The amount of communication and data available thanks to the internet of things (IoT) will have significant benefits for the insurance industry and will change the way insurance companies operate.
The IoT is starting to boom and is set to grow exponentially over the next few years. According to Cisco, the market for IoT could be worth $19 trillion within the next decade. In addition, Gartner has predicted that by 2020 there will be over 26 billion connected devices, including an estimated 7.3 billion smartphones, tablets and PCs – one for every person on the planet.
Consequently, the IoT will, and has already begun to, impact the financial services industry in a big way. According to PwC’s sixth annual digital IQ survey, financial services are one of the top 10 industries that have been investing in sensors for potential IoT innovations.
For the insurance industry, this means that customer data can be more personalised, insurance policies can be more usage-based and there is the potential for better risk assessment for insurance companies.
Some of the significant ways in which the IoT is likely to impact the insurance industry include the following.
Dealing with more data
As more people become connected to a range of different devices, including cars, buildings, machines and wearables, this will generate immense levels of data that will need to be analysed, stored and managed.
In turn, this will require greater investment in data analytics and also a greater reliance on cloud technology to deal with the growing level of data.
For the insurance sector, this growth means new opportunities in how firms interact and service customers as well as the type of new products that can be developed.
According to Accenture’s 2017 Global Distribution and Marketing Consumer Study, 46 per cent of consumers are willing to pay more for personalised, real-time services and also willing to share more personal data to get them.
With more data available about customers and their unique characteristics there will be more opportunity for policies to become personalised. For instance, if insurers can access the health information provided by a connected wearable device, like a FitBit, along with digital health records, they can build up a unique picture of the health profile of that customer.
Personalised policies represent a huge growth area for insurers. As not only are they attractive to customers as they are getting the most relevant policy, but for insurers they represent the ability to better understand risks and future payout potential, leading to increased cost efficiencies.
The IoT is resulting in new models of insurance, such as usage-based insurance (UBI). UBI is starting to be seen mostly in the car insurance sector where connected cars are tracking drivers’ habits in real time allowing auto insurers to more accurately price their premiums and provide savings to their customers.
Aiding this growth is the rise in connected cars. BI Intelligence predicts that by 2021, 82 per cent of all new cars will be connected. From the insurer’s perspective, UBI policies will help to cut costs and better assess clients’ risk levels.
Better risk assessment
By accessing more detailed or personalised data from policy holders, insurance companies will be better able to assess the risks associated. This could potentially have a significant uplift in the economic benefits for insurers as they will be able to provide a cost-effective policy based on the risk factors of the customer. For instance, less risky behaviour such as safer driving or better plant maintenance will lower preventable losses.
Shift focus from restitution to prevention
Data provided through the IoT will mean that warning information can be provided to insurers and policy holders which will help prevent damage and subsequent claims. One example of this is through connected cars that could register weather warnings such as hail storms. The growth of the IoT will, therefore, not only provide a more personalised and cost effective policy for consumers but also allow insurance providers with the means to prevent accidents and minimise potential risks before they happen, reducing pay outs.
The IoT has numerous benefits for the insurance industry. While providing policy providers with the means to stay on top of technological trends, it will also ensure that insurance companies are able to incorporate these technological changes to reinforce future growth.
Andrew Tucker is the CEO of ITonCloud