Craig Foster, managing director of HomeServe Labs, explains how the practical use of IoT is driving change in a conservative industry which needs rigorous technology and accurate information to inform its processes.
Gartner predicts that by 2020, there will be 21 billion devices existing within a global internet of things, but this doesn’t tell us much about the applications that will result from the massive growth in these devices. While smart assistants like Alexa have captured the imagination, IoT has wider applications that can more fundamentally benefit the general population rather than just convenience. In no industry is this truer than Insurance, where information from wearable devices is already allowing health insurers to offer lower premiums, or car insurance where connected cars are helping responsible young drivers get better rates for driving safely than they would otherwise.
The point being proved in this industry is that even though IoT technology is still considered to be in its infancy, it is now already delivering practical benefits to businesses and their end users. The first industries to adopt IoT included oil and gas, manufacturing and agriculture and the technology is quickly being integrated into everyday processes. Insurance is the next industry that has opened its arms to the benefits of IoT and we are already starting to see it drive real change with some of the world’s leading insurers.
This is even more impressive given the conservative nature of the insurance industry: many of the household names in insurance pride themselves on having been around for 200 years, longer than many banks and law firms. In this time, the business hasn’t fundamentally changed – requiring underwriters and actuaries to develop policies for different areas of risk. Any technology that this industry adopts still needs to have been rigorously tested and deliver accurate information to inform its processes, but insurers are increasingly looking to innovate through technology. The benefit of this for insurers is two-fold – one is to differentiate from competitors in a fierce market; and secondly to appeal to customers that are opening up more to the benefits of smart home technologies. Through IoT, insurers are also becoming better able to cut costs and price their risk more effectively.
A responsible approach
While being perceived as being innovative is all well and good, actually innovating to solve real problems is what is driving Insurers to IoT. Increasingly the attitude is shifting from being reactive businesses that respond to catastrophes to proactive businesses that identify risk and look to prevent catastrophes. Technology is proving key in their mission to achieve this.
The automotive industry is looking to prevent crashes by using information from policy holders’ vehicles to understand which customers are driving responsibly and which present the biggest risk of incurring a payout. This information is allowing insurers to not only reward safe drivers with better premiums, but is also making less responsible drivers act more responsibly on the road so that they can benefit from the lower rates. This is a much more fresh and conscientious approach than just waiting for crashes to happen.
Home sweet home
Looking at IoT in the home, other ways that insurers are using technology to prevent disaster are through devices such as smart locks and automatic leak detectors in the home. Interestingly, the areas that provide the biggest benefits to insurers do not necessarily align with the areas of biggest concern for consumers. For example, despite consumers being extremely concerned with home security and preventing burglaries, they are much more likely to be adversely affected by a water leak in the home causing significant damage. Insurers know this, and so are prioritising IoT technology which addresses problems like these in order to reduce a massive cost to their business.
As the home increasingly becomes more connected, the interaction between these devices will give insurers a clearer picture of what a responsible home owner looks like – providing more information on the level of existing risk and what lower rates should be offered to home insurance customers taking the right precautions. While this sounds like a rougher deal for less responsible home owners, another way of looking at it is that currently the majority of Insurance customers’ premiums go toward payouts for a small portion of the population that may be less responsible homeowners, so IoT provides an immediate benefit to a large group of consumers.
Be more proactive
There is also the fact that IoT is also allowing insurance customers to gain more control over their homes and lives through allowing them to be more proactive in preventing problems in their home. The sense of satisfaction this gives some customers, parents of young families, for example, should not be underestimated and this is a big driver behind why insurance customers are so keen to install the devices once they receive them. IoT can also give consumers access to home devices from any device or location via their mobile phone, laptop or other device.
This is empowering customers with greater control and allowing them to resolve problems throughout the day or even automatically through integration with third party services – calling out maintenance staff to correct a problem when a problem is detected, before it gets out of hand.
While this information is empowering, insurance providers are showing that we are in the early stage of the technology where the customer proposition is still being worked out. Many consumers are willing to provide more information on their home lives if they receive the incentives of lower costs in return, but the industry still needs to reach a consensus on how it uses this information.
Attitudes towards sharing more information will also inevitably vary depending on the specific industry – for example, consumers might be willing to share location-based information with health insurers to get better medical services and reduced rates for exercising, but would not share the same information with their bank. The overall theme is that consumers are most likely to provide more personal information in return for lower cost or better services.
IoT in Insurtech is not just of interest to insurers, it’s the greenlight to other industries that IoT has now officially reached the point of maturity to service large groups of customers reliably and effectively. The businesses that take notice and come up with a proposition that solves fundamental problems and empower consumers at the same time will be the most successful.