Larger traditional insurers typically work in much the same way as they have done for over 300 years. These old-school insurance companies have come late to IoT and must change in order to survive – but simply digitizing the way they conduct their business now is not sufficient.
That’s one of the key takeaways from the new Internet of Insurance sector report from Beecham Research. The ability to monitor, collect and analyse unprecedented volumes of real-time data from internet-connected sensors will allow the insurance industry to offer highly personalized policies and make far more accurate calculations of risk, says the report, but not every insurance company currently has the expertise to benefit.
That’s driving some to partner with those that do have that expertise. Beecham notes the emergence of a new kind of partnership between more established insurers and less risk-averse start-ups.
“Together, they establish some sort of accelerator program to test out new ideas quickly, to disrupt, innovate, stir up the market and worry competitors,” says the report.
Personalization of policies
Whether they partner or not to achieve the goal of disruption, insurance companies have much to gain from IoT – but they will need to keep a close eye on security risks and public opinion.
The rapid emergence of the IoT will see millions of devices measuring virtually anything in the physical world, from weather conditions and vehicle telematics to personal activity and vital health signs, it points out. This new level of real-time or near real-time information will help insurers to assign scoring values to adapt and tailor their policies and premiums with far greater granularity.
That, in turn, has the potential to open the doors to better customer service and targeting, according to Olena Kaplan, a senior analyst at Beecham Research. “Insurers are placing increased emphasis on customer relationship management and crafting more personalized policies rather than those simply based on pooling historical knowledge,” she says.
“It’s no secret that customer retention is a significant challenge for the insurance industry and we believe personalization of policies will go a long way to solving this for companies that embrace IoT technology.”
In addition to improved customer targeting, insurers will also be able to verify claims more reliably and rapidly, armed with a greater wealth of data, saving time and costs while delivering a better service. The open nature of the IoT will also enable non-sensitive data stored in different systems to become exchangeable and interchangeable. This will support better understanding and decision-making around assurance, by using data to identify and preempt risks to reduce the probability or severity of a claim, according to the report.
Security, privacy risks ahead
But Beecham Research also warns that all sensor-derived data must be safeguarded from compromise, theft, corruption or loss. Insurers must not only abide by data protection legislation, but also ensure that customers understand how their data will be used and secured.
“As the IoT grows, so will the risk of exposure to breaches, unless preventative measures are taken,” says Kaplan. “The insurance industry is already on the brink of major changes driven by big data, and the IoT adds a further exciting dimension in digitization that will cause an overhaul of the insurance business.”
Similarly, insurers must keep a close watch on public opinion. “The Netherlands, for example, is a country where ‘people power’ is strong, and the government has allowed householders the choice of refusing a smart meter in their home,” the report points out. In other words, there is a fine balance to be struck here between achieving the efficiencies that IoT enables and stepping on the toes of customers reluctant to share data.
Beecham Research has produced its Internet of Insurance report in parallel with the second annual Internet of Insurance EMEA conference at Wooten House in Surrey on 5 & 6 April 2017. More details on the event are available here.