The explosive growth of IOT is here and now, it’s considered the new Digital revolution. As per Gartner IOT forecast, it is estimated that by 2020 and more than 35 billion things will be connected to the Internet. Also, Gartner predicts global spending on IOT — including all hardware, software, and services — has exceeded $1.3 trillion in 2015 and is forecast to reach $3.5 trillion by 2020. IOT is the network of things that generate data and communicate with other devices. This data stored in the cloud and processed through Analytics and Machine learning are opening new growth avenues for each business. With billions of connected devices, the of data collected and shared is voluminous and this has the power to create new opportunities in any verticals.
Can Insurance industry leverage the vast amount data from IOT to disrupt the traditional operating models and establish new frontiers for growth?
IOT with its ability to get data from billions of connected devices can revolutionize and reshape the Insurance Industry and create new business models. Data from sensors embedded in cars, homes, buildings wearable can be used by an insurance company to understand the correct picture of exposure and risk of what is being insured at the same time helps them to make a holistic offering to meet their customer’s needs. IOT also makes it possible for insurers to move to a more engaged model with their customers.
There are several value propositions in leveraging IOT in Insurance Industry
Product Customization: Offering Customized Insurance based on historical data, like reduced premium for good driving history.
Risk Mitigation: Early detection to reduce exposure risk and reduce claims. Smoke detection, early weather detection, and warning.
Improved CRM: Increased interactions with customers; providing regular feedback to customers on their activity.
There are three verticals in IOT that will be adopted by Insurance companies
Vehicles: Telematics is already a success story. The data from connected car provides data on the driving pattern, driving history, speed etc which help the insurance company to create a personalized Usage Based Insurance (UBI) premium for the policy owner based on the usage, a lower value for responsible driving.
Home: Another example is how effectively the data from connected home can be used by insurers, sensors in commercial building can provide data on safety, energy, security and help to decide on the value of property, similarly the real-time data transmitted from the sensors (smoke alarm) installed in home can also help reduce the risk level and losses.
Individual: Data from wearable collected on the health, fitness level determines or personalizes the personal insurance. Adopting healthy lifestyle helps policyholders to lower premium. Similarly, data on compliance for medical issues like how the patient is following medication can help the insurance company to take a decision.
A lot of insurance companies have already started leveraging IOT to improve their business and revenue models and to create customer value. They are encouraging their customers to go for smart devices by providing discounts and loyalty points, Pruhealth, Aetna allows their members to share their fitness wearable data to gain credits, like loyalty points when members demonstrate healthier lifestyles such as walking more. Home Insurance companies are giving discounts for customers implementing thermostat for smoke detection.
No doubt IOT will provide enhanced insights for better decisions by the consumer and Insurance organization thus providing new opportunities and better consumer experience. The biggest risk in adoption would remain the question of data privacy and data security.