The Internet of Things (IoT) is becoming the great game-changer for insurance, sparking a new era of disruption and opportunity. Connected devices bring innovation to insurance technology and business models.
“The IoT market will be valued at US$7.1 trillion within the next 5 years. Source IDC Research, 2014.”
For the insurance sector, the adoption of the Internet of Things (IoT) will be utterly transformative. Indeed, the real question for insurance companies isn’t whether or not IoT connected devices will cause insurance disruption, but rather, how insurers can best prepare today for the insurance innovation that the IoT will deliver tomorrow.
For some insurers, the adoption of IoT in insurance technology will be the ultimate game-changer, creating new competitive advantages, unanticipated sources of new revenue and innovative business models that can drive growth for insurance companies even while other, more traditional models and revenue streams erode.
For example, smart use of connected devices such as IoT sensors and monitors should reduce risk, thereby driving down policy premiums and reducing insurers’ margins for home contents policies. But by adding actuators to the IoT insurance device – say a control that automatically shuts off the mains if certain risk conditions are met – insurers could create new revenue streams by taking an active role in preventing risks rather than just protecting against them.
Taking advantage of new opportunities will not be easy at first. The shift from risk manager to risk preventer will come with challenges and big questions, such as: Who actually controls the ‘actuator’? Who is responsible for the risk should the actuator controls fail? What levels of ‘intervention’ are customers willing to accept?
While there remains much uncertainty about the specific uses and restrictions of IoT data and devices, insurers need to start thinking more strategically about IoT, including usage-based insurance, if they hope to survive and thrive in the future.
In part, this will require insurance executives to be more innovative about how they incorporate and adapt IoT into their existing business models to drive real and sustainable improvements. This means going beyond simply collecting data from IoT devices to instead thinking about how that data can be analysed to deliver insights that improve performance or enhance operational controls and processes.
Similarly, insurance executives will need to think more creatively about how they might use their position and capabilities to create entirely new business models and sources of revenue. IoT could, for example, provide insurers with the right data to finally unlock the potential of usage-based insurance.
The big challenge for insurers may be the need to work as part of a wider ecosystem in order to drive real value from IoT, including partnerships with device manufacturers, analytics providers, telecom providers, software developers and even competitors. This will lead to new challenges and considerations. Who, for example, owns the data? To complicate matters further, these ecosystems that insurers create around IoT will, themselves, need to be intertwined into other ecosystems.
Another area where insurers will need to collaborate in order to drive value from IoT is around standards. Much like any other emerging technology, IoT is still a virtual ‘Wild West’ of conflicting technology languages, controls and communications processes. But this, too, is rapidly changing.
In the UK, the government is supporting the development of the HyperCat Consortium – a collaboration in which both Flexeye and KPMG are participating – to drive secure and interoperable IoT for industry.
This addresses two of the central challenges of the rapidly evolving IoT: firstly, how to find relevant and trustworthy data from connected ‘things’; and, secondly, how to make it easier for those things to talk to each other. Essentially, we are creating a platform on top of which new ideas can grow.
So what can insurers do today to prepare for the transformation that IoT will bring? We see three immediate actions:
IoT presents a fantastic opportunity for an insurer to be truly innovative and disruptive, turning the Internet of Things into the Internet of Insured Things.
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