IoT in insurance: A game-changer
on the future of insurance by McKinsey highlighted that “the COVID-19 crisis will cause structural shifts that will have significant implications for the insurance industry [...] requiring insurers to develop radically simple solutions, highly efficient operating models, and to consistently innovative business models”.
The ability to perform these tasks quickly, flexibly and effectively, relies heavily on the ability of insurers to tap into a regular pool of data from their operation, placing IoT at the centre of this evolution.
As insurance is a data-reliant business, technologies like IoT-enabled telematics, AI and machine learning make it possible not only to automate claims or renewals but to monitor events, predict risk and even create customised behaviour-based plans.
Automation and prevention
It’s estimated automation can reduce the cost of a claims journey by 30%.
Thanks to connected devices and access to real-time data, insurers can now predict and prevent accidents, for instance notifying customers of a leak or a problem with their tyres.
But in the event of an accident, they can also make it easier for their customers to file a claim without the need to provide the wealth of evidence required in the past, as the information is already available.
This makes for a far better customer experience and increases customer retention, while simultaneously reducing costs. This is crucial in an era when competition, price-comparison websites and digital shopping channels have made it much easier for customers to switch between providers.
IoT can revolutionise the standard insurance model by fast-tracking claims applications and risk-assessments, and it can also help insurers perform predictions relative to the customer profile. Additionally, it aids fraud detection, thus addressing one of the major pain-points of the sector.
But it can also enable entirely new products, like usage-based insurance programmes (UBI) and can even be used to encourage better user behaviour.
Changing risk-management for good
As the amount of customer data available to insurers increases, there’s an opportunity for them to use that information to forecast consumer behaviour accurately and provide personalised feedback to reduce claims.
The key to understanding the value of UBI is in the name: it’s usage-based. This means policies can be personalised taking into account driving behaviour, mileage and other risk factors. Moreover, the process is automated, so it doesn’t require any manual adjustments from the insurer’s side and is fairer to the user, as the final cost is based on the actual data from their profile.
And whilst the uptake of these practices is higher in the motor insurance segment, I believe many other sectors will follow this business model over the next few years. From agriculture to health, the ability of IoT to tap into key data, allowing insurance firms to predict, prevent and react to events flexibly, efficiently and proactively will become essential to profitable insurance businesses.
And it will benefit people too: customers at risk of certain illnesses will be encouraged to use wearable devices to monitor their health and these devices will flag any changes that might need instant medical attention.
Agricultural businesses will be able to use sensors on farms to accurately predict risks and intervene to prevent costly waste.
Annual travel insurances will be based on customers’ actual geolocations.
The quality of protection delivered through risk-warning services and suggested solutions to the risk will be the most important differentiating factor for any insurer and therefore be the key to their business success.
The power of data
Insurers have a wealth of data collected over the years from a range of sources that can provide valuable insights. These, combined with data from IoT, analytics and AI, are enabling insurance companies to make a radical shift towards the full automation of claims, the quantification of individual rather than aggregated risk and, crucially, is allowing them to influence behaviour.
As part of this, IoT data will dramatically improve the underwriting process and allow insurers to make better-informed initial assessments.
The solution combines traditional services like roadside assistance with an app designed to monitor and improve driving behaviour and vehicle usage. This enables HDI to offer tailored covers to their customers while simultaneously enhancing safety and promoting safer driving. And in case of an accident, it allows for a faster and automatic claim process.
This shows that while in-car telematics still plays a key role in the digitalisation of insurance, mobile-based apps are also set to revolutionise the industry. Especially when it comes to supporting safer driving, and particularly when integrated with existing vehicle black-boxes, which offer a wider range of data to tap into.
Our application does exactly this. And it represents a key step forward not just for insurance companies, but also fleet owners, allowing them to reduce road-risk for their employees while also driving down premiums and reducing vehicle-related costs.
For instance, in Spain, , a leading supplier of telecom infrastructure, is using our Driving Academy to improve its drivers' safety. The app is allowing them to comply with privacy requirements while also having access to driving data, so they can develop effective accident-prevention initiatives.
Small and mighty
Another key trend in the insurance sector is what is called microinsurance.
A growing number of insurers are tapping into markets in developing countries through microinsurance projects. These projects afford low-cost cover to individuals generally not catered for traditional insurance or government programs.
Microinsurance is often rolled-out alongside microfinance organisations, rural banks, savings/credit cooperatives, and humanitarian organisations providing non-financial services. Insured crops and livestock can be used as collateral for loans to buy better equipment or otherwise improve the farmer’s yields, initially raising the standard of living and advancing the global services businesses are bringing to customers.
But microinsurance is no longer just for developing countries. As more and more people rely on car-sharing schemes or alternatives to public transport for their last-mile journeys, insurance companies will be expected to provide offerings that only cover a single journey or a very limited time-frame. And they will have to find ways to make their services valuable to users and easy to purchase.
This is where technology communications companies like us will also be able to help, providing a digital link between users and insurance companies via virtual users’ profiles stored in the cloud and accessible via customers’ phones.
Future-proof solutions for the industry
There’s no doubt the current crisis has highlighted the fundamental role IoT plays in a business’ operating model, for the insurance sector and beyond. According to report, 84% of organisations thought IoT helped them with their operational continuity during the pandemic. As a result, the majority of adopters (84%) now view the integration of IoT devices with workers as a higher priority and 73% agree the pandemic will accelerate their adoption plans.
It’s time for the insurance industry to fast-forward their digital transformation, build new business and revenue models, leveraging the data IoT gives them access to create new, personalised, cost-efficient services that can benefit them and their customers.