Forward thinking insurance firms are realising that they can increase their profitability metrics and better their risk modelling by investing in the Internet of Things (IoT). Earlier this year Verizon released its State of the Market: The Internet of Things 2015 report; a comprehensive look at how enterprises adopt and implement connected strategies in different industries.
The report found that IoT solutions can help insurers increase new business success rates, boost renewal retention, maintain claims best practices and improve overall loss adjustment expense ratios.
The ability to bring Internet connection to nearly every type of consumer device will have huge implications for the insurance industry over the next five years. Insurers looking to cut costs, improve business practices, and better assess clients' risk levels, will increasingly invest in IoT.
However, IoT is not a new concept for the insurance industry; as drivers drive, insurers remotely gather data and actuaries analyse performance in near real-time. The automation of once-manual tracking allows underwriters to improve pricing and insurers can close claims more quickly and improve loss adjustment ratios. The end result of this process improvement is a positive customer experience, but also the potential for invasions of privacy.
Jörg Oliveri del Castillo-Schulz, partner at Roland Berger, says that while the main aim of insurance firms in using this data is to prevent problems and therefore payouts, it is also about personalising insurance products and offers. It’s then “a question of privacy”, he says, referring to the idea that some consumers will have to opt-in to get deals.
Insurance companies now realise that they can improve all aspects of their business processes by using modern data analytics captured using connected IoT solutions. For example, interactions with existing products, when combined with demographic information and retail spending habits, help insurance companies understand who to better target with their products and improve market timing.
Furthermore, some automotive and health insurers are already offering a new type of insurance; usage-based insurance (UBI) that uses IoT devices to track clients' activity and offer discounts or rewards for healthy and safe behaviour.
Kevin Roberts, broker director at insurance firm Legal & General admits that this personalisation, although beneficial for many, could also lead to a growing number of people being unable to afford full insurance protection of products. This will, he says, “create a data underclass and exacerbate the current protection gap”.
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Rakuten, a Japanese e-commerce company, sells life insurance leveraging its customer data and digital platform. Air Asia also utilizes its strong digital platform to cross-sell insurance products through Tune Insurance. While in 2011 Google acquired beatthatquote.com, a U.K. motor insurance aggregator, and launched its own motor insurance aggregator with 127 providers shortly after.
While we are seeing the burgeoning of the IoT in the automotive insurance sector, with as much as 60% of European top insurers having already launched connected car solutions, almost none have entered the smart home nor smart health markets.
IoT offers practical and simple solutions that can help insurers deliver customized personal service in the smart building space. It achieves this by dramatically enhancing the usefulness of something that the industry already has in abundance, data. As we see the Transformation of BAS into the Building Internet of Things, all manner of home and office data will be available to insurers.
Insurers already collect vast amounts of customer data, from driving habits to medical history to frequency of routine home maintenance. Sensor technology can marry historical customer data with real-time insights into customer behavior — isn’t that what the Internet of Things is all about, or is the potential for misuse a step too far?
“There is definitely that danger of companies misusing the data that is captured by consumers”, says Patrick Moorhead, president of at IoT analyst Moor Insights and Strategy. “This is why consumers need to be wary of companies that don’t simplify and externalise their privacy policies”.
Inevitably this sea of personalised data, generated by linking individuals and households with specific products and services has a huge value to businesses. Whether it is promoting product upgrades or extended warranties and insurance deals, consumers will be exposed more than ever before to the sales and marketing machine.
While consumers will default to opting out of sharing personal data; through UBI, discount deals and promises of preferential upgrade treatment we are likely to see a much higher percentage of opt-ins in the future.