How the Insurance industry can leverage the potential of IoT
A recent report from TCS shows that the insurance industry is expected to spend $102.9million on IoT-related technology and solutions in 2018 alone, up from $77.7million in 2015. This huge growth in investment demonstrates the financial potential of untapped data, and the ability to access this is now presenting the whole industry with a huge opportunity to reduce losses.
Founded upon its ability to predict risks, the insurance industry is a prime example of a sector that is under threat due to the adoption of IoT. Typical business models are being made redundant by the ability to connect the data created by people, places and things, which is resulting in better risk assessment and therefore safety and pricing accuracy. On the one hand, this poses a threat to traditional revenue driving models, but on the other hand, it could mark the beginning of an industry shift towards efficiency and customer centricity through the availability of more proactive and personalised offerings and pricing.
For example, motor insurers have led this trend by utilising IoT telematics – UBI (usage based insurance) – as a way to improve customer experience and satisfaction. Typically, motor insurers use a series of metrics to determine the safety of both the driver and the car, but the use of telematics presents insurers with a clear picture of how the vehicle is being operated and the potential risks associated with this. As a result, insurers can efficiently price the cost of insurance to offer a more affordable, personalised price point for drivers, building customer loyalty.
While the motor insurance trade has marked the beginning of this digital shift, the trend is quickly gaining ground with a number of other insurance sectors, including home and health. Around the world, people are adopting Fitbits and other health and activity trackers as an essential means to monitoring their health. These trackers monitor a number of health variables in an individual, including number of calories burnt, heart rate and sleeping patterns. These devices can enable insurers to accurately determine the costs associated with an individual’s health, but further to this, encourage users to live healthier lifestyles, reducing the number of health issues that cost insurers money.
This enables these insurers to develop more value-added propositions for their customers, bringing their business networks into play – such as reduced gym membership costs, discount at sports retailers and so on. Engaging with customer in this way gives insurers the opportunity to create more touch points throughout the period of the policy, creating more of an on-going customer dialogue. This concept can be expanded to widen the coverage options and services to customers to meet personal insurance needs. While the ultimate aim is to reduce the number and severity of claims, from a customer service perspective, the ability to respond quickly and even proactively to risks is paramount in being able to differentiate as an insurer, in what has become a very competitive market.
Embracing the power of IoT, by adopting a digital and data-driven transformation strategy, puts insurers in a position to revolutionise their business models. If they do not embrace the opportunities presented by IoT, they are likely to be unprepared for the consequences that digital disruption from their competitors and new entrants will have on their business and customers.
The insurance industry has started to take the opportunity to innovate in its stride and uncovered some unique value propositions for customers. By fully leveraging the potential of connected devices and their wide business networks, insurers can deliver personalised offerings instead of traditional insurance products, to drive customer loyalty and wider revenue growth.