IoT-Based Insurance Provides Personalized Policies and Cost Savings
Data has long been the lifeblood of the insurance industry. Despite the emergence of a worldwide data infrastructure, providers still base their risk assessments on assumptions and broad market generalizations. The Internet of Things promises to change this strategy by opening up vast sources of data.
By providing access to an unprecedented amount of information about customers, insured items and properties, IoT can empower insurers to personalize policies, lower rates and even prevent accidents.
Insurers Draw Smarter Policies
Gartner predicts that 20.4 billion connected devices will be in use by 2020. This list includes smart electric meters, security cameras and consumer items such as smart TVs and appliances.
Analysts expect insurers to embrace IoT technology as a way to drive down costs. For example, Business Insider predicts that insurance companies will save $45 billion in the next five years thanks to IoT car safety technology.
With the ability to collect data on driving habits such as speed, braking, signal use and other behind-the-wheel decisions, insurers no longer have to construct policies based solely on a customer’s past driving record and residence. IoT data enables insurers to customize policies with greater precision by revealing how drivers actually drive. State Farm, for instance, monitors driving through the customer’s vehicle communication service or mobile phone and offers discounts based on mileage and safety performance, Business Insider reports.
Personalized Data Provides Savings
As The Digital Insurer suggests, data-driven risk assessment allows insurers to narrow the gap between good risk and bad risk. As consumers activate IoT devices, they provide insurers with details that can enhance predictive modeling methods.
In home insurance, the smart devices that consumers use to control electricity and water usage can also serve as proactive safety tools that limit insurance claims. A sensor can alert a vacationing homeowner and insurer about a leaking refrigerator. Through this alert, the water can be shut off, damage limited and a claim filed — all before the family returns from vacation.
Insurers also offer coverage discounts for many smart home technologies that provide cost savings. For example, connected smoke alarms that automatically alert the local fire department could save insurance companies up to $35,000, the average claim amount for fire damage, Business Insider reports.
Enhancing IT Infrastructure
Tapping into the Internet of Things means that insurers will have to rethink how they handle data. As Forbes notes, insurers will need larger and more sophisticated IT infrastructure, data warehousing, analytics and business analyst teams to collect insights from this new data. They will also need to strengthen their process re-engineering ranks to put insight into action.
However, these expenses will help transform how insurers determine claims, offer policies and serve customers. Armed with data on how humans and machines behave and how nature intersects life, insurers can create balanced risk pools and see remarkable cost savings.