Early incarnations of personal insurance — such as that offered through Ben Franklin's Philadelphia Contributorship — provided a vital social function by spreading private risks in the event of fire. A later, more sophisticated social benefit arose with companies that used experimentation and engineering to reduce environmental risk, such as the hazard specialty of Hartford Steam Boiler. Eventually, an industry — best exemplified by Underwriters Laboratories (UL) — grew up around the opportunity to apply analysis, experimentation and engineering to a vast array of common products toward the goal of standardizing quality and reducing risk. As the Internet Age progresses, we may be on the verge of a new data driven, insurance-related social benefit, suggests a new Gartner report called "Active Loss Prevention Promises a New Value Proposition for Property and Casualty Insurers."
[After 261 years since Ben Franklin founded the company, it's still making headlines: The Philadelphia Contributorship Chooses ISCS SurePower Innovation Suite.]
As author Jeff Haner writes in his introduction to the report, "Active loss prevention leverages a blend of technologies and the increasingly dynamic relationship between P&C insurers and their customers to reduce the frequency and severity of claims." Specifically, Haner says that data gathered through channels such as social media and mobile communications can provide P&C insurers with new insight into everyday risks faced by their customers.Handled correctly, that data could enable carriers to address those risks proactively in ways that both foster more dynamic relationships with customers and also reduce losses. In fact, the Gartner report offers a strategic planning assumption that by the end of 2015, personal insurance losses will fall by 20%.
However, the "handled correctly" point must be emphasized. The kind of dynamic customer relationship that Haner alludes to carries the danger of being perceived as Big Brother-like. Similar consumer sentiment delayed adoption of telematics-driven, pay-per-drive insurance for a decade. In that regard, Haner expressed slight embarrassment that his report should have appeared in the wake of the National Security Administration scandal about massive government data collection and surveillance of citizens. However, active loss prevention is emerging at a time when telematics is succeeding, and telematics overlaps in concept with active loss prevention.
[To read about a similar development in the health insurance sector, see Nate Golia's Three Insurers Take The Plunge Into Telehealth.]
It seems reasonable to believe that active loss prevention will succeed for the same reason that telematics and other data-related services have: because we live in a post-privacy age. I don't mean that privacy doesn't exist in any form, but that consumers now expect all sorts of their data to be collected by commercial entities without their permission. Insurers are among the commercial entities using data that way, but active loss prevention done right would be a voluntary exchange of data, Haner emphasizes.
The concept is one of mutual transparency for mutual benefit. And the benefit stands to be at least as great as that of the product safety gains driven by organizations such as UL. Over the longer term, it could alter the role of personal insurers in society Haner suggests. Today commercial policyholders have a much more benign view of their insurers as partners in loss prevention. Why couldn't the same kind of relationship develop around personal lines relationships, given the right degree of benefit?
"Active loss prevention could shift insurers' role from restoration to prevention, in a way that mutually benefits both insurer and insured," Haner comments. "The public doesn't get excited about insurance, and indeed there's often animosity about insurers raising rates and not providing perceptible value. Active loss prevention has the potential of putting insurance in a more heroic role, helping policyholders to prevent losses, including of life and limb."