August 16, 2018
Standing in one line with other disruptive technologies, IoT keeps on popping up in discussions here and there as one of the overarching trends. With IoT breaking into insurance, the alliance spawned yet another concept – Insurance of Things, which is driving a new era of digital disruption of the insurance markets. Digitization has raised the bar, and it changes the game dramatically.
For years and years, the insurance industry has been known as a technological dinosaur. Fortunately, the most passionate and forward-thinking visionaries saw technologies a tremendous opportunity rather than a threat. Today, the insurers see a massive window of potential coming from IoT.
The pioneers in InsurTech have been concentrated mainly on vehicle telematics. Insurers want to create solutions working on quintessential technology, combining telematics, military-grade AI, and photogrammetry to name a few. The application that tackles all the existing challenges of the auto insurance industry and much more – is a proponent of a philosophy of safe driving, where responsible drivers are motivated to become better. During the past year, we have witnessed a growth of IoT products in other sectors as well – services focused on homes, fitness, health, etc.
IoT provides insurance companies with a chance to reduce premiums – the price calculation includes human resource expenses. In the context of auto insurance, operations imply the work of appraisers, managers, insurance commissioners, which has been traditionally added to the insurance costs. IoT soft deals with these tasks and as a result passes the savings on to the customer. The processes are implemented much faster; hence, they are being transformed to a new quality level. The elimination of the human factor in auto insurance, according to our estimates, results in the insurance policy being 50% cheaper for the client, and HR expenses cut by 30%.
The wait-and-see’ approach is no longer viable. The early adopters went all-in and managed to create a compelling value proposition. This was achieved by a clear demonstration of how data-driven approach via sensors, wearables, telematics, GPS, and a number of other sources can actually grow businesses, prevent losses, and improve risk management: 92% of leaders have mature digital transformation strategies and processes in place to enhance the customer experience, 71% of leaders say that digital transformation efforts make it easier to attract and retain talent.
Of course, joining the IoT movement implies shaping the right strategy – business impact on processes, data security, and operationalization (followed by monetization) of data accumulated by IoT.
Speaking about the impact of IoT on the insurance industry can be reduced to the phrase’deep personalization,’ which has certain benefits. On the one hand, there is analytics of drivers’ behavioral patterns, driving conditions, weather conditions, etc., and there is a motivational discount model on the other. The combination of those two directly influences the frequency and gravity of the road accidents. Paying less is a motivation for the driver. To do so, a driver has to minimize the probability of the potentially dangerous situations by respecting the traffic rules.
First and foremost, the insurance carriers now have the opportunity to build unmediated, direct customer dialogue based on objective and immutable data. Insurers can finally forget the generalized approach to customers and have a granular understanding of what they are, how they behave, what they need, and what’s more important — what customers will need in the future.
In 2016, EY conducted a sensor data survey to find out the real implications of sensor-based tech with senior executives in insurance and other industries. The mission of the research was to explore the real impact of innovation on business on all levels. According to the survey results, insurance carriers have been lagging behind their counterparts in terms of long-term value optimization, customer collaboration for long-run benefits, and new insights utilization.
The convergence of all kinds of information increases the long-anticipated precision. The constant monitoring leads to recommending real-time pricing as well as policy terms customization. Speaking of claims, IoT drastically changes the claiming process due to the orientation towards active prevention of loss – no time-consuming claims, no double claiming or fraudulent claims. In other words, the insurance philosophy changes from reactive to proactive.
In-vehicle sensors are not a new thing: the tracking devices were installed in trucking fleets around 20 years ago. Since then, the commercial insurers have significantly matured their modeling potential, especially with regard to dealing with the natural disasters. During Sandy superstorm, the insurers tracked the storm impact to provide proactive alerts on imminent risks to policyholders. The juxtaposition of the real-time data and historical data is the source of a better understanding of risk.
Regarding life insurance, the underwriting processes have been traditionally intrusive and lengthy. IoT is the tool that provides automation and streamlining to the procedure. Wearables stipulate ongoing risk profiling, pay-as-you-go models, and healthy lifestyle promotion. Nurturing the philosophy of safe driving is a right thing to do. This is the mission that extends to the global scale and can have a substantial social impact. Present-day InsurTech business must keep this idea in mind.
Nowadays, data security appears to be one of the most serious and nagging issues related to IoT. Insurers have gained access to new sources of information, and working with these vast amounts of information demands the new level of responsibility. Additional data streams and network extension present as many opportunities as threats. The prospective hazards evoke two critical questions:
a) Do customers trust insurance entities enough to disclose personal data?
b) Is data received from the approved sources? As soon as the auto insurance relies on personal driving patterns, it’s essential to be sure the driver’s relative is not behind the wheel.
The risk boundaries of the enterprise demand to be extended. At present, insurance carriers are mainly working on the protection of the internal processes, literally building fences around them. But it is important to look further and make these boundaries much more fluid than they were back in the days. The safety of the corporate assets implies thinking beyond the traditional security perimeter. The insurers have to understand that doing business within modern market conditions does not tolerate categories and strictly black & white divisions: this is the place for cooperation and flexibility. Thus, new security technology must be added up by traditional approaches.
IoT gives insurers great insights into consumer behavior. The insurance business is gradually becoming smarter and at the same time the habitual insurance operations, which once were one-size-fits-all, receive the cognitive element and the focus on the individual. Insurance is becoming transparent, fair, and easy.
Commitment to well-developed and risk-informed strategies across all the operational areas and all the business lines is the path to the qualitatively new customer experience in the insurance industry. The improvement of the basic business practices and procedures depends on the strategies of using new data streams. Moreover, these strategies are necessary to seize the vast IoT transformative capabilities and to reap the significant value it brings to the insurance industry.