How IOT can Drive Differentiation in Insurance
The Internet of Things is graduating from a ‘trend’ to becoming a must-have for insurers.
Emerging technologies are disrupting the business landscape in innovative ways, impacting even the traditional, slow-to-embrace-new-tech insurance sector. The Internet of Things (IoT) is one such technology that is becoming an integral part of the strategic roadmap of insurance players—big and small. New business models based on IoT applications in the insurance space are becoming a swift reality.
- A leading US-based car insurer has optimized Usage Based Insurance telematics to monitor how their customers drive and offer them pricing based on that data.
- An American diversified global insurer is leveraging wearables to track customer wellbeing.
- An insurance giant is using data from Fitbits to incentivize a healthy lifestyle, by offering rewards to customers who stay fit.
- A US-based large insurance company is using drones to speed up the claims process and assess damages without putting employees in danger.
These are just some examples of how insurance providers are leveraging connected, communication IoT devices to optimize service delivery and bring in process excellence. Early adopters of IoT have set compelling examples by leveraging data from devices like automotive sensors, wearables, drones, telematics devices, and other networked appliances. However, there are several challenges that businesses still face while adopting IoT. Let’s try to address the top few here:
Is the IoT ecosystem secure? Several massive, global incidents have raised questions around the security of connected devices. By extension, while IoT-based solutions maybe effective with very large volumes of data exchange over networks, they also leave the insurance company vulnerable to compromise. This makes it imperative to include a sound and robust IoT security policy as part of the IoT roadmap.
Can IoT manage large volumes of data? A well-developed IoT solution offers the ability to capture data in real-time and add it to the datasets for stakeholders to utilize. According to Gartner, the enormous number of devices, coupled with the sheer volume, velocity and structure of IoT data, creates major challenges, particularly in the areas of data storage management as real-time business processes are at stake. As consumers utilize apps and devices continue to learn about the user, significant data will be generated. This gives rise to the need for holistic planning and appropriate enterprise strategy. It is also very important to include IoT real-time data with historic data such as policy, client, and claims data.
Does IoT lack data standardization and regulation? According to industry estimates, IoT has the potential to grow to 50 billion connected devices by 2020. While today, several individual players are creating and offering their own version of an IoT strategy, the industry clearly lacks standardized processes to monitor this space. With no governing body currently managing the meteoric growth of IoT, it could signal trouble ahead. There is a critical need to standardize legal rights on access, privacy, and ownership if we want to safeguard our business and personal space from the outcomes of living in such a connected world.
Can IoT disrupt established business models? The insurance sector relies on established processes; insurers always seek to contain the volume of claims by preventive measures to have a good handle on the loss ratio. This has a direct impact on their written premium-to-losses ratio, improving their margins. While IoT solutions deliver a significant advantage in claims avoidance by providing relevant indications and alerts, there is always a threshold to such business theory. If the claims continue on a downward spiral, it will also bring down the premiums. Insurers need to ensure that IoT-based solutions provide the right balance and manage the relationship between solutions and core business models.
IoT has the potential to transform multiple aspects of the insurance space, and in the process, deliver a competitive edge to insurers. To be able to effectively leverage this disruptive technology, insurers must take concrete measures to understand how IoT-based solutions can improve their business model. Assessing organizational capabilities and whether they have the right solutions in place, within the existing landscape for data management, is the first step in that direction. Disruption in business has already become the norm; hence business, technology, and product research should be an ongoing process. Additionally, it is critical to get insurance customers to adopt IoT-based solutions—without customer buy in, IoT will offer no tangible value. And lastly, insurers must invest in appropriate Proof of Value and Proof of Concept initiatives for IoT solutions prior to industry-scale implementation, and partner with trusted service providers having deep domain knowledge and area expertise.
For more information on how IoT can help redefine insurance, click here.