The Internet of Things

Connected to Custom Coverage

The Internet of Things may lead to more personalized insurance coverage, benefiting both insurers and customers.
By: | October 15, 2014 • 6 min read

Seismic changes are afoot in the insurance world with new technological developments stemming from the rush to the Internet of Things (IoT).

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According to a report from McKinsey Global Institute, IoT has the potential to unleash as much as $6.2 trillion in new global economic value annually by 2025.

But what value will it bring to the insurance industry and, more specifically, to their customers? Let’s take a look at a few common areas of insurance — automotive, health benefits and commercial real estate — and see what the future holds.

Connected Cars

Do you have the same driving patterns as your friends, family and colleagues? It’s highly unlikely, but until now, you’ve had no choice but to pay the same rates and premiums, based on the average risk level. If you are a safer than average driver, you end up paying to cover those at greater risk. Is it fair and is this the best system we can have?

Paul Bermingham, executive director of claims, Xchanging Claims Services

Paul Bermingham, executive director of claims, Xchanging Claims Services

One in five new cars already collect driver and driving data for car manufacturers, but the future of the connected car will allow consumers to manage their individual automotive policies from the comfort of their driver seats.

Automotive dealers will be able to team up with insurance companies to provide data on driving habits and behaviors such as acceleration and taking corners too harshly via embedded sensors, and assign highly personalized risk scores.

But take this another step into the future and picture your car connecting to your Facebook. According to Ovum, insurers should focus on creative initiatives that analyze data from a number of sources, including social media and machine-to-machine communications.

If your car could sort through your contacts and match your driving profile (developed by the embedded sensors) to other people with similar driving profiles then you could band together to buy insurance as a group. For this example’s sake, imagine that you’re the picture-perfect driver with zero black marks on your record and your car has grouped you with other spotless drivers.

Your group of safe drivers can now buy insurance for a much lower premium and will qualify for a massive safe driver discount. Will connected cars be the ticket to replacing individual or company policies?

Driving Like a Girl

You may read this and think I’m being sexist, but the insurance industry has notoriously charged teenage male drivers much higher premiums than their female counterparts. In 2012, however, the European Court of Justice passed the “EU Gender Directive” that stated men and women must be offered the same quote if their circumstances are otherwise identical.

In response, Drive Like a Girl, a UK-based, telematics car insurer, has used little black boxes to record driving behaviors and discern whether a driver is driving with the profile of a 17-year-old girl regardless of age, gender, occupation, etc.

Video: Wireless Car describes the wide-ranging benefits of telematics to both drivers, manufacturers and businesses.

Telematics allows an insurer to provide lower rates accordingly. So, you don’t actually have to be a 17-year-old girl to catch a break on your insurance; you just have to drive like one!

The EU ruling is only one factor fueling the massive growth of global insurance telematics subscriptions, expected to grow 81 percent from 5.5 million at the end of 2013, to 107 million in 2018. More consumers want to take insurance underwriting into their own hands.

The United States doesn’t have a similar ruling on the books yet, but some companies, such as Progressive, are relying on the technology.

More than one million drivers have chosen to install that company’s device under the wheel, which allows Progressive to analyze individual driving habits and track projected savings, allowing a totally personalized rate for the driver.

The emergence of mobile apps and enhanced customer experiences through the use of technology in order to improve customer retention are additional reasons for this growth.

Impact on Health

Wearable devices such as smart watches or wristbands allow employees and consumers to say, and prove, that their lifestyles are low-risk. Fitness junkies and professional athletes are already commonly using this technology to monitor heart rate, stress levels, sleep schedules and calories burned.

But the next logical step is to use these devices to qualify for better employee health insurance or personal health insurance discounts.

Video: Some employees at Atlantic Corp. talk about the health changes they have experienced since wearing Fitbit.

According to research from the Henry J. Kaiser Family Foundation and the American Hospital Association’s Health Research and Educational Trust, the cost of employee health insurance is still increasing faster than wages and overall inflation.

Currently, the average price for a single worker is $6,025 and the average annual premium for a family plan rose to $16,834. But with the Affordable Care Act’s higher costs for employers, we will begin to see more companies turning to wearable devices to help them monitor their employee’s health in the near future.

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In order to combat costs, wearables will be given to employees, and incentive programs will be created to encourage their use.

For example, British Petroleum handed out Fitbit Zip devices to about 14,000 employees in 2013. If employees took one million steps, they received points that qualified them for lower insurance premiums.

In fact, Fitbit reports that sales to companies are one of the fastest growing segments of its customer base. We may need to establish a new technology acronym to replace BYOD — perhaps BYOW will take off in 2015?

The technology can also usher in crowdsourcing for personal health insurance as well — there is undeniably more buying power with 1,000 individuals than just one person.

Perhaps this will even open the door to pet insurance as well given new wearables designed specifically for man’s best friend continue to roll out. And what does the insurance industry love more than the ability to break into niche markets? Insurance companies can use this technology to target low-risk opportunities to drive a better return and greater volumes.

Automatic Adjustments

The advent of smart commercial buildings will eliminate the need for building managers to total a stated insurable value by listing everything on its premises.

With a smart building monitoring itself and updating its central system in real time, the building can tell an insurer that its risk profile this afternoon is at at a lower risk than it was just yesterday.

Instead, property premiums can be automatically tallied by connecting the insurance company to the building’s central smart hub, which houses all of the data such as air quality and temperature.

Access to security systems, sprinklers, and disaster recovery plans in one location provides a much crisper insurance profile than just relying on raw building and cost data.

With a smart building monitoring itself and updating its central system in real time, the building can tell an insurer that its risk profile this afternoon is at at a lower risk than it was just yesterday.

Rather than replacing an annual policy or going through the hassle of a three year deal, policies can be adjusted daily.

As such, building owners could qualify for better insurance premiums by providing a historical view of building trends. There are also benefits aside from cost savings.

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For example, say you own a building in Miami. You can match and profile your hurricane risk by the minute and remediate high-risk issues very quickly. Additionally, the need to hire field evaluators to do this process manually is eliminated.

Thanks to the advancements taking place within the IoT, shopping for insurance of any sort will be akin to shopping for new clothes.

It won’t be a cumbersome process where you are purchasing retrofitted policies that don’t seem to match. It will be a sleek and automated experience where policies will be developed to fit individual needs.

We’re entering an insurance era where consumers and companies are empowered and we all should be ready for it.

Paul Bermingham is the executive director of claims at Xchanging Claims Services. He has 25 years’ claims experience in both national and global insurance markets. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

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We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

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Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

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Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]