Internet of Things (“IoT”) is becoming one of the topics of increasing interest among the technology giants and business communities. IoT refers to an inter-connected network of physical devices, that can collect and exchange data anytime, anywhere, with anything and anyone.
According to a 2016 Ericsson Mobility Report, the number of IoT sensors and devices is expected to grow at a 23% compound annual rate from 2015 to 2021, and the worldwide spending on IoT expected to double to USD 1.3 trillion in 2019. One of the major industries to be impacted will be Insurance with an expected 31.8% CAGR in spending over the next five years.
In the mature markets like U.S. or UK, investors are betting big on new technologies in Insurance, given the high mobile penetration rate and advanced information & telecom infrastructure. Among developing markets, Asia Pacific is leading the trend by spending 40% of the worldwide investment on IoT development in 2015.
Here are some early adopters in the market who differentiated themselves with IoT offerings:
How IoT will redefine the Insurer-Customer relationship
Technology is reshaping the way people consume services. With the emergence of P2P, big data and micro services, consumers look for more accurate and cost efficient services. The changing customer behavior requires insurers to offer more interactive and personalized customer experiences through simplified processes.
Are insurers ready to be IoT-armed?
“Connected coverage”, which leads to a cost-saving ecosystem, is an innovative practice to be applied in Insurance industry. The key idea behind is that customers are encouraged to take risk management by themselves through IoT devices. To understand how insurers can leverage IoT to enhance this ecosystem, we need to look at how the new model works. We call it the ‘3A’ principle: Accumulate, Analyze and Act:
Accumulate: Beyond credit history and personal information, what the connected devices provide is an up-to-date customer behavior data. Sensors, including trackers and wearables, record and monitor new data sources from human, property or environment. All this data needs to be stored in a secure cloud.
Analyze: The ‘accumulated’ data is archived, processed and transferred to clients and insurers for a 360-degree customer view. This process enables insurers to access client data for risk management and credit analysis on an ongoing basis. Furthermore, combined with machine learning technology, real-time tracking by IoT could also be applied to situation predictions and pattern modeling for larger scalability.
Act: Integrated with Big Data analysis tools, insurers are able to come up with more precise price models to fit into client-customized Insurance plans. It also means faster settlements and more reactive claim management
Ultimate Driving Force & Benefits According to a major industry survey, 78% of Insurance customers are willing to share personal data with Insurance companies in return for benefits. This behavior trend creates new opportunities to either collaborate cross-industry or new usage inside the industry. IoT in Insurance changes the traditional model into a model built around awareness and prevention and pro-active claims:
Source: CH&Co. IoT benchmark in Health Insurance, 2016
For insurers, the new behavior-data-based model is improving the underwriting process and provides more precise risk measures. It will also allow significant cost reductions.
For customers, it means taking more responsibility in the management of their risks. Purchasing self-customized Insurance plans will also leads to accidents prevention and reactive claims offerings. Challenges & Market outlook
New challenges arise with new innovations. The current regulatory frameworks including industry constraints, legal standard and data security standards are not adapted to the new technology. For example, IoT exposes data protection challenges as people might not be aware that their personal data is being collected and IoT devices usually do not have user interface to configure privacy preference. The scalability of IoT is another issue, due to the lack of talents specialized on M2M & Smart Technology.
To overcome the existing challenges, Insurers should:
Adapt to changing customer behavior – For insurers, it is necessary to have a deep understanding of new customer experience requirements and of the way services should be distributed. IoT is a new approach, but at the end of the day, the return on investment must match expectations.
Re-think existing regulations – IoT collects and processes huge amounts of customer behavior data, which leads to data protection and cybersecurity concerns. Therefore, collaboration is needed from regulators, insurers, technology providers and customers.
Seek for partnerships – Compared with big players, the emerging fintechs have more flexibility to disrupt the market with their cutting-edge technology and devices. Partnership with fintechs can help established Insurance companies attract new customers and achieve cost efficiency. For example, in early 2016 AIG invested in Human Condition Safety (HCS), a Fintech developing wearable devices to improve worker safety, to help reduce work-related injuries.
Explore new forms of Insurance models – IoT technology combined with P2P Insurance, micro-insurance and machine learning can add more value to customers. For example, Zhong An Insurance, a digital-only Insurance platform fintech, recently provided connected devices to customers with the goal of expanding its customized Insurance services for both car and health Insurance.
International Data Corporation (IDC) Spending Guide The Digital Insurer Claims Customer Survey by Accenture
What are your views on the future opportunities and challenges brought by IoT for the Insurance Industry? Email us, we would love to hear them.
The CH&Co. Editorial team
Latest News on IoT in Insurance
L&T Technology Services and Redknee to deliver IoT architecture for enterprises
Bangalore: L&T Technology Services Limited, announced its collaboration with Redknee Solutions Inc, a leading provider of real-time monetization solutions, to offer corporate clients a complete architecture via Internet of Things (IoT) to enable connectivity, analytics and monetization in transport, energy and insurance. Full article here
KORE delivers iPad-Based IoT solutions for businesses
KORE, the world’s largest managed wireless network services provider specializing in Machine-to-Machine (M2M) communication and the Internet of Things (IoT) is now providing businesses with a comprehensive solution for rapid iPad-based IoT business innovations and ROI. Full article here
KDDI taps Gemalto for connected cars and IoT
Japan’s KDDI has collaborated with Gemalto, a digital security company, to provide the platform to enable secure connectivity for connected cars and IoT applications worldwide. Ultimately, KDDI is able to provision any requested profile of targeted operators on connected cars equipped with pre-embedded eSIMs. Full article here
ROC-Connect Wins Insurance Nexus IoT Innovation Award at IoT Insurance Europe Summit 2016
ROC-Connect, an Internet of Things (IoT) smart home provider, announces it has won the Insurance Nexus IoT Innovation Award at the IoT Insurance Europe Summit in London. The Insurance Nexus IoT Europe Award 2016 drew over 150 nominations in five categories designed to put a spotlight on companies that are pushing the envelope in digital innovation, customer engagement and service differentiation. Full article here
Sales of Medical Wearable Devices Jump in 2016
According to the Future Market Insights report, the global shipments of medical wearable devices will surpass 106 million in 2016. Revenue for the devices are expected to cross $US 23,980 million, which is a 4.8% growth year over year. The new technology, for the first time, is allowing patients with diseases that require round-the-clock monitoring, to be more flexible. Full article here
Chappuis Halder & Co. is a consulting firm specialized in Financial Services with offices in North America, Europe and Asia. We help our clients in several industries, Corporate & Investment Banking, Commodity Trading, Insurance and Retail & Private Banking, with a permanent focus on expertise and research, especially in the Digital area.