Verizon’s Tony Judd says that the insurance industry has reached a critical turning point created by the convergence of new technologies, including IoT. He says the need for core infrastructure investments, risk modelling improvements and growing demands to increase profitability using underwriting metrics.
Although this may seem like a burden for insurance executives, change can lead to positive business strategies and improve the customer experience.
More future-forward looking insurance firms are realizing that they can increase their profitability metrics and better their risk modelling by investing in the Internet of Things (IoT). IoT devices and solutions can help insurers increase new business success rates, boost renewal retention, maintain claims best practices and improve overall loss adjustment expense ratios.
IoT and Big Data
So, what is the Internet of Things and how does it relate to the insurance sector? Well, the IoT is not exactly a new concept for the insurance industry; it was originally implemented in the Property and Casualty (P&C) segment using a concept known as usage-based insurance (UBI) for vehicles.
In other words, as drivers drive, insurers remotely gather data and actuaries analyse performance in near real-time. The automation of once-manual tracking allows underwriters to improve pricing and insurers can close claims more quickly and improve loss adjustment ratios. The end result of this process improvement is a positive customer experience.
Insurance companies learned that by applying an IoT methodology to how their customers interacted with risk behind the wheel, they could gather the raw IoT big data they needed to help create a lift in overall profitability. And they could do this while rewarding their less risky customers with discounts and enhancing their value proposition to the consumer (emergency road side assistance, vehicle recovery, vehicle maintenance alerts, etc.). But this was just the beginning.
Insurance companies realise that they can improve all aspects of their business processes by using modern data analytics captured using connected IoT services. For example, interactions with existing products — when combined with demographic information and retail spending habits — help insurance companies understand who to better target with their products and improve market timing.
IoT sensors: Building a seamless Omni-channel
To create a better customer experience, enterprises are using IoT sensors to collect and share customer preferences and build a seamless Omni-channel strategy. Insurers can use IoT solutions to better understand group and individual buying behaviour and more insightful analytics allow them to offer consumers the services and products they want, on demand.
For more personalised experiences, customers can opt to share their mobile profile when they engage with an insurer. This is similar to how loyalty programs work in the retail market. This strategy offers a 360-degree view of the customer and better educates them about the insurance buying cycle, investment services, transparency into the insurance process and claims services.
Life and annuity companies are also beginning to reap the benefits of IoT for underwriting profitability. Group and individual life providers, workers comp, specialty and payers are looking for ways to measure their customers’ adherence to proven healthy outcomes. Some companies are improving their group life and health premiums by outfitting their employees with IoT sensors, like Fitbit, that offer a more holistic view of the outcomes of exercise and health programs. Reinsurers, globals and complex lines are benefiting from the IoT by tapping into sensor data to view a more robust picture of the risks being underwritten around the globe.
The importance of IoT security for insurers
With cyber-terrorism on the rise, insurance companies are looking to use IoT data in support of key global threat indicators tied to commercial business continuance and cyber-breach products. Cyber-threats compromise retailers and place personal identifiable information at risk. Enterprise and mid-tier insurers are looking for ways to consolidate cyber-risk data into a score, similar to a credit rating, to denote how to best underwrite cyber-breach policies. Insurance companies are looking for automation metrics to indicate a policyholder’s cyber-threat posture and help manage these risks on a personal and commercial level.
How will insurance companies look to consume the Internet of Things? At first, insurance companies tried to figure out the IoT on their own. Then Telematics Services Providers (TSPs) emerged to help simplify the IoT data consumption value chain. Now, it’s the global technology solutions and communications providers that are not only consolidating the connected world, but making it more consumable for insurance providers to ingest. These companies have made heavy investments to support a global view in providing IoT data to insurers. Paying close attention to global solution telecom providers and their investments, and partnering in a meaningful way is one of the best ways to stay out in front of profitability in the insurance world.
Tony Judd is managing director, UK&I and Nordics, Verizon
If you’d like to learn from real-life IoT case studies and from some of the world’s biggest insurers and reinsurers (including Allianz, AXA, Marsh, RSA, Vitality and many more), why not sign-up to attend our Internet of Insurance conference, which takes place in London this June.