IoT will undoubtedly affect every industry profoundly, some sooner and more profoundly than others. A study from FC Business Intelligence looks at the IoT opportunities for insurers and suggests that insurance could be one of the IoT pioneers.
Insurance is based on assessment of risk, which requires information: the more accurate, timely, granular and relevant that information the more accurately can risk be assessed and the more competitive will premium offers become.
According to the FC Business Intelligence report, Insurance, Innovation and IoT: Insurers have their say on the Internet of Things, “Most, if not all, insurers have some kind of research or monitoring activity going on for IoT initiatives. … Insurers are hedging their bets and monitoring as many applications as they can rather than pinning their hope to one application, because they don’t know the true value of IoT just yet. IoT has become a major area of study. Many different insurance markets have done their own research, showing a broader trend of adoption, information improvement, and better workflows.”
FC quotes a survey from SMA (a US research firm focussed on the insurance industry) which estimated that 20 percent of insurance companies were piloting, testing or deploying an IoT project, up from only 10 percent three years earlier.
The report looks at a number of the obvious applications for IoT in insurance.
“Some auto insurers, who are offering a discount for good behaviours calculated by telematics, also have plans for surcharges for bad driving,” it says, adding: “When this goes live, it could present a significant concern for customers and harm an insurer’s image. Insurers are using their customers to harvest data and to perform analytics based on it.”
FC says that half of US homes are expected to be connected by 2025, but insurers will need a strong value proposition to capitalise on these. “Visibility will be essential to proper integration The questions that insurers wishing to leverage home connectivity must answer are: Who owns and controls this data? Who is responsible when data must be used to contact law enforcement, fire, or other civil services? When discussing the installation of systems into homes, consumers will need to become comfortable with the data and the tracking. To avoid privacy concerns, smart home technology will need to be extremely transparent.”
At the moment, FC says, IoT is being used to provide discounts for individuals who exercise or perform other healthy habits. “The eventual reality is that consumers who have habits deemed ‘unhealthy’ will be penalized, which may cause a backlash against such methodology.”
It says the next stage in personal IoT evolution “appears to be pills and other swallowable sensors — or even injected devices — that will look for chronic health conditions and play a role in health insurance.” These may provide a clearer picture of health, but “There will be significant education needed for customers to embrace the technology and related pricing.”
The report suggest that commercial insurance could be the low hanging fruit of IoT. “Commercial lines may have the easiest entrance if they leverage existing customer wants, such as system designs that reduce energy consumption or improve the organisation of manufacturing processes.”
It adds: “Commercial policies also represent a significant opportunity as loss control is improved through new sensors, such as infrared detection of heat anomalies in electrical equipment, HVAC monitoring, water usage analytics for crops, and even construction equipment that checks for irregular vibrations to alert before there is significant damage.”
The report concludes: “The true potential of IoT for insurance is not yet known. The one unifying theme, regardless of lines offered, is opportunity. Because the technology is so nascent, its final application in auto, home, life, commercial and specialised policies may look very different from today’s expectations. What is clear is that the data available through IoT represents a significant fountain of knowledge that may better shape the way insurers understand risk. Through understanding can come better pricing, improved customer service, and new lines of business that address risks so far missed.”