IoT on Insurance Technology

The insurance industry is being transformed by the Internet of Things (IoT). More devices connecting means that they are generating data that is giving insurers a better understanding of customer behavior and risk profiles. Therefore, insurance companies can then offer usage or behavior-based insurance rather than pricing policies by surrogates, such as age and gender.

Insurers are able to get a real-time understanding of customers’ assets, customize coverage, better select and price risk, automate claims processing, and reduce fraud. According to McKinsey, IoT could add $5.5 trillion to $12.6 trillion to the global economy by 2030, with insurance as one of the sectors likely to be hit hardest by disruption.

In this article, we get an overview of how IoT is changing insurance technology solutions and making policies smarter in the connected world.

How IoT is Revolutionizing Insurance

 

The term IoT stands for the increasing network of connected devices with sensors, software, and connectivity that allow them to interact with each other. The global IoT insurance market is expected to reach $304.31 billion by 2026, with a CAGR of 57.1% during the forecast period 2021-2026 from $5.69 billion in 2020.

Some key ways IoT is modernizing insurance include:

Enhanced Data and Analytics

 

Insurers receive real-time data on customer behavior, asset usage and risk conditions from IoT devices. With all this data, insurers can glean lots of deep customer insights through advanced analytics like AI and machine learning algorithms. Insurers can price policies on actual usage and risk profiles instead of proxies like demographics.

Innovative Products and Services

 

Insurers with large volumes of high-velocity data can innovate with usage-based insurance, on-demand insurance, and behavior-based insurance. For example, auto insurers might provide quotes based on how much and when cars are driven, and home insurers might pay incentives to owners who take safety measures.

Improved Underwriting and Risk Monitoring

 

IoT makes dynamic and proactive risk monitoring and assessment of commercial policies possible. Since sensors are able to track the operating conditions of insured assets in real-time, underwriters can review policies never and alert their clients about risks. This helps in risk selection, pricing and loss prevention.

Enhanced Claims Processing and Fraud Reduction

 

IoT devices help expedite claim processing by providing real-time data about accidents, damages, losses etc. Moreover, they reduce fraudulent claims by continuous asset monitoring and precise event reconstruction.

New Distribution Models

 

IoT allows insurers to reach customers in new ways, such as through manufacturers' and dealers' channels, e-commerce platforms, and other platforms, such as the point of sale. This enables customized product recommendations and frictionless sales.

Key IoT Insurance Industries

 

Many of the insurance industries are already seeing IoT adoption. Here are some major applications: Applications Insurance segments the

Automotive Insurance

 

Auto insurers are using telematics devices and smartphone apps to capture driving data such as mileage, acceleration, braking, cornering and speeding. This allows usage-based insurance pricing and incentives for safe driving habits. Insurance Business America estimates that IoT could drive a 20% drop in loss ratios for motor insurance.

Home and Property Insurance

 

Pipe leaks, fires, burglaries, etc., are all losses that can be prevented by smart home devices, and they also provide insurers with real-time incident data to resolve claims faster. The trend is also being picked up by home insurers, who are offering premium discounts for smart home tech adoption, and according to McKinsey, home automation could cut loss ratios by 10–15% by 2025.

Health and Life Insurance

 

By wearingables and using health apps, we are now able to use health apps, activity levels, heart rates, and sleep for preventive care. In.erssur incentivizes policyholders to stay active and healthy by offering lower premiums, loyalty rewards or value-added services.

Commercial Insurance

 

Insured commercial equipment, vehicles and cargo conditions are monitored in real-time by sensors, allowing for dynamic policy pricing and proactive loss control. This cuts down risks and claims for policies in marine, aviation, transport manufacturing and more.

Key Challenges for Insurers in Adopting IoT

 

While IoT innovation brings enormous opportunities, insurers also face barriers to adoption, such as:

  • Data Security and Privacy. Safeguarding the enormous amounts of collected customer data against breaches that undermine trust and reputation.
  • Integration Complexities. Putting together a bunch of data sources, analytics, interfaces, and infrastructure into a whole that works with existing systems.
  • Regulations. Managing compliance complexity: data privacy, device security and safety standards, using based insurance.
  • Evolving Ecosystems. We must cope with fragmented IoT ecosystems comprising customers, devices, platforms, network providers, etc., that lack interoperability standards.
  • Talent Gaps. Obtaining expertise across domains like software architecture, data science, IoT platforms, cybersecurity etc., to drive digital transformation.

Key Technology Enablers Powering IoT Insurance

 

Here are the pivotal technological innovations making IoT insurance possible:

Affordable Sensors and Connected Devices

 

Plummeting costs of sensors, processing and connectivity have led to the growing adoption of smart wearables, appliances, vehicles etc., generating unprecedented data. Auto telematics, health trackers, home automation and commercial asset monitoring are key sources of insurance data.

Ubiquitous Connectivity

 

Broadband internet, cellular and low power wide area networks, such as LTE-M and NB-IoT, have made it possible to transfer reliable, real-time data from distributed sensors and devices to insurer systems, and 5G networks will only increase speeds and connectivity.

Cloud Computing

 

Cloud platforms provide scalability, flexibility and distributed access, which are essential for aggregating and analyzing torrents of structured and unstructured data from diverse IoT sources spread across locations. Connected device data is catered to by cloud services like AWS IoT Core, Azure IoT Hub and Google Cloud IoT platform.

Big Data and Analytics

 

Sophisticated analytics techniques, such as predictive modeling, machine learning, deep learning and AI, are run on IoT device data to gain customer insights and provide personalized policies based on customer usage habits and risk appetite.

Blockchain Technology

 

Insurance has enormous potential within the Blockchain. This can facilitate automated, tamper-proof claims processing by smart contracts, reduce fraud by sharing ledgers between insurers, and secure IoT data exchanges through decentralized systems.

Leading IoT Insurance Industry Applications

 

Here are some noteworthy IoT insurance solutions from pioneering companies:

TrueMotion Platform for Auto Insurance

 

Without OBD devices, TrueMotion aggregates smartphone sensor data with contextual sources such as traffic and weather to deliver telematics quality insights for accurate risk assessment and driving behavior analysis. By doing this, insurers like Liberty Mutual can offer usage-based policies.

Neos Smart Home System

 

This end-to-end smart home platform from insurer Neos integrates water leak sensors, fire alarms, intruder detectors and other devices to prevent household mishaps. Homeowners get premium discounts for installing Neos Protect home tech and consenting to share sensor data.

Discovery Vitality Drive Device

 

One of the world’s largest behavior-based life insurance programs, Discovery Vitality incentivizes healthier lifestyle choices by rewarding policyholders who stay active and improve driving habits measured via the Vitality Drive telematics device. Members get up to 25% cashback on healthy food purchases and discounted flights, hotel stays etc.

John Hancock Vitality Solution

 

The life insurer has partnered with Vitality Group to offer an interactive life insurance solution integrating wearables and smartphones to let customers earn rewards on premium savings, shopping gift cards etc., by hitting weekly exercise targets and health check goals. Policyholders share fitness data from Apple Watch, Garmin, Fitbit etc.

Bought By Many Pet Insurance

 

This U.K.-based pet insurer provides medical cost coverage for ill/injured pets and offers personalized premiums based on pet breed data associated with higher/lower risk conditions. This allows accurate pricing of niche pet insurance policies. IoT pet trackers also help quickly locate lost pets.

The Road Ahead for IoT Insurance

 

With the global adoption of IoT, insurance companies have a chance to become real-time, risk-aware and customer-centric businesses. Adapting to new technologies is hard, but the long-term benefits outweigh the investments. Leaders who take the plunge early with pilot deployments will be well-positioned to gain game-changing advantages as IoT proliferation gains an inflection point across the industry within the next decade.

Real-time visibility and predictive insights on customer assets and behavior enable insurers to move from static premium policies, unexpected losses and long claims to flexible coverage, proactive loss prevention and instant processing, allowing greater profitability and customer trust. This evolution will be sped up by emerging innovations such as edge computing, 5G and blockchain.

IoT-based insurance has a bright future as smarter policies for a connected world become the norm. However, cybersecurity and data privacy will continue to be ongoing priorities as the data deluge of millions of insured ‘things’ pours in. Overall, IoT will be transformative for risk-based sectors like insurance and lead to convergence among incumbents, startups, and big tech disruptors, who provide the connectivity, devices and analytics fabric enabling this change.