IoT and Insurance Industry: A match made in technological heaven
IoT is fundamentally a technology architecture that stitches several existing technologies to deliver new benefits that individual technologies weren’t providing. Due to this, IoT has and will continue to radically transform the way things operate in various verticals at an unprecedented rate. Interconnected devices have become an integral part of our life at home and work. In 2010, 12.5 billion IoT devices were in operation, and it’s predicted to go up to 75 billion devices by 2025. The global IoT market is currently valued at $761B and is expected to reach $ 1.39T by 2026, a CAGR of 10.53%. Microsoft’s recent IoT Signals report states that IoT adoption has accelerated since the dawn of COVID-19, and one-third of the surveyed decision-makers confirmed that they would increase IoT investment due to the pandemic’s impact.
As IoT devices communicate, creating and collect huge volumes of data, transferring this data to the cloud in real-time opens a new universe of challenges and opportunities. The applications of IoT are innumerable, and hence its prowess to alter the operating models across multiple sectors comes as no surprise.
How does IoT fit in with Insurance?
Said traditional insurance processes are too long and complex that they directly contradict the mindset of a modern-day customer. Commercial insurance companies haven’t changed their processes for the past 200 years. But with the advent of technology, almost everything is at the customer’s fingertip and can be achieved within minutes. But insurance still has a series of cumbersome steps:
- Claim intimation.
- Claim processing.
- Document submission for the claim processing.
- Claim investigation, policy review, damage evaluation, and, finally, reimbursement.
For the modern-day customer who is used to getting things done quickly, all of this would seem overwhelmingly complex. Such elaborate processes are bound to cause significant customer attrition. Insurance is a data, time, and labour-intensive process, and Payoda can speed it up by incorporating IoT. IoT has also been implemented to rethink insurance plans and their rationales to determine customized premiums based on each customer’s lifestyle and behaviour, thereby attracting new customers. IoT-based smart insurance plans place the premium cost in the customer’s hands and incentivize them to stick to the expected statistics to pay lesser.
Below are some examples of how IoT has been intelligently incorporated to simplify insurance processes and recalibrate costs across different sectors.
IoT in Home Insurance
IoT provides several in-home solutions such as smoke detectors, gas leakage detectors, security systems, garage door automation, smart locks, automatic air conditioning, etc. Users can control electronic and electrical appliances through mobile apps remotely. These IoT devices send out prompt emergency alerts pre-emptively to prevent devastating accidents. It has been proven that IoT devices and mobile apps have considerably reduced the number of home disasters and reduced the number of claims to a good extent.
IoT Smoke Detectors
A leading US-based insurer has joined hands with Google’s Nest to install IoT-based smoke detectors in all their customers’ homes. Nest alerts the homeowner when there’s smoke or carbon dioxide detected by sending notifications on their phone or placing a call to an emergency number. The sensor within Nest looks for fast or slow-burning fires. The Google Nest smoke detector, priced at $99, has been given free of charge to all customers by the insurer. The insurer will reduce 5% off the premium cost once a customer has the IoT device installed in his home. This IoT-based hybrid insurance model can reduce the number of claims for the insurer and premium costs for the customers.
Another US insurer has gotten the Federal Aviation Administration approval to use drones to investigate the damages caused to homes after a disaster. Using drones, the insurer has been able to quicken the claims processing by capturing high-quality photos without delays and endangering their employees as they do not have to visit the site. Using high-definition images from the drones, they have also been able to identify fraudulent claims.
IoT Smart locks
Another US-based insurer has partnered with Ring, specializing in IoT-based home security systems, to provide its customers Ring’s digital doorbell at a discounted price. Ring’s doorbell provides HD video and a host of other elevated features to prevent unauthorized entry through prompt alerting. The insurer will reduce 5% off the premium cost for the homes with the Ring doorbell installed.
IoT in Car/Accident Insurance
IoT is being used to detect drowsiness and alert the driver to evade accidents. IoT can also capture stats such as speed, miles driven, driving time (peak hour, rush hour vs off-peak hour & day time vs night time), rate of acceleration, hard braking, the average duration of the drive, frequent routes, and their accident probability statistics, driving pattern in hazardous zones and the general mood of the driver (road rage and other emotions). These metrics directly influence the probability of an accident. These factors differ for each driver depending upon the nature of work, purpose, personal traits, and other criteria. So why should a driver whose risk score is low pay the same premium as the one who has a high-risk score? It doesn’t make sense.
A US-based car insurer realized that the above parameters are a better judge of deciding the premium costs accurately for each of its customers and brought in the idea of Usage-Based Insurance. UBI means, the less you drive, the less you need to pay for your premium. Also, how, where, and when you drive determines the amount you pay rather than traditional metrics like location and the type of car. The insurer has partnered with Zubie, the developer of IoT telematics devices that monitor and track how well or poorly you drive. The insurer claims to have observed 1.7 trillion driver statistics so far.
Cars are increasingly being equipped with sensors that monitor oil temperature, wearing of brakes, tire pressure, and important metrics, which, if not monitored and attended to in time, can cause a breakdown or accident. By conveying such information to the driver at the earliest, there has been a significant reduction in the number of claims submitted by owners of such IoT outfitted vehicles.
IoT in Commercial Insurance
IoT sensors and related devices are placed at strategic points within industrial machinery. Within the space where the machinery is operated to continuously monitor different parameters such as usage, downtime, safety precautions are taken, condition of the machinery and other factors to determine a risk-based dynamic pricing model for their customers. IoT devices also provide predictive service indications, informing operators when and why particular machinery needs to be overhauled. The IoT devices provide real-time data, and hence investigation is quicker and more accurate. This helps insurers to reduce losses significantly. A leading US-based mining equipment manufacturer uses IoT to determine the above criteria from several meters of underground machinery. The manufacturer compares operating parameters across various mines in the US where their machinery is used for benchmarking purposes.
IoT in Healthcare Insurance
Connected healthcare systems facilitate continuous interaction and data flow/transparency between the customer, IoT apps, wearables, and physicians. IoT devices measure various critical health data such as blood pressure, blood glucose levels, heartbeat rate, step counts, fat percentage, and calorie intake. Medtronic’s IoT device leverages a sensor placed underneath the subject’s skin to calculate and monitor the glucose levels in the tissue fluid. It connects to a remote device that alerts the patient when the glucose level crosses a threshold ensuring appropriate insulin intake and other therapy adjustments.
A leading insurance provider in the US has partnered with a UK-based insurer to distribute Fitbit wearables to its customers. The insurers encourage customers to stay fit by engaging themselves in various physical activities and developing healthy food habits. The customers get rewarded via entertainment, travel, and shopping points for staying healthy along with as much as 25% off their premium costs. In return, the insurer reports a sizeable reduction in claims filed.
A US-based dental insurance provider has introduced a smart toothbrush to monitor the oral health of their customers. Customers receive notifications on their mobile if their brushing habits or general oral hygiene falls below the prescribed standards. The insurer has started distributing IoT-enabled toothbrushes to its customers and is hoping to see a good fall in claims submission and, in turn, provide a 25% reduction in premiums for those who stick to described parameters.
Another US-based insurance start-up uses Misfit flash tracker wearable data from its customers. It rewards those who achieve the prescribed step goals every day with a $20 amazon shopping credit each month.
How IoT can transform and better the traditional Insurance process?
1. Faster and Hassle-free claims
IoT collects a huge amount of data and makes it available across the system by storing it in the cloud, making it easier to access. Inefficient claims processing will cause customer frustration and cause them to look for alternatives. IoT can quicken claims processing by enabling the buyer to submit documents through digital platforms. Since the data is available throughout the system, it’s devoid of duplicates. It optimizes the claims processing by comparing the data submitted by the buyer and the data collected by IoT devices. Customers can also check their coverage details and track the progress of their claims via the same digital platform.
2. Customized Risk Assessments and Equitable Premiums
The insurance industry is extremely reliant on data to drive critical decisions. And there are boatloads of it. Traditionally, the insurers depended on experience, long-term analytics, and the information provided by customers who submit claims, which on some occasions might be inaccurate, causing losses to the insurer. Typically, insurance companies classify risks broadly and assign premiums based on them. But now, with IoT data, insurers can understand their customers at a much deeper, personal level. This helps insurers to address customers’ issues like never before and propels them to introduce new plans. The insights derived from such data are more accurate because the data are irrefutable verities that are observed subjectively but are calculated and projected based on objective criteria common to all customers. This enables the insurers to customize risk assessments and provide hybrid insurance plans with equitable premiums wherein the premium depends on the customer’s adherence to the recommended parameters.
3. IoT data will reduce losses
IoT data is a goldmine of information. It helps insurers relegate the situation of a fraudulent claim being processed and paid out and empowers them to predict and alert their customers regarding potential losses. Even though this is beyond an insurer’s responsibility, it is a fact that every insurer would want to lessen the number of claims being filed. And what better way to achieve this goal than preventing something from happening by informing customers about it before it does. Customers would trust the information because the data that supports the prediction is not arbitrary; instead, it is based on data sourced from IoT devices that they wear or installed in their homes, cars, etc.
4. Emerging industries will be better insured.
New businesses such as cannabis, cryptocurrency, and drones find it difficult to get insured properly as insurers do not have any historical data regarding things that could go wrong or what needs to be done right for the business to be successful. This is due to a lack of prior experience, the shifting legal landscapes, and the high risk associated with such businesses. With the data collection capability that IoT brings to the table, insurers can move quicker and do not need to wait for years for sufficient data to accumulate to devise appropriate plans. With insurance plans and parameters to achieve equitable premiums, these industries would grow exponentially because risk mitigation attracts more people to invest money.
Insurer Playbook to stay at the top
Zero in on Application Areas: As IoT steps into insurance, insurers should be diligent enough to define the application areas, which could then be turned into customized plans that customers would be interested in. If the insurer operates in different countries, the parameters of discounts, equitable premium costs would need to be adjusted based on the per capita GDP. Before defining application areas, the insurer must also think about the mid-long term viability and calibration metrics that will help unlock unrealized potential.
Establish strategic tech partnerships early in the game: Selecting the right technology partner to establish a hybrid insurance model based on IoT data is an extremely important step for insurers.
In-vehicle/accident insurance, technology partners would be OEMs, telematics device manufacturers, gas stations, etc. In housing insurance, digital locks manufacturers, utility and multimedia providers, telecom service providers, etc. These partnerships should be established early to avoid sunk costs and shorten the time to market. Technology partners should be actively involved in developing and calibrating factors that decide insurance premiums to define and refine the new plans before rolling them out. Insurers must also consider the below during the selection of technological partners.
- Partners should possess relevant technical knowledge and experience with the target customer base.
- Partners should be capable of bringing in their existing customer base.
- Appropriate commercial agreements should be in place right from the start.
- Partners should be open to other partnerships being established.
- A thorough screening of the partner’s previous businesses and joint ventures should be done to avoid the risk of sunk costs, abuse of customer data, and reputation damage.
Ensuring scalability and Maximizing rollout speed: Insurers can position themselves handsomely to increase the chances of attracting a technology partner. Insurers should look to roll out the first of their IoT-backed insurance plans as fast as possible to check customer acceptance. Based on the feedback, the plans can be fine-tuned and scaled as the second step. Also, the quicker the partnerships are established, the better it is for the insurer. Insurers lagging in the race might not find capable technology partners.
Ensure Long term prospects: Insurers should forecast the long-term viability of IoT-based insurance plans. Reduced premiums for telematics-based insurance plans is one option. Still, in the future, as maturity grows and the cost of service continues to fall, the value for the customer and the insurer will decline. So insurers need to build long-term capabilities ato continuously upgrade and innovate their plans.
Payoda helps augment your client management systems with our ingenious technological aptitude. Now you can craft a wide range of high performing insurance products that meet all your customers’ insurance needs. Automated policy tracking, claims management, fraud detection system and insurance calculators make your operations simple and transparent while allowing you to help your customers choose the best of insurance products. Speak to us to know more on how to implement IoT inm your business.
Authored by: Mohan Bharathi