How the Internet of Things Can Revolutionize the Insurance Industry

Usage-based insurance—enabled by IoT-enabled sensors—promises to benefit insurers and their customers, provided that privacy issues are properly addressed.
By Graeme Parton
Jan 03, 2016

The Internet of Things has sparked so much conversation already, as consumers and businesses speculate about how it will impact them. A lot of this chat revolves around seemingly trivial things, like milk-ordering fridges and fitness-tracking watches, but this connectivity revolution will influence our lives in some less obvious areas, too. Insurance is a prime example of this.

Insurance at Present
With the economic downturn all but a distant memory and stable conditions now restored across much of the world, we have seen encouraging signs of growth in global insurance markets. Many of the providers that were quick to conserve capital as soon as the going got tough are now regaining confidence and optimism.

That's not to say there aren't challenges, though. Growth, while evident, is still slow, and low interest rates are affecting some trading environments. As competition increases and profit margins tighten, providers will increasingly look to seize new digital opportunities. The effective use of data will be key for a sector that has traditionally struggled when it comes to innovation.

This is where the Internet of Things comes in.

A World of Data
Cisco predicts the IoT will comprise 50 billion devices by 2020. This total includes a range of different objects, from the expected phones, tablets and computers to security systems and the sensors bringing everything together. Every single touch point is constantly collecting the data it needs to perform its intended action. This information is the key to a more efficient insurance industry, as well as lower premiums and better services for consumers.

Accurate Premiums for All
Currently, insurance prices vary based on so many changing factors. With car insurance as an example, the premium reflects the driver's age, experience on the road and accident history. While this is all valuable data, it means the cost will be calculated based on assumption—the theory that an older driver will be more sensible, or that someone who has had one bump already is more likely to make further claims.

This approach is completely logical at present, but with the IoT's help, we needn't make assumptions.

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