By Charles Juniper and Gavin Whitechurch
It’s a challenging time regardless of the area of insurance in which you operate. The health insurance market faces significant disruption as the Republicans dismantle Obamacare with no real certainty as to how it will play out. Meanwhile, auto insurers have been raising rates at a significant clip as distracted driving, cellphone use and cheap gas have contributed to more accidents.
As the overall cost of living goes up and consumers are more financially conscious, insurers need to get creative, think more strategically and ultimately future-proof their business. In a world where mobile and value-add has become everything, this means changing business models from infrequent transactions to digitally enabled interactive risk management services.
The Internet of Things (IoT) provides the perfect opportunity to do so. It’s been discussed a lot over the last five years but much of that conversation has been speculative, and in the U.S. we’ve seen little change in reality. Perhaps because costs were prohibitive, the market wasn’t quite ready and neither were business leaders. But as this year marks a step-change in consumer appetite for connected devices and market pressures grow, now is the time to consider how IoT can be used to retain competitive edge. So we’ve listed five ways to do so.
- Minimize or avoid potential claims. IoT devices cannot only detect an incident but also initiate an automated response to minimize the cost of a claim. For example, sensors that detect a property flood caused by an appliance failure or pipe burst can be linked to IoT-based actuators that will shut off water and electricity supplies to minimize any damage, even if the home owner is not present. IoT also can be used to avoid the need for a claim entirely. Sensors could detect abnormal temperature or voltage levels in machinery used by a small business to provide advanced warning of a future failure and thus avoid unexpected breaks in production, spoiled raw materials or costly equipment repairs.
- Support comprehensive coverage. While the specific type of sensors may vary, the same basic IoT data capture and transmission infrastructure can be utilized across vehicles, property and wearables. In addition to driving efficiency, this offers the possibility of integrating different areas of coverage - such as auto, property, life and pet insurance - into a comprehensive offering. But insurers must ensure they invest in the appropriate flexible back-end systems so that this data can be pooled and analyzed, gleaning new value.
- Enable accurate usage and risk-based charging. IoT-based offerings also will allow carriers to offer true usage and risk-based insurance, with the premium rates being adjusted according to the risk posed at any point in time. For example, auto insurance would be charged at a high premium rate when driving late at night, in winter, on country roads. But that same auto insurance would have a reduced rate when driving during daylight hours on a major highway, and reduced yet further when the car is parked and locked in a garage. In addition, a driver's specific behavior (such as a tendency to brake or accelerate harshly) can be taken into account to derive an accurate risk score.
- Encourage modification of risky behavior. If an insurer incorporates feedback to policyholders as part of an IoT-based offering, there is considerable scope to influence or modify potentially risky behavior to the benefit of both the customer and carrier. There are already many examples of apps that offer feedback on driving habits, and there is growing evidence that these do reduce poor driving behavior. Other examples include using IoT technology to monitor tire and brake pad wear and encouraging policyholders to upgrade these before they compromise safety. Similarly, apps that monitor activity levels or calorie intake can help life insurance policyholders maintain a healthier lifestyle.
- Provide a platform for innovative new service elements. Many policyholders perceive mainstream personal insurance offerings as undifferentiated commodity products. As a result, IoT technologies can provide a platform for the development of innovative services that can minimize the use of policyholder time, improve data capture accuracy and enhance customer satisfaction. This is especially in areas such as claims submission. Examples of such services could include use of voice-controlled interaction to perform verbal inventories, and the use of webcams to assess coverage needs or simplify claims submissions.
Insurance heavyweights already have started taking their first experimental steps into this space. Liberty Mutual works with Google’s Nest to reduce premiums with connected smoke alarms. Meanwhile, John Hancock has partnered with Vitality to offer customers free Fitbits. They use the devices to track well-being and incentivize customers to stay fit by offering them rewards for hitting certain targets.
And with insurance being tipped to be one of the industries investing significantly in IoT this year, it looks like the rest of the market is waking up. As the digitization of almost every aspect of life continues to evolve rapidly, those who stay asleep are the most likely to fall by the wayside.
Charles Juniper is a principal analyst in Ovum’s Global Financial Services Technology team specializing in the impact of new technology on the global insurance industry. He may be contacted at [email protected].
Gavin Whitechurch is the founder of Internet of Things World, and senior vice president of strategy and innovation for Informa’s communities and events business, KNect365. He may be contacted at [email protected].
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