies like avVenta, Fjord and Acquity to provide clients with just this sort of capability.)

It’s vital for insurers to start generating ideas like these and assessing their feasibility. Adopting such an approach will help position insurers as part of this new and exciting world, proactively shaping customer relationships and also, I believe, inspiring up-and-coming talent to join the industry.

The approach, please note, is to look beyond the improved insurance product to offer a solution relevant to the customer’s lifestyle or business needs.

Next time, I want to delve deeper into the important concept of solutions rather than products as the hallmark of truly radical innovation.

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