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

It's all about being able to better assess clients' risk levels. As an insurer, instead of making educated guesses about how a 20-year-old male may drive his turbo-powered hatchback, the IoT enables you (with the consumer's permission) to monitor the speeds at which he travels, his use of the brakes and the areas in which he regularly drives and parks. If this data suggests he's more likely to have an accident or fall victim to theft, the premium can be increased accordingly. If he regularly drives below the speed limit and always opts for secured car parks, discounts or rewards can be applied instead. As a result, the insurance company no longer needs to overcharge low-risk clients to compensate for the accidents caused by its high-risk customers.

This shift is already taking place; a growing number of insurance firms are offering black-box policies, which involve fitting a tracking device to the customer's car to monitor driving style. Once these can be connected to the Web, it becomes possible to keep an even closer eye on each driver's behavior, and to adjust prices to reflect his or her actuarial risk.

Accidents, by their very nature, do happen. If a connected sensor could provide the relevant data, though, it would be possible to support claims and simplify the entire process. Once again, less money would be wasted.

This model doesn't work just for motorists, either. Swap out the black box for a connected watch capable of monitoring its wearer's exercise and sleeping patterns, and it can also be applied to health and life insurance. The provider can, once again, assess each applicant's risk a lot more accurately when it knows what that applicant is up to on a day-to-day basis.

A Price Worth Paying
Installation of the necessary sensors and IoT devices comes at a cost, but it's one that insurers should be ready to pay, given the rewards on offer. The kind of connectivity we're moving toward will lead to new value propositions that will change the way in which providers make money.

The IoT will help companies create closer ties with their customers. In addition, it will lead to stronger relationships through which providers are able to monitor more closely, influence behaviors and deliver new, profitable value-added services.

The IoT's growth is also likely to generate new kinds of risks, like those involving information security. As this happens, demand for new types of policies should start to show, opening more revenue streams for insurers.

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