July 16, 2019 - The basic business model for insurance has not changed in centuries.
The industry dates all the way back to the Chinese and Babylonians in the third century B.C. and historians believe that the first written insurance contracts appear to have debuted in Pisa in 1343. Our modern understanding of property insurance seems to have gotten its start after the Great Fire of London in 1666.
And while the basic business model has not changed much, the insurance industry has evolved continuously over the centuries. So, it’s not especially surprising that the industry is now embracing one of the newest tech trends – the Internet of Things.
Smart devices lead the way
The insurance industry’s obvious entry point into the IoT is through consumer IoT devices – smart watches, smartphones, automotive telematics, smart home devices, and so on – that directly connect customers (and their data) with insurance companies. A majority of the population is already carrying these kinds of devices, which are generally always-on and always connected. And that installed base will only get more entrenched as time goes on.
It’s a natural fit for insurers. IoT’s real-time nature can help insurance companies move from a statistical, historical model for determining risk through factors like age, demographics, and locale, to one which models risk by analyzing the actual behavior of customers and determining their specific risk profile accordingly.
Rather than offering generic policies that treat all 30- to 35-year-old women the same, for example, specific customers can be assessed by their actual driving behavior.
And IoT devices can help reduce costs. Imagine, for example, smart devices at the edge of the network, in customer pockets and in their automobiles, automatically dispatching emergency services after an accident to save lives and reduce medical costs. Or, less dramatically, using the data from this vast network of smart devices to recognize fraud.
The IoT can also help generate new revenue beyond where the industry is today. Telematics in automobiles capture data that can be used to make insights into customer driving habits, behaviors, and patterns, for example. This data is valuable and has the potential to be monetized beyond simply profiling insurance risk.
Sectors that are ripe
There are a number of specific insurance sectors that are particularly ripe for integration with the IoT.
First and foremost – as it might be obvious from the previous examples — is the automotive insurance industry.
Cars are already pretty smart, armed with their own telematics as well as the smartphones that virtually every driver brings along. And this sophisticated smart car trend is only accelerating, especially with the imminent arrival of 5G cellular technology. Connected cars can collect data not just on driving behavior, but also the condition and maintenance of the car itself.
Customers will likely embrace this trend, particularly if insurance companies reduce premiums for people with safe driving habits and well-maintained cars. And higher premiums can be shifted to customers who should bear the brunt of higher costs – those who demonstrate poor behaviors and maintenance practices.
An opportunity in healthcare
Healthcare is another area in which IoT can make a real difference, especially for customers requiring assisted living or in-home monitoring. Insurance companies have the opportunity to deliver comprehensive packages that combine assistive technologies with real-time monitoring, analytics, and assessment. Initiatives like this can lower insurance costs, provide new revenue opportunities, and enhance customers’ lives, all at the same time.
And then there’s homeowner and renter insurance. With the proliferation in the last few years of in-home artificial intelligence like Amazon Echo and Google Home, combined with inexpensive smart security and monitoring systems, insurance companies can leverage existing consumer IoT at home in the same way as in automobiles. Customers who use smart locks like August, smart doorbells like Ring, and connected monitoring tools like Nest can benefit from lower premiums while reducing insurance company risk and costs.
Like many aspects of the Internet of Things, it’s win-win.