IoT in Insurance: What Do the Experts Predict?

SPLICE Software on February 17, 2016

With good reason, the Internet of Things (IoT) is one of the most talked about subjects in insurance today. In a report for the World Economic Forum, titled Are You Ready for the Internet of Everything, Cisco’s former CEO, John Chambers, estimated the economic opportunity afforded by IoT at $19 trillion (yes, that’s trillion with a T). The number of connected devices is expected to increase by over 30% per year to upwards of 40 billion IoT devices in circulation by 2020.

For those of you that are new to the term, the Internet of Things is a network of physical devices that are able to gather and exchange data.

There are innumerable types of devices present on the Internet of Things - ranging from connected cars and home thermostats to ‘smart’ toasters and even implanted health devices such as pacemakers.  The data collected from these devices allows their users to better understand and modify their behaviors in order to perform tasks more efficiently and live more productive, healthier lives.

Insurance companies are just scratching the surface of how IoT can impact their business, with most early adopters focusing on connected cars and how the data collected can be used in making more informed underwriting decisions.  Carriers such as Progressive and Esurance are giving policyholders the ability to connect their cars and provide data about their driving habits - such as how many miles driven and their propensity to over-accelerate and hard-brake.  Insureds get a break on their premiums by giving access to this information and also can achieve further discounts with improved driving habits.

While connected cars have had an impact for insurers, most feel that connected homes will offer the most exciting opportunities in 2016 and beyond.

According to Accenture, the market around connected home is expected to reach $265 billion this year alone.  Maybe the most exciting aspect of connected homes for insurers, though, is the ability to use data to identify and mitigate risks either before a loss or before a loss-event escalates to a significant problem.  Carriers are also working on developing sophisticated sensors that go beyond simple smoke and water detectors to record information such as temperature, humidity, outside wind speed, and even mechanical vibrations that will also allow them to more accurately identify the cause of a loss and take prescriptive action.

IoT’s potential for insurers does not come without its challenges.  There is some debate on where the best entry point into the market is for insurers.  In the report Capturing the Insurance Customer of Tomorrow, Accenture suggests that insurers should look to become part of a larger service eco-system by partnering with companies (such as home security system providers) that already own a significant piece of the customer experience.   Some insurers are looking at creating their own new product offerings taking advantage of opportunities that IoT presents.

Regardless of how insurance companies choose to enter the IoT market it’s clear that the overall impact IoT has on insurance will be expansive.

Looking for a solution that is leveraging IoT by connecting smart homes with insureds and insurers? Read about SPLICE’s Squawk™ Connect & Contact here. 

Topics: Insurance, Strategy