The Internet of Things (IoT) revolution is inching towards Internet of Everything (IoE), if you were to consider technology advancements like Smart Homes, Connected cars, Smart retail and so on. This blog examines the application areas for IoT in the Insurance industry and how it can benefit both the Insured and the Insurer in the long run.
IoT adoption in Property & Casualty (P&C) Insurance is pre-dominantly applicable to Auto, Home & Contents, Large Commercial Property and Casualty Insurance. IoT is expected to be a game changer for P&C Insurance industry given the humungous volume of data it generates and the immense possibilities for its use. This data lake (Big Data) is available because of advancements in IoT networks which access data from connected devices, sensors, wearables, location enabled Geographic Information systems (GIS) and more.
Leading Analysts predict that Connected Cars would generate 25GB of data every hour — equivalent of 12 full length HD movies. Similarly, Commercial insurers are witnessing developments in the industrial and manufacturing sectors where the usage of Industrial IoT (IIoT) data through connected devices is gaining rapid momentum. This is expected to significantly help improve the process of risk measurement and management.
Traditionally, Insurers have always been product-centric and dependent solely on their internal data sources (with the possible exception of data from channels like brokers, agents and vendors) for underwriting, pricing and claims handling. With the advent of IoT, the real challenge before P&C Insurers is how to standardize existing data residing in siloes and how to effectively utilize it from product development until final claim settlement.
Insurers’ appetite for adoption of IoT enabled services totally depends on their readiness to tailor and componentize their product offerings, business models and underlying systems and processes towards their customers’ future expectations. Insurers in the P&C segment have now started investing in better utilization of the available IoT source data to gain increased customer engagement and improved operating costs and profits.
Top IoT Use Cases in Property and Casualty Insurance
In terms of application of IoT-enabled data for Insurance operations, some of the IoT pilots and Proof of Concepts (PoCs) that P&C insurers have started to delve into, are as follows:
- Connected Homes adoption helps customers in product bundling through inclusion of home sensors along with non-insurance value-added home maintenance services during the policy purchase journey. For insurers, claims processing in this kind of product becomes simple as loss notification is routed automatically through sensors rather than the traditional way where the Insured reports the loss manually by filing a claim.
- Usage based Insurance in Auto insurance segment enables personalization including being able to provide value-added services to customers. This is achieved through tracking vehicle data on driving patterns with the help of telematics devices fitted to the Insured’s vehicle. As a result, the Insured needs to pay premium only for the actual distance travelled. In addition, he can avail value-added benefits like contextual insights on weather updates, improving driving patterns and loss minimization tips prior to or during the claim process. This advancement, in turn, enables Insurers to retrofit their overall pricing, minimize claims ratios and improve relevant Loss Adjustment expenses.
- Commercial Insurers who traditionally underwrite multi location industrial units, fixed heavy duty machines and boiler units are now experiencing the power of Industrial connected devices capable of transmitting and communicating information in real-time. These devices help Insurers adopt a dynamic rating model that enable risk-based pricing for customers. This IoT-enabled approach accumulates new data points at frequent intervals by integrating property and location-specific attributes with traditional risk data. This in turn enables better risk evaluation leading to effective risk management and loss minimization practices for Insurers
- Commercial Property Insurers using location-enabled GIS devices can now accessing advanced data to accurately assess risk exposure and use it to baseline their pricing in advance. Similarly, technology like Drones can enable timely underwriting and risk inspections including providing proactive loss notification/ mitigation alerts during catastrophic events,
- Wearables that transmit the Insured’s fitness data on a regular basis helps them avail pricing discounts in terms of Health, Disability and Accident Insurance.
IoT enablement in Insurance — The new normal
IoT enablement in Insurance is the new normal for both Insured and Insurer. For Insurers, it helps improve the underwriting process through finer risk segmentation, agile pricing, improved loss and combined ratios, cross sell and up sell opportunities. Further, it enables customer- centric product offerings, increased brand loyalty, customer churn reduction, simplified claims processing and more. Similarly, the Insured is able to reap the benefits of competitive pricing, quicker policy and claims servicing, personalized offerings, constant updates on risk variations through proactive alerts and advice on risk management and more.
The incremental adoption of IoT enabled connected device usage by Insurers is helping conceptualize a “Pay as You Use” model that offers customized pricing and servicing to eligible customers. It is also enabling Insurers in servicing claims faster as they no longer have to wait for the Insured to lodge a claim.
The biggest question before Insurers now, is how to use this IoT enabled data, what data to use and when to use it effectively during the insurance lifecycle. Also, how to ensure security, maintenance and privacy of data in day- to-day business operations.
In my next post, I will bring to you more insights about how IoT can be utilized across various segments of P&C Insurance, the benefits and challenges.