Insurance in an interconnected world

The Internet of Things (IoT) has evolved dramatically in recent years, disrupting traditional processes across countless industries, according to Dean Richardson of Sapiens.

Insurance is no exception.

The proliferation of these ‘things’ has allowed people, property, vehicles, devices, and machines to effortlessly transmit where they are, what they are doing, and even how they ‘feel’. Accordingly, insurers that embrace IoT interconnectivity across their value chain can better serve their customers and become more competitive. 

Here’s what that interconnected future might look like for insurers.

Understanding the Hype

In 2015, the global IoT insurance market was worth only a little more than $1 billion. But in the eight years since, IoT technologies have grown more advanced, enabling innovative insurance companies to tap into areas such as vehicle telematics, driverless cars, smart homes, and connected manufacturing. 

The move certainly paid off – in 2022 the Global IoT insurance market reached $27.5 Billion is expected to reach a market value of $168.5 billion by 2028.

But how exactly were IoT technologies able to augment the market to such an extent?

Firstly, insurance IoT can generate more revenue by increasing direct customer interaction bolstering the ability to personalise offerings, introduce new services, and optimise prices. Consider that in traditional insurance, for any given policy, a customer would only be in contact with their insurer once or twice a year – thus limiting the number of opportunities to invest in future sales, ensure loyalty, and sell additional products. Now, this relationship can be near-constant, with any given IoT device acting as a ‘middleman’ as it relays data to the insurer in real time and conversely updates the customer with any changes, risks, or incidents that might affect their policy or their safety.

These solutions can reduce the expense ratio as well by automating oft-laggard insurance measures. When a claim can be digitally processed entirely by IoT-relayed data – rather than collecting claims data through confusing forms and word of mouth testimony and assessing them by hand – it stands to lower the administration costs by 30%, increasing efficiency throughout the value chain. 

IoT technology also allows insurers to transition from traditional claims indemnity payors to real-time loss prevention and mitigation services. This involvement ultimately enhances the customer journey – and when insurers can personally connect with them more frequently, they ultimately provide a service, not just coverage.

Effective IoT Deployments 

As with any transformative technology, the tech itself does not guarantee a solution – how and where it is integrated is half the battle. 

Automotive telematics is one key application. Telematics refers to the use of vehicle-integrated sensors that relay data from the car and road to insurers, allowing them to create policies tailored to specific cars or drivers. One prime example is a black box placed in a car that can help insurers understand the nature of any given accident and assess the quality of each policy-holder’s driving habits. These devices have already played a key role in cutting road casualties among our youngest and most vulnerable drivers. 

In the past, insurers have typically had to rely on ‘rear-view mirror’ data combined with past experience and long-term analytics. But with the availability of real-time data from telematic IoT devices, insurers can make vastly more accurate, customised risk-assessments.

Similarly beneficial is IoT integration for connected homes – today’s smart devices can detect fires, floods, and unwanted visitors. Smoke detectors and flood sensors can send alerts to homeowners’ phone and emergency services, while doorbells with cameras can relay footage via an app. The ability to detect and react to crises means tragedies can be more easily averted – and more accurately assessed when prevention falls short. The result is a reduction in claims frequency and indemnity spend, as well as a greater ability to assess claims.

Because home insurance only requires a once-a-year interaction (unless a claim is made), insurers sometimes struggle to build lasting relationships with customers and are left to compete purely on cost. IoT devices offer a way to increase touchpoints and drive value beyond price points. Regular interactions combined with services that afford peace of mind mean consumers learn to value and trust their insurer.

Data Explosion and ML 

IoT is not simply an addition to the toolbox – IDC forecasts that IoT data volume will reach 79 zettabytes by 2025. In order for insurers to keep up with IoT demands, they will need tools not only to manage the immense amount of incoming data, but to visualise the data in ways that reveal patterns and uncover the advanced analytics needed to make solid predictions. Solutions like Machine Learning (ML) can help insurers clean up this vast IoT data by automating the process to distill it down to its most relevant data sets. 

By analysing the real-time data from these connected devices, future-forward insurers are facilitating an industry-wide pivot – shifting from simply predicting future losses towards helping clients mitigate or prevent claims altogether. That’s why predictive modelling is a win-win proposition for policyholders and insurers alike – it reduces risk in customer’s lives while improving loss ratios for insurers.

Enabling policyholders to actively participate in the mitigation of risk (often via these IoT devices) stands to generate increased loyalty to the insurance company, leading to an increase in retention and new business referrals.

Ensure a Competitive Place in the Market

Insurers who grasp the opportunities of this new IoT-based model will gain a competitive edge in a rapidly changing market – moving beyond mere claims reimbursement into the realm of loss mitigation and behaviour incentivisation.

Consumers may not get very excited about insurance – it’s the one thing no one wants to need. But as IoT continues to take hold in the industry, making our lives safer and more secure, that sentiment just may start to change.