Time and tide waits for no man. This old saying could also be applied for what is happening in the insurance market with IoT and that given the drive behind IoT in both the consumer and business markets.
Given what IoT enables both customers and insurers to understand about themselves and the things they interact with (in near real time) the impact will be huge and it's more likely to be a case of how fast the market changes rather than whether it will change. Using that over-hyped term, it will be transformational.
However, tapping into this new world of billions of devices connected via the internet could be a real challenge for insurance companies given the legacy systems and privacy concerns that most are currently facing.
The challenge faced by insurance companies is not only one of competition, but also one of changing customer expectations. Much of what customers do in their everyday life has become the standard by which they measure companies - digital, instant response, great customer experience and services that are tailored to their needs
There is also a number of macro trends that underpin those expectations: a shift from asset ownership to asset sharing, a changing set of demographics (ageing and growing population) and increased willingness to 'switch' service providers resulting in less customer loyalty, a move to freelance employment and an increased trend in travel and mobility, moving addresses and even countries of residence on a regular basis.
On top of all of these trends, we will start to see new entrants come into the insurance market from other sectors: vehicle manufacturers offering data driven insurance, white goods/appliance manufacturers offering 'as a service', removing the need for extended warranty and insurance, security companies using sensors in homes to offer insurance based upon occupancy or how secure the building is.
So the insurance market is faced with a market and operating model shift that is moving from an annual cycle based upon risk assessments using historic data to a real-time interaction and risk assessment based upon a combination of historical data and current status. If you think this is unrealistic, look what has already happen to: music, books, photography, hotels, transport/car sharing etc.
However, there are some big opportunities for insurance companies who embrace IoT and transform their business accordingly.
- New products and services
- Usage based - using a combination of sensors and smart phone technology, different levels of insurance can be offered to customers. For example, car insurance could be varied between theft and fully comprehensive when the Car is not being used.
- Context aware - as above, but the context could be whether a building is secure and being occupied.
- Behavioural based health and wellness - For life insurance, the level of exercise completed could influence the premiums offered
- Group policies - using the aggregation of multiple data feeds could mean family policies can be offered, but also enable group buying for insurance based upon group usage and risk, being an extension to the collaborative economy
- Time and location based insurance - think car insurance varying depending on when and where you drive your car.
- Cost reduction
- Automatically providing costs and data for claim processing, significantly reducing fraud and risk
- Manage lower risks through pricing premiums based upon real time data.
- Increase customer engagement
- For many of the new services, it gives insurance companies the ability to communicate with customers on an ongoing basis throughout the year, providing a better service but also with a channel to sell other services
- The use of an individual's data could enable highly personalised services to be offered.
The other large opportunity for insurance is to help the customer move from protection to prevention of risks. For example, a base level home insurance policy could be offered or when the occupants are at home. The premium could then change depending on if the occupants are at home (driven location of phones and cars) and whether the windows and doors are locks. If the windows are open, but no one is at home, an alert could also be sent giving the customer time to rectify the situation before the premium is increased. Similar sensors and monitoring could also be used to prevent burst pipes etc.
So, are you ready to ride the IoT in insurance wave or be swept away by competition and new market entrants?