Keesa Schreane: Welcome to the Refinitiv Sustainability Perspectives podcast, where we share examples of leadership and innovation. Small entrepreneurial businesses, large megacorporations and all types of enterprises in between are seeing a global shift in perspectives around the role of business and society, from ESG investing to sustainable finance to social impact in our communities. We're on a journey to leverage data and intelligence to make the best business decisions possible. Enjoy the podcast. 

My guests today are Matteo Carbone and Wil Bielert. Matteo is founder and director of the IoT Insurance Observatory, where he advises many international insurance companies on setting up industrial and commercial plans, growth strategy and digital strategy development. Before creating the IoT Insurance Observatory, he spent 11 years in Bain and Co.’s financial services practice. Wil is a sustainable energy investor, as well as the Chief Digital Officer for Premier Tech, a Canadian company that focuses on agricultural production, plant automation and water purification.

So insurance, I feel, is one of the first financial services products that people tend to learn about. My great grandmother would talk about having an insurance representative come to her home, which was eons ago, clearly. But just wondering if we could just start talking about the changes in the tech industry over the last several years, specifically as it relates to connectedness and IoT. What do some of those changes look like?

Matteo Carbone: This is something that is the core of this part of my career. So the insurance sector has been considered conservative for many years, but it's not so true. So you have many insurers around the world experimented with the way to use connected data. So data that came from a car, data that come from a wearable, or data that come from a connected house, in order to improve the way they assess, manage and trust for risk.

So the best practices have been able to move from superficial usage of the innovations, from the toys for CEOs, the shining devices, the gadget, to a real usage of data in their core processes. So you have examples of insurers that have been able to nudge their clients to become less risky, insurers that have been able to use the data in order to manage better the claims. So providing a better user experience for their clients and avoiding crowds. Other insurers are avoiding bad things from happening. So prevention and mitigation or opportunities that generate concrete business outcomes. So they are focusing their innovation effort on something that is concrete. 

Schreane: So taking one of those, which is using data to prevent risk are using data to understand what risk lies ahead of an entity or a person. One of the things that we know is that with climate change, I would assume the insurance company has had a lot of change because of that phenomena, particularly how data can be used to perhaps understand what the effects of climate change could be for a potential entity. And I would love, Wil, if you could talk about insurance in context of climate change and then adding on the layer of data. And just how can data help improve an experience as it relates to understanding potential climate change issues and how to avoid those issues? 

Wilhelm Bielert: So first of all, we really see increased risk because of climate change in many ways. And what's the difference between our history and our current status is that nowadays we have a lot of devices and these devices collect data and we can use this data in many ways to prevent certain risk and to mitigate this risk. 

So, for example, we can all pull together if a sudden storm arrives and and we are a company which produces electricity, we can forecast which kind of our production centers will be hit by the sudden storm. So we can already plan. How do we mitigate it? And this is the difference, because now we have all this data and we can learn much more about the essence of certain elements, about certain incidents, why they are happening, and in the past, it was just not possible because we had humans taking notes, but we could not really understand the underlying reasoning. And that's really no difference. And that has certain effects.

One effect is that the damage costs through climate change events, I assume will increase for a lot of different reasons. So there is room for improvement of efficiency. So by using this data, insurance companies can mitigate some of the price increase for the insurance. On the other hand, there will be also, because of the higher damage, some portion where insurance companies will be forced to apply their knowledge on other areas. 

In another interesting area is really everything where there is an output created, like a production unit so that you can forecast an output, let's say a result for data production of a certain kind of food and then really apply the knowledge you have. And first of all, we ensure that this output will happen to certain restrictions. And then secondly, we use your insurance knowledge as much as you already pointed out, to improve the situation and to change and or more from a company paying for certain damage to a company which is proactive and sells some peace of mind to their users to really improve the overall situation while creating something good for both stakeholders, the insurance company and the client, and then for the environment as well. 

Schreane: So take that as a use case, if I'm building a building, an office or something of that sort, and I'm a company, I can understand this particular slice of land perhaps would contain X amount of risk if I chose to build here, if I chose to plant here. Is that something that you think that insurance companies will be able to advise on?

Bielert: For sure we can understand this risk better. And then if I insure these building complexes, I can use certain data. And then also I can use certain sensors in the building to mitigate certain risk. Let's make a concrete example of fire risk. Now, in terms of sensors, I can buy these sensors and the costs of data processing, costs of friction compared to history and therefore there is a situation, but just collecting the data and assessing the risk better, the price, the cost for ensuring the risk will have also some room for improvement.

Carbone:  If you see the use case mentioned before, about their potential benefit, they should have said that can generate adding the same source on an equipment. So, on one side, you are as an insurer advising your client about predictive maintenance. Thanks to the data, this lowers one of your risks, equipment breakdown. 

This allows your client to do better. His data activity becomes more productive. So you are providing together with insurance coverage, a service. But on some equipment, the same sensors allow you to obtain insights that allow you to optimize the energy consumption. I was discussing yesterday with a tech player that works on retail and grocery stores how sensors on refrigerators save up to 20, 30 percent of energy consumption. So these generate an extremely relevant positive externality to the society, not only about the impact on your P&L as an insurer is not only about the impact on the P&L of your clients, but you are also generating a positive externality to the world's society. 

Schreane: So we're looking at the insurance industry broadly. And I want to look at some of these smaller players. You mentioned that you spoke with one of the players yesterday and disruption that might be happening in the industry If I’m an institutional investor or even accredited investor or even a retail investor who is interested in getting into the game in terms of investing in the insurance industry. Where should I focus my attention in terms of disruption, in terms of new entrants? What does that field look like? 

Carbone: I have a slightly different perspective from where you can invest on the players that enable incumbents more than on the disruption. I have my own bias on this because I'm an advisor of incumbents, so I love incumbents. I know many of them are doing really well. So I think that I can leverage to provide you a framework that can help investors to choose. One of the key pieces of a book I wrote a couple of years ago on insurtech is attached as a title -- “All the Insurance players Will Be Insurtech.” I believe that all the players that will survive in the insurance sector will use data and technology to insurtech as key enabler of their strategy, of their actions. It is a pity today not to leverage the latest technology, the data to do better. The core insurance activity -- assess, manage and transfer risks.

A couple of years ago, before writing this book, I developed a framework to evaluate all the insurtech initiatives that classified them on performance. They can deliver on four axes. One is productivity, if a solution allows you to sell more. The second is proximity, if a solution allows you to be more close with clients, to generate new knowledge, the opportunity to create new products. Third is profitability, if it in some way impacts the core insurance process -- pricing, claims management. Last, persistency -- something that allows you to have an increase of persistency on the relation with your clients, which includes loyalty. So when an insurtech solution allows you to perform better on these four axes, there is an insurtech solution that deserves investment. When it is a gadget that doesn't impact any way the four axes, it is what I call a toy for CEOs. It's good to go on the stage of a conference and say I have a great Alexa skill but doesn't impact really your business. 

Bielert: And I totally agree with Matteo. What the insurance companies have is a very strong asset, is really the relationship with the client. So they have millions and millions of long term relationships with clients where lots of trust has been established. 

There is some discussion whether they are maybe not quick enough or maybe outside players bring pressure, like to sell insurance online was a big discussion, and to be more price competitive. 

But I think they all now develop some form of strategy and it's more like that external player come with the technology idea and then it's for them, time to evaluate whether they should either cooperate with them or just buy their services or whether they should maybe buy this company. So it's a different game. And we see already interesting examples in the so-called IIOT, the Industrial Internet of Things where large players, they watch out for good ideas and then they integrate these good ideas.

A good public example is the acquisition of a company called Relayr by Munich Re, Munich Re being a very large insurance company in Europe. Munich Re saw the use and the knowledge someone can generate by integrating IIoT data into an insurance product. And then the consequence was to integrate this company and to leverage the knowledge for existing insurance products. I don't have the knowledge of a unicorn appearing like Facebook or Google. I think it's very different. You need to have this trustful relationship for a long time. And I think it will be more B2B play where the insurance companies need to understand on a continuous basis the valuable technology, to pick the right bet and to integrate this technology into their products. 

Schreane: And that sounds like it's gonna be a global phenomenon. So if we're looking to your point, Wil, which companies are going to begin cooperating or buying the smaller companies, where is that happening, it doesn't sound like that's regional. Is that the case? Is this really a global field that we're talking about? 

Carbone: Definitely I think we have seen in the past, talking about the insurtech investments. We have seen in the past few years many incumbents to invest a relevant amount of money in players that can allow them to innovate on the side of the IoT insurance observatory that you mention. Last year, I co-founded a special purpose acquisition company that in Italy has acquired an existing small carrier making insurance and is using this traditional carrier to create an innovative platform that will sell insurance through banks. We have already three bank assurance agreements. I'm not leading the company. I'm only on the board of directors and this player has already invested in a few insurtech players that allowed to innovate some steps in the chain that has partnered with us and together with some tech player built internationally a few tech tools. So the point is that you can calibrate your strategy between buy, partner and develop. But today is concrete that the opportunity to do better, your core processes leveraging technology. 

Schreane: So in terms of bringing us to a close here, what do you think is the big idea? What do you see coming down the road as it relates to insurance and sustainability in 2020 and beyond, that we won't see coming, that you think is going to really take the marketplace by surprise. We talked a bit about how insurance companies using data can really set the stage for future improvements. I'm looking for other sorts of things that are big new ideas that you think will be happening with insurance sustainability in the near term.

Carbone:  Let's say today during this podcast, you heard something that is extremely innovative and there are around 30, 40 people around the world that have this opportunity, that is the usage of IoT data in the commercial lines. So this is a trend that is at its infancy. If you talk with a normal executive in the insurance sectors, so not someone that is on the frontier of innovation and you mention them IoT, they think about auto telematics and personal lines because this is something that is material. There are millions of policies around the world that already use that data. The usage of these data on commercial lines is at its infancy. So I think that the kind of views that allow you to change the behavior of business owners in order to reduce their risks and to generate positive externalities, the prevention that allow you to reduce energy consumption are all use cases that are extremely normative. 

Bielert: I couldn't agree more. And it's really also new because you need to have new partners for acquiring the domain knowledge. So very often insurance is very good in applying insurance knowledge, but then all of a sudden is as Matteo just described you need knowledge of how a machine is functioning, you need really very strong knowledge about certain domains. So you need to partner. I think new products will arrive where these two competencies can blend together and create really something new. I think it will not be a surprise. It was more going step by step as it went through the last years. But for sure, there is an opportunity to create new products through this use of IoT data. 

Schreane: Great. So we have it here. Data usage is really at its infancy as it relates to really changing users’ behavior and reducing risk. And also partnerships. It's really where we're gonna go into the future, knowing and understanding which partners can take you into certain domains and really which partners can help you create something new. Wil and Matteo. This has been great. Thank you so much for joining us. 

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