The Rise of the Insight-Driven Insurance Organization: From Indemnification to Mitigation

insight-driven-insuranceThere’s a new trend on the table in auto insurance, made possible by telematics: the shift from indemnification to mitigation.

Indemnification simply means that insurers will bear the cost of covered losses for their policyholders. Mitigation, meanwhile, has a more preemptive goal: to reduce the risk of loss occurring in the first place.

This month, Jeff Goldberg at Insurance Networking News pointed out that with a plethora of cheap sensors and connected devices at our fingertips, companies are deploying the tools to leverage data in new and meaningful ways – so much that it may even change the way business is done. Which products insurers sell, and how, owes much to the predictive data they have to work with.

“In the future, consumers will buy insurance … not just for the indemnification or risk but for additional risk mitigation services,” Goldberg said. “Risk is never going completely away, but in different areas it will be greatly reduced.” Auto insurance was what he called “the most obvious example.”

Auto insurance: the most obvious example

  1. With automated and partially-automated cars now trickling into the market, we’re seeing innovations like sensor-driven collision avoidance, pedestrian detection, emergency braking and more.
  2. With smartphone insurance telematics, insurers can already lower loss ratios by incentivizing safe behavior and coaching drivers to improve their habits.
  3. With location data, insurers can crack down on fraud faster and fact-check accident reports.

Simple enough to say, but revolutionary

“This shift from indemnification to mitigation is a move away from how insurers have done business for hundreds of years,” said Goldberg. Until recently, it’s been impossible for insurance to actually prevent a loss from occurring; rather, insurance is what policyholders relied on when their worst-case scenario happened to come true.

Now, however, insurers can offer services to help prevent the loss in the first place. The driver scoring and time-sensitive driver feedback that smartphone telematics offers is a perfect example.

Goldberg was quick to add that the shift is also in the best interest of the insured. No one wants a loss; that’s something insurers have always held in common with policyholders.

The move toward mitigation is also an opportunity to provide “more and better service.” For example, when an insurer deploys smartphone telematics, a world of customer satisfaction opportunities opens up in the form of value-added services.

Data-driven organizations are on the rise

Goldberg’s prediction aligns with another trend shaping analytics strategy for 2016: the rise of the insight-driven organization.

“Business leaders are beginning to take serious steps towards the insight-driven organization (IDO), which goes beyond the selective use of insights to fuel decision-making in individual parts of the business,” Deloitte reported. “It deploys a tightly knitted combination of strategy, people, processes and data to drive competitive advantage and improved operations.”

Strategy, people, processes and data: it’s what the future looks like. To learn more about how insurance telematics can drive down loss ratios, click here. You may also want to download our “Survive and Thrive” white paper.

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