With the Internet of Things (IoT) already connecting machines, people and organizations extensively, every other industry is looking to leverage its power to explore new opportunities for growth. Although traditionally considered as a slow adopter of new technology, the insurance sector is taking to IoT and telematics quite well; so much so that IoT in insurance is fast becoming a reality.
Consider these figures – the usage of telematics in the auto insurance industry is at an all-time high, with predictions from a report by Ptolemus Consulting Group suggesting that nearly half of the world’s vehicles will be insured with usage-based policies by 2030. The report also states that the industry is likely to show a worldwide growth figure of 100 million policies in the next three years.
So, how does this work?
Having established the significant support and opportunity that telematics provides the insurance industry, let us first understand how IoT and telematics fit into the whole scheme of things. Conventionally, automobile insurance companies design their premiums on the basis of variables such as a driver’s gender and age, average distance driven each year, and probably a driver’s accident history. These variables help gauge a number of premiums a particular driver would require. For instance, drivers deemed risky typically incur higher auto insurance premiums.
However, with the entry of IoT, insurance companies are beginning to leverage supporting technologies that aid in keeping a tab on the actual driving patterns and behaviors of individual customers in order to gather causal data. Telematics, as these technologies are collectively known, employs sensors embedded in a customer’s car or smartphone to collect data pertaining to the types of roads the customer drives, specific time and frequency of travel, routes taken, times of day spent driving, and actual driving behavior captured through specific details such as rate of acceleration, braking force, and overall speed. This real-time information is then cogently put in order to be transmitted to the insurer through a cellular or satellite connection. Further, through data analytics, a statistically accurate risk profile is created for the customer.
It is in this context that IoT helps insurance companies by matching premiums more specifically with actual risk. Combined with Internet connectivity and analytics, these devices help in gathering real-time information and alerts that could be used in the insurance industry in specific areas such as risk management, risk mitigation and more.
How insurers are reshaping their business models
Car insurance companies are harnessing the power of IoT and telematics to create user-based offerings. With the help of behavioral technology for measuring and tracking how much and how well a customer is driving, insurers are working to design premiums specific to driving behavior. For example, Metromile has developed a usage based, pay-per-mile car insurance policy in the U.S. to help low-mileage drivers save a significant amount of money. Additionally, the Metromile Pulse app offers drivers insights to personalized driving trends and diagnostics – providing a more informed and connected experience.
Car insurance aside, life insurance companies are also gearing up to take the road to telematics. Insurance heavyweight, John Hancock, has pioneered in leveraging the power of wearable devices by offering policy holders sizable discounts for wearing Fitbit wristbands. Customers are offered points for tracking their well-being through various healthy activities, based on which they are rewarded. This smart life insurance is a typical example of how organizations are seeking to make insurance an absolute necessity in the daily lives of their customers.
With more gadgets connecting to the Internet, technology-infused devices are here to stay, and the role of IoT in insurance is poised to grow. There is copious amounts of data ready for analysis; so insurers will become progressively tech-savvy, constantly looking out to leverage data to improve how they price risk and reward those customers who are deemed ‘safer’ than others.
As sensors and connected devices continue to proliferate within automobiles and homes, they will generate a huge amount of data, leading to better decision making across the industry. Insurers are now faced with the challenge of keeping pace with this shifting landscape and develop new connected products rapidly.