The insurance industry is at a crossroads. Technology has changed the way people select and buy policies. With so many fast and simple ways to change carriers and so much information about insurance available online, customers are becoming more savvy and brand agnostic.
Carriers that innovate and develop new and increasingly relevant products customers can’t get elsewhere will be in the best position to retain their existing customer base and grow their market share. Unfortunately, while research and development (R&D) budgets cover the hard work of identifying, developing and designing new or enhanced product offerings, they are rarely sufficient to take a promising idea from concept to rollout.
If innovations are to have any chance of going to market, the teams that lead them need to think creatively about how they will fund their projects beyond the pilot stage. Knowing how and where the investment will come from at the beginning improves the chances of a well-resourced program through its entire lifecycle. In addition, with sufficient and reliable funding, companies can build in the tools they need to orchestrate the desired outcomes and ROI.
Notion, a Comcast company, partners with top insurance brands to develop innovative new smart property policies. Its partnerships team has helped many carriers identify and select the most appropriate business model for a wide range of pioneering programs. Below are the top four investment models it has helped teams leverage to secure budget from internal sources or progressive pricing models.
1. Risk-Sharing with a Partner
Providing smart device kits and premium discounts to every policyholder is a significant investment. No matter how good the program is, there will always be some policyholders who won’t install the product in a timely manner.
A risk-sharing/guarantee model with a partner helps alleviate the carrier’s cost burden for uninstalled devices. For example, the agreement may be that a carrier will only pay for installed kits.
2. Variable Cost Based on Performance Metrics
This pricing model is customized and based on aligning agreed-upon performance targets with additional payments, a sliding scale of device cost, credits or other financial arrangements. With this model, higher volume programs will see the cost per policyholder go down.
- Installation rates
- Customer support satisfaction rating
- Claims reduction for specific perils
- Kit volume with a sliding pricing scale
3. New Revenue Streams
Carriers can generate additional revenue streams through other device and service expansion with a partner. For example, carriers can receive a percentage of the revenue from a professionally monitored service that is enabled for policyholders. This can help offset the initial device investment and expand the lifetime value (LTV) of the policyholder.
Because this model helps increase the level of monitoring, it will reduce the risk assessment of the policyholder and potentially open the opportunity for additional discounts or insurance products.
4. Budgets Leveraged Across Departments
This model leverages budgets from the functional areas within the company that will reap benefits from the smart program. For example, allocated payouts for water damage claims or spend for customer acquisition can be diverted to fund an IoT program.
Each business model has its merits and Notion recommends selecting the one that is most likely to align with organizational goals as well as help accomplish program objectives. What is most important is that the leaders of innovation consider not only how to fund the initial R&D but also make sure they have the resources they need when it goes to market.