IoT in insurance is helping drive some of the most massive change in the history of the industry.
Propelled by IoT and AI, the insurance industry is changing its approach to risk. It’s evolving from a backward-looking focus to managing risk to a forward-looking stance of minimizing it.
This shift promises tremendous benefits for both the customer and insurers. But getting there isn’t easy.
IoT in insurance: The big shake up
As IoT has made its way into everyday life, embedded in our home and work devices, it opens up new opportunities for the insurance industry. Insurers can use IoT technologies to assess risks more accurately and shake off old habits.
But insurers have been slow to take advantage of IoT opportunities. It’s a tremendous mind shift for an old industry that’s been in reactive mode for so long.
What do experts have to say about IoT in insurance?
1. Focus on adding customer value
2. IoT adoption is slow
3. This is about more than technology; it’s psychological too
Heart of the matter: Adding customer value
A powerful example of IoT in insurance is providers offering customers proactive advice on how to manage their health. This approach clearly is beneficial to the customers as well as the insurers.
Lukas Fischer of the Institute of Insurance Economics at University of St. Gallen suggests that insurance companies should think in terms of prevention. In the health example above, this means minimizing negative health events by providing useful data to customers.
With the advent of IoT-enabled devices such as wearable health trackers, customers are better able to manage their own health-related activities. At the same time, insurers gain visibility into what customers are doing – and have analytics that drive better business decisions.
At the heart of this change is an increased focus on adding value to the customer. As Fischer explains, beginning with this orientation will help insurance companies find new opportunities that can be monetized, and integrated into the core business, at a later time.
IoT adoption in insurance: Tepid at best
Bear in mind, however, that this is a vastly different mindset for insurers, and many are likely to struggle with the change.
Sven Roehl, the founder of Cookhouse Labs – a Toronto-based collaborative hub for insurance thought leaders – pointed to a recent Lexis Nexis study as evidence that insurers are finding the transition challenging.
The study found that although the majority of insurance industry leaders – 70% – agreed that IoT data is of great importance to their overall strategy, only 20% are actually collecting the data. Even more remarkable, only 5% of the companies surveyed are using such data.
In other words, even though insurance companies – and, just as importantly, their customers – see the benefit of integrating IoT data into the insurance equation, it’s still not happening on a broad scale.
Once reason is that insurance companies traditionally view risk as something to be managed by looking at past data – in other words, looking in the rear-view mirror to try and predict what’s coming ahead.
But the real question is, how can they use real-time data – the type of data that IoT-enabled devices provide – to do more effective risk modeling?
Passive risk taking to active risk management
As Peter Maas – Professor of Management at the University of St. Gallen – observes, it’s not just a technology question. There’s also a psychological component at play.
Even though insurance companies inherently dislike claims, claims are at the heart of the business. One reason for this is that claims are measurable, whereas prevention –tallying up negative events that didn’t happen – is much more difficult. As a result, leaders of insurance companies have a hard time focusing on prevention, even though doing so would add value to customers.
In the end, Roehl points out, the shift from passive risk taking to active risk management – enabled by the advance of technologies like IoT – is one of the biggest changes ever in the insurance industry.
This shift also changes the relationship between the insurer and the insured, since there is now greater transparency about what’s driving the rates and what’s actually covered. It’s quite a change from customers scratching their heads about the fine print in their policies.
For the insurance companies, there are broader benefits as well. The changing nature of their relationship with customers means there’s a massive opportunity to evolve how the industry is viewed by society as whole.
It’s all about using technology and data in ways that benefit the customer over the course of their lives.