The rise in Internet of Things (IoT) technologies represents an enormous opportunity for insurers, says a digest published by Efma.
Parisian think-tank Efma has released a study on the state of IoT and what its rise will mean for the insurance sector. According to the study, steady IoT growth is already delivering benefits to markets including energy, agriculture, healthcare, and transport.
Gartner has predicted that more than 20.8 billion devices will be connected to the internet by 2020, a staggering number that equates to six devices for every person on the planet. This wave, dubbed ‘the second digital revolution’, will eventually impact upon every aspect of our lives.
Efma’s study argues that the advancing IoT provides insurers with a huge number of opportunities. Increasingly connected homes, cars, and health all stand to change the nature of insurable risk. Taking this into account will give insurers the ability to devise more profitable business models, leveraging data to create more personalised offerings. The result will be stronger revenues and closer customer relationships.
However, Efma CEO Vincent Bastid did point out that success won’t come easy. “It’s likely that premiums will reduce quite significantly and there are significant implications in terms of data management, privacy and security,” he said.
“Laden down with traditional processes and archaic systems, traditional insurers will have to think outside of the box in order to avoid being disintermediated or attacked in their market by newcomers or incumbent players who manage to capitalize on the potential of IoT first”.
Generating new revenue
Connected insurance is one of the fastest growing sectors, points out the report, highlighting that in the past year alone, insurers around the world have launched numerous connected products and services interlinked via IoT technology.
“Our research shows that 45 percent of insurers believe this trend will be a major driver of revenue in the next three years,” said Jean-Francois Gasc, managing director of Accenture’s strategy for insurance, in a recent blog post.
Efma: Challenges from familiar faces
The biggest threat is that of disintermediation. “Retail giants, such as Google, Amazon and Rakuten, have already made advances into insurance or are expected to do so,” said Efma’s ‘World Insurance Report’.
As well as having established relationships with customers, these companies have “unparalleled expertise in catering to customer preferences, building up their brand value, and analyzing vast amounts of data, making them potentially formidable players, especially in the customer-facing end of the insurance business.”
Global management consultancy firm A.T. Kearney wrote in a recent report that, for insurers, “The winning plans will define an overall path for each asset (car, home and self), allowing for differentiated approaches, the ability to be informed and adjust direction, and flexible investment and resource planning to navigate a new and evolving landscape.”