ISSUES WHICH CAN BE SOLVED WITH INTERNET OF THINGS
The IoT offers truly disruptive and transformative potential to the insurance industry. Substantial upside exists for insurers that can shape the right strategy
- Improved customer relationship
- Understanding customer needs
- Individualised products offerings
- Usage-based insurance (UBI)
Improved customer relationship
IoT will enable Insurers to establish direct, unmediated customer relationships based on objective data
Understanding customer needs
IoT will enable Insurers to gain more granular and precise understanding of who their customers are and how their needs change over time
Individualised products offerings
IoT will enable Insurers to Individualize offerings of products, features and access options
Usage-based insurance (UBI)
Usage-based insurance (UBI) — so-called “pay-as-you-live” or “pay-as-you-drive” business models — have quickly moved out of pilot phases and proved their viability and value around the world
Benefits of IoT in the Insurance Sector
Innovation in the Internet of Things (IoT) enables insurers to streamline operations, transform functions, create efficiencies and develop superior capabilities.
The convergence of different data types leads directly to increased precision in assessing risk, pricing policies and estimating necessary reserves. There are clear advantages over current approaches, which rely on backwards-looking claims data and historical risk studies.
The IoT is likely to drive further evolution in claims, as it orients more toward active loss prevention. In-vehicle sensors can also be useful in providing warnings in case of dangerous driving patterns. Within-group health insurance, the discounts offered to employees who monitor their activity levels and heart rates could be considered a claims prevention program. Enhanced incident management and claims service, such as proactively offering towing or “loaner” vehicles in the event of an accident, rather than just covering these costs.
Commercial insurers have matured their modelling capabilities, especially relative to natural disasters. Combining data — layering wearable technology data with GIS data against historical patterns — enables a deeper understanding of risk, both in real time and across historical perspectives.
Life insurers can now automate and streamline the traditionally intrusive and lengthy underwriting process because sensor data provides the means to answer a lot of the questions from yesterday’s paper-based application forms. This opens the door to a greater focus on millennials and younger customers, as well as on policies with lower face amounts and the promotion of healthier lifestyles and potentially pay-as-you-go models. There are even opportunities to automate retirement planning processes and offer simpler and more affordable products.
USE CASES ON THE USE OF IOT IN THE INSURANCE SECTOR
The Internet of Things (IoT). With 6.4 billion devices already connected and 5.5 million new devices added every day, the IoT’s real-time data collection and sharing power creates significant new opportunities in finer product segmentation, more specialized pools of risk and predictive modelling to better assess risk, improve loss control and accelerate premium growth.
For example, auto insurance carriers now use what they call “telematics” to gather history of speed, distance, turning and braking patterns, time of day and much more from the vehicles of prospective policy owners in order to price and maintain “usage-based” insurance (“UBI”). Premiums are lowest for responsible drivers. For the carrier, this will drive premium growth, reduced loss ratios and improved margins. In the near future, weather data supplements pushed to the car will trigger warnings such as: “Hail storm approaching”. These will benefit both the policyholder and the carrier by avoiding a claim.
Homes, office buildings, warehouses and factories have sensors installed to detect temperature, smoke, toxic fumes, mold, earthquake motion or other hazardous conditions. With two-way communication, these IoT devices can also provide predictive alerts on potentially dangerous conditions in the near future. Carriers offering homeowner’s, commercial property, worker’s compensation and general liability lines would all be able to “write right risk” and improve loss ratios based on IoT connected environmental sensors.
Some of the very first applications of connected sensors, the precursors to the IoT, were in factories using process control automation. IT executives got excited when IBM announced a “phone home” error log dump capability when their new (!) 3090 mainframe had a hiccup. Today, small, inexpensive, but highly intelligent sensors are embedded in a huge variety of products including appliances, toys, consumer electronics, industrial machines, vehicles and much more. As manufacturers of these devices embed and enable IoT, specialty insurance carriers offering extended warranty protection on these products will also offer predictive and preventative service prior to product breakdown or component failure. Maintaining happy policy owners will improve cross and up-sell likelihood for additional insurance products.