In the last few years, the number of devices online surpassed the number of people online, giving rise to the term, Internet of Things, or IoT. The IoT is a growing ecosystem of “smart” internet-connected devices that use wireless technology to communicate with each other and with broader information systems. More specifically, the IoT can enable closed-loop systems that leverage sensors, gather real-time feedback, and provide predictive analysis of behavioral data. Connected “wearables” such as currently-popular exercise activity monitors represent just one of many examples of the IoT at work.
Early Impact on Insurance
In addition to the consumer sector, the IoT has gained popularity in many segments and industries, including insurance, where the ability for IoT-connected devices to provide critical information regarding the people and items being insured provides carriers with a more comprehensive picture of potential exposures, hazards, and risks. The IoT has already begun to have early impact in certain segments of the insurance market, such as auto insurance, because of the availability of vehicle telematics data. The IoT ultimately can impact every part of the insurance value chain, ranging from products, rates and underwriting, to claims and services.
Opportunities
In addition to the auto segment, all insurance segments have the potential to be greatly affected by IoT. Just one example is workers’ comp, where IoT-connected devices can help assess aspects of the workplace environment that provide new insights into worker safety. To a large extent, the amount and rate of IoT impact per segment will depend on customer adoption rates of various “smart” objects which are IoT-enabled, as well as the level of access to the data from these objects that they may allow.
Cost Effectiveness
The IoT has the potential to help increase cost-effectiveness in the insurance industry. Data provided from the IoT can help insurers better understand risk and allow them to help customers understand behaviors that can prevent losses, both of which can have a positive impact on overall cost-effectiveness. The IoT can also provide for new and different options for rates and premiums in some segments. For instance, in auto insurance, the IoT has already spawned a new model of Usage Based Insurance (UBI) including telematics.
Benefits and Risks
While IoT has a number of benefits, it also carries risk. The IoT will definitely pose increased data, privacy and security challenges for both insurers and customers. Insurers will need to consider appropriate IoT-related products and services to offer optimal customer value while respecting their security and privacy. Customers will need to carefully weigh behaviors and consider coverage that will help them mitigate the associated cybersecurity risks that the IoT can bring. Also, we can expect that court decisions will play a key role in identifying what types of data can and cannot be collected.
Making Use of Data
A priority for insurers will be to leverage IoT-generated data in their decision-making processes, through building of new data models or leveraging existing models from third-party providers. Given the broad range of data types and formats that IoT-connected devices can provide, which can include graphics, videos and machine codes, it will take insurers some time to determine what specific information will yield the most value. In general, they will likely be targeting data that may aid them in the areas of risk assessment, loss management, and creation of new efficiencies.
Game Changer for Insurers and Consumers
While there are many ways in which IoT will change the game for insurers, IoT will change the insurance industry for consumers as well. Consumers will have access to better information that will allow them to understand behaviors that can reduce risk, prevent losses, and potentially have a favorable impact on the premiums they pay. The IoT will also put consumers at greater risk for new and different types of security intrusions and data breaches in their businesses, and they may need to consider new and different types of coverage to mitigate these risks. They will also need to consider how much access to data that they are willing to give, in order to derive the benefits that the IoT can provide.
How can Agencies Prepare for IoT?
As insurance agencies prepare for the rise in popularity of IoT, they should be proactive in learning about the potential benefits and risks that the IoT can bring, and share this information with their commercial customers. Agencies should also be thinking about evolving services, products and coverages that will provide their customers with optimal value, as this emerging area can be expected to become very competitive.
