IoT, also known as the Internet of Things, has impacted the very way business is conducted. With the vast amount of data now readily available through IoT devices, companies across industries have the potential to transform their business models to drive new business value. The same holds true for the insurance industry; by tapping into IoT, insurers can access continuous and real-time data, rather than simply depend on historical data, data reported by policyholders, or any other external data sources. By leveraging the data from IoT devices, insurers can identify risk for prevention, offer more customized products, and improve processes to elevate the customer experience.
Having said that, what exactly does IoT-connected insurance entail today? What are the IoT use cases specific to insurance, and what are the challenges that are restricting insurers from making the most of IoT? In this blog, let us explore some of the opportunities and challenges posed by IoT in insurance, and shed light upon what insurers should do to tap into the full potential of IoT.
Leveraging IoT to Drive Business Value
With the increased availability and use of connected devices, the volume of data being collected has increased tremendously in the last few years. In 2020 alone, experts estimated that 31 billion IoT devices were installed. This number is expected to more than double to by 2025, reaching 75 billion. Correspondingly, IoT-connected insurance is also on the rise. By using sensors in IoT devices (e.g., home security systems) to monitor and gather data on a specific risk, insurers can transform the insurance value chain.
Connected devices, or IoT, are known to process large volumes of data. The influx of data arising from IoT is correlated with the increase in the number of devices utilizing the technology. As more “things” become a part of IoT networks, the more data there will be to analyze, assess, and drive intelligent decision-making—data that insurers can take advantage of to better quantify and predict risk, and deliver superior customer experience.
There’s no doubt that IoT is becoming increasingly integrated with the insurance business, nor is there any question that it offers a competitive edge in the digital era, both now and moving into the future. Below are some salient benefits that IoT technologies offer both to insurance carriers and their customers:
By offering IoT devices that monitor a home’s security and safety, insurers can track even the smallest anomalies in a home. If any abnormality occurs, the IoT system will automatically alert the insurance company, allowing the insurer to step in to prevent damage from happening. For that reason, IoT can ultimately provide a safer home for customers, and less risk for the insurance company.
Even before the rise of IoT, insurers have traditionally offered discounted premiums to homes that have security systems. In the era of digital ecosystems, insurers can do much more by creating partnerships with third-party device vendors to expand their IoT offerings, as well as working with policyholders to proactively ensure the safety of the property or people being covered. IoT not only reduces the risk of a small problem snowballing into an expensive issue, but also helps policyholders feel more secure and cared for.
Better Risk Prevention
By leveraging the data arising from IoT, insurers can take on a preventative, rather than reactive, approach. Instead of responding to issues or events after the fact, insurers can now predict the occurrence of events—for example, when a boiler may malfunction in a commercial building—and warn the policyholder before any damage happens. As a result, customers feel cared for, thus improving loyalty, retention, and trust in the brand. With the innovative new capabilities offered through IoT, insurance companies can now elevate their value proposition from one of risk coverage to risk prevention, the latter of which offers customers a better value, and better overall experience.
For instance, encouraging customers to use functional fire alarms, water leakage alarm devices, heat and gas sensors, etc. in their homes or commercial buildings/businesses can help prevent property damage and unnecessary expenses. Similar to security devices, these sensors/devices can alert both the insurance company and the customers of any irregularities. Although it is not the job of insurance companies to perform risk management, employing IoT for this purpose can create synergy between customers and the insurance company.
By analyzing IoT data to optimize risk prediction, insurers can lower the number of claims and reduce costs to the organization. This benefit is further magnified by the rapidly falling costs of IoT devices—a trend that will make IoT increasingly cost-effective for both insurance companies and their customers. Like other new technologies such as AI or machine learning, IoT opens up doors for better business outcomes. Insurers will be able to explore new business channels and generate revenue by leveraging IoT to introduce usage-based pricing models, monetize data insights, and improve customer interactions for the cross-selling of products and services.
Improved Customer Experience
Insurers can use IoT data to identify gaps in their offerings, as well as offer customized products and personalized coverage solutions to different segments of customers, as per their specific insurance needs. Additionally, because of the availability of data from external sources, insurers can now access data to streamline processes (such as sales and claims) to provide an improved user experience for their customers. For example, insurance companies can improve the customer experience by pulling data from IoT devices and auto-filling certain form fields, thus sparing their customers unnecessary busywork and saving them time.
Challenges of Adopting IoT in the Insurance Industry
Like any new technology implementation, employing IoT has its challenges. Insurance companies must overcome various hurdles before they can effectively leverage IoT. Some of these challenges include:
Data fraud and data security are major concerns when it comes to adopting IoT. The data that flows between the connected home, connected car, and the IoT devices employed by the insurance company is vulnerable to phishing attacks. Hence, many customers are reluctant to allow insurance companies to continuously access personal information and data through IoT networks, especially if the value-additions or proposed benefits from adopting IoT are not relevant to them.
Managing the massive influx of data coming from connected devices and sensors can be a herculean task for insurance companies. This struggle is only further exacerbated by the time-sensitive nature of certain business decisions, which may rely on the continuous access and analysis of data. Despite this pressure, a high level of care is needed to comply with data privacy regulations, especially when it comes to sensitive or protected data. Thus, managing all this data, both quickly and carefully, requires insurers to evaluate their infrastructure as well as consider additional technologies and platforms, such as cloud.
Resistance to Change
The insurance industry doesn’t have a reputation for adapting quickly to changes. Likewise, it will take time for insurance companies to accept IoT and the changes it will bring to the insurance business model. Both internal and external stakeholders are often hesitant to adopt new technologies; this cultural resistance must be addressed if insurers hope to leverage IoT effectively and adapt to the new changes of the digital era.
The Key to Driving IoT Adoption
Although there are multiple obstacles to adopting IoT in the insurance industry, most challenges can be overcome with one critical solution: data accountability.
First and foremost, insurers need to ensure the security of customer data across connected devices to prevent potential data breaches. Thus, insurance companies looking to implement IoT should invest in establishing an enterprise data management strategy which encompasses necessary tools, technologies, and frameworks for securing and managing IoT data as a core asset. This ensures that appropriate fail-safes are in place should an actual breach occur, and that customer data stays safe. Furthermore, conducting awareness programs/training for all stakeholders on topics such as “why and how to leverage IoT efficiently” or “how to avoid breaches and respond to threats” can help bring the cultural shift necessary for delivering enhanced insurance experiences. If used correctly, responsibly, and with appropriate measures, IoT offers endless opportunities for insurance companies to become leaders of the digital future.
Ready to harness the potential of IoT for your insurance business? Find out how our Data Team can help you develop and implement efficient data management practices.