The internet of things (IoT) – the growing network of sensors and connected devices – has progressed from futuristic IT buzzword to reality. Early adopters have demonstrated impressive returns on their investments, using data from sensors to build new applications and improve their decision-making. According to research by Accenture, no industry is better poised to realize value from IoT than insurance.
The insurance business has always been predicated on having detailed data to assess risk. Historically, that information was limited to what applicants could enter on a form. But now, IoT offers access to a diverse spectrum of intimate data, allowing insurers to better understand risk and price their policies, in addition to helping their clients manage risk during a policy year.
Practical IoT applications for insurers
Following are a few types of IoT data sources opening up new opportunities for insurance companies.
- Sensors on machines pull data from vehicles – personal or commercial – as well as shipping containers, relying on sensors and GPS to measure distances traveled, speeds and frequency of braking. In effect, these sensors represent the evolution of traditional telematics and fleet management. Another example is diagnostic sensors on industrial equipment that alert the owners in the event of increased risk of malfunction or breakdown.
- Environmental sensors include location-based sensors such as smart thermostats and industrial control systems, as well as security sensors like alarms, drones and cameras. These devices are being used in farming equipment to monitor crop health and in retail, residential and industrial sites to generate useful data. For example, Argo now deploys sensors in grocery stores that help ensure proper monitoring of spills and refrigeration in a timely manner, reducing risk for store owners.
- Biometric sensors, also known as wearables or fit tech, typically track health-related metrics such as heart rate or number of steps taken. In an industrial setting, the sensors might send an alert when workers are lifting improperly or becoming fatigued to the point of risking injury. Similarly, biometric sensors could help specialty insurers underwrite the risk that an actor or pop star could become unable to fulfill contractual obligations due to health issues.
- Geographic information systems are sensors that provide geophysical, topographical, climatological and hydrological data. These sensors can help insurers better understand risk related to weather events and seasonality for industries such as shipping. These sensors could, for example, provide data to help determine the likelihood that an incoming tropical storm might disrupt a major sporting event.
The future business impact of IoT in insurance
Insurers are increasingly using IoT data to improve their precision in assessing risk, pricing policies and estimating necessary reserves – as opposed to relying solely on backward-looking claims data and historical risk studies.
IoT data also enables insurers to change the conversation with clients so it’s less about the ins and outs of policy and more about how they can better manage risk so that everyone wins. Objective, real-time metrics help insurers make the case to clients that minimizing business interruption and risk – due to workers or customers being injured, for example – can have a big impact on the business.
By identifying and presenting sensor-based solutions that improve overall operations for insureds, insurers can play a pivotal role in reducing the total cost of risk. To return to the grocery store example: By measuring employee adherence to regular premises inspections, clients are not only able to help avoid claims from happening (less debris, fewer accidents) but also can establish a diligent process that allows both the client and the carrier to defend against costly lawsuits and workers’ compensation expenses. This all leads to a better bottom line for the insured in such a tight-margin business.
Insurers have more work to do
In reality, insurance lags behind most other verticals in terms of leveraging insights from new data sources, according to research from EY. Implementing an IoT strategy is easier said than done, of course. It requires investing heavily in technology, acquiring new talent, and perhaps even transforming the corporate culture to better foster the sort of creative, methodical thinking required to prioritize which kind of data to gather and how best to use it.
But one way or another, IoT will transform the insurance industry. What remains to be seen is which companies will lead the charge and which will be left on the sidelines.