How IoT Will Digitize and Streamline the Insurance Industry
Mon, April 19, 2021

How IoT Will Digitize and Streamline the Insurance Industry

People owned 12.5 billion networked devices in 2010 and by 2025, that number will skyrocket to more than 50 billion / Photo by: Aleksandr Khakimullin via 123RF

 

In the coming years, IoT will change the world, with connected devices being a significant part of that change, according to Simon Behm and colleagues of management consulting company McKinsey. People owned 12.5 billion networked devices in 2010 and by 2025, that number will skyrocket to more than 50 billion. Equipped with sensors and automatic-activation functions, people use these devices in all areas of life, including work and leisure. 

They can transmit large amounts of data to their providers or third parties, reshaping traditional business and operating models in various industries. Thus far, insurers have leveraged IoT’s capabilities to aid interactions with clients, as well as to speed up and simplify underwriting and claims processing. New IoT-based service and business models are attractive to the insurance industry, making them a strategic component of insurers. 

The Role of IoT In the Insurance Industry

1. Better Conversions and Profiling

Traditionally, the insurance sector has operated with multiple parties in the sales function, mainly dominated by agents and brokers, said WNS, a global business process management company. These professionals often enable successful contract closures. Hence, most of the customer information stems from agents and brokers, effecting an imaginary barrier between insurers and end customers. However, this information lacks insight into the customers’ needs. Today, customers prefer to purchase insurance directly from providers, thereby creating an opportunity for insurers to analyze their customers to stay competitive. 

IoT can help insurers gather and extract useful customer insights to deliver personalized experiences and hyper-customized products. Data and insight drawn from IoT sensors can be integrated with customer data available from financial and public records and even social media, allowing insurers to profile their clients better. They can use these profiles to engage with customers and launch targeted marketing campaigns and promotions.  

2. Smart Data and Pricing

Conventional underwriting processes have relied on historical claims and risk data, which may be irrelevant for pricing risks in the future considering that lifestyle and customer demographics evolve. According to a study by KPMG, a professional services network, the need for auto insurance is forecasted to decrease by over 70% through 2050 as AVs and mobility-on-demand change the dynamics of the auto industry. 

As more smart devices are connected, the more they will be vulnerable to security risks. For insurers, they need to be aware of common vulnerabilities such as hijacks, cyberattacks, total systems shutdown, data theft, and more ransomware. Hence, cyber insurance will play a more critical role and may even take a higher priority over others. 

The cyber insurance market was valued at $5.48 billion in 2018 and is forecasted to reach $20.72 billion in 2024, generating a CAGR of 24.30% during the forecast period 2019-2024, as found by GlobeNewsWire, the world’s largest newswire distribution networks. The average cost of cybercrime in the US was at $27.37 million in 2018, as stated by German statistics platform Statista. 

The aforementioned statistics will push the insurance industry to catch up, requiring insurers to embrace revolutionary technologies to prepare themselves for new opportunities and threats. By leveraging IoT-enabled sensors and wearables, insurers can collate more valuable risk data to help them improve the underwriting process. For example, using geo sensors and location data allow insurers to accurately map a property’s risks such as fire, natural calamities, and crime.

Some locations can be given different scores depending on their past records and future forecasts. If insured properties are mapped as “scored locations,” the actual risk can be gauged to help insurers price policies more accurately. This can reduce costs and time associated with risk assessment, thereby relaying the resulting benefits to customers via lower premiums. Insurance firms can also opt to send alerts about neighborhood incidents or weather forecasts to instruct customers to be cautious or be prepared. 

Likewise, underwriters can use real-time sensor data to price health insurance policies and update them as risk parameters change. 

Traditionally, the insurance sector has operated with multiple parties in the sales function, mainly dominated by agents and brokers, said WNS, a global business process management company / Photo by: gopixa via 123RF

 

3. Quicker Settlements

While insurers spend considerable time to ensure accuracy in claims verification and processing, IoT can improve this process by minimizing the number of incidents and automating insurance processes. To demonstrate, IoT-enabled sensors can monitor environmental factors such as temperature and humidity to aid customers in preventing any incidents that may result in a claim. 

4. Integration of IoT Programs/Smart Home Devices 

IoT programs help insurance companies integrate IoT/smart home devices into their policies— be it simple or complex, wrote Brett Jurgens of business news website Forbes. Notably, smart home devices were shipped to consumers in 2015. By 2020, that figure is expected to rise to more than 193 million. 

In that regard, insurers can offer their policyholders a discount on smart home devices that enable property owners to prevent fire, damage, and theft. More complex programs may involve integrating product-service bundles, lower deductible options and rewards for minimizing risk. Either way, smart home technologies can boost customer engagement (from acquisition to retention), drive claim reduction, and generate new revenue streams. 

IoT and even smart home devices help drive the technological revolution in the insurance industry. With IoT, processes and customer engagement are streamlined and enhanced, respectively. Now is the time for the industry to embrace new technologies like IoT.