The insurance industry has a reputation for being a fairly traditional industry with a fundamental model of putting a price on risk and charging a premium for assuming it on behalf of its customers. However, technology is a key disruptor in the insurance industry and poses a formidable threat to the old order in nearly all facets.
The Internet of Things (IoT) is a network of Internet-connected devices that transmit, collect, and share data. The most mature and fastest-growing IoT applications include connected vehicles with telematics, smart home devices like Google Echo, Amazon Alexa, and wearable devices like Fitbit, Garmin, etc. According to McKinsey, about 127 new devices are on the internet every second, and the number of connected devices worldwide is expected to grow to 43 billion by 2023, an increase almost three times over 2018.
How is IoT Transforming Various Insurance Industry Functions
Insurance has been carried out in a traditional fashion for over 200 years. With new technologies rapidly emerging around us, these age-old and rigid structures are being broken down to make way for newer and more efficient ways to price, purchase and operate insurance. Let us take a closer look at how IoT is impacting the insurance industry:
- IoT Will Facilitate Smoother Business Insurance Purchases
According to a study, a mere 15% of insurance customers say that they are satisfied with their insurer’s digital experience. Many customers voice their dissatisfaction with the drudgingly long claims processing time. The key to solving widespread customer churn is through digital transformation.
With IoT at the forefront, the continuous process of data gathering and data sharing can be streamlined in order to speed up and optimize the claims process. The amount of time taken to handle a case significantly reduces from months to days by leveraging the use of IoT in insurance acquisition and claims processing. By eliminating customer frustration, insurers can drastically reduce the amount of customer churn and provide impeccable service to their customers.
- IoT Can Help Insurers Avoid Losses
Connected devices and large real-time data streams enable insurers to not only accurately predict potential damage but also to warn customers of potential damage before it occurs. While this is outside of the traditional role insurance companies have played, the hard reality is that insurers want to reduce the number of claims they have to pay. And with the use of IoT devices that record your every action and movement, IoT devices can play an essential role in lowering claims payouts.
- IoT Can Help Insurers Connect With Their Customers
Data from connected devices enables insurers to understand their customers on a deeper level with accurate information, which can help create a strong customer relationship and adds an element of personalization to insurance that has long been missing. It also makes it easier for insurers with fraud detection, recommendations, and accurate estimates. In a pre-digital era, insurers were clueless about their customer’s activities. Today, insurance companies can even predict certain behavior and issue customized policies immediately.
- IoT Can Help Insurers With Cost Efficiency
By analyzing IoT data to optimize risk prediction, insurers can reduce the number of claims and costs to the company. This advantage is compounded by the rapidly falling cost of IoT devices – a trend that will make IoT increasingly cost-effective for both insurance companies and their customers. Like other emerging technologies like AI or machine learning, the IoT opens doors to better business outcomes. Insurers will be able to explore new business channels and generate revenue by leveraging the IoT to introduce usage-based pricing models (UBI), monetization of data insights, and overall improving customer interactions for cross-selling products and services.
Challenges for IoT in the Insurance Industry
Dynamic Nature of Insurance: There are new types of information collected by connected devices which are incompatible with existing insurance management strategies. Insurance companies will not only have to curate new strategies but will have to completely rethink the philosophy that is required to utilize the latest technology to its fullest.
Data Storage and Processing: With millions of devices comes trillions of gigabytes of data that need to be arranged, processed, and stored. Robust systems will need to be in place for insurance companies to work smoothly with the massive amounts of data present.
Data Privacy Issues: Insurers must be transparent with their customers on what personal data is being collected, and why. They should keep them informed of the legal basis for data processing, who it will be shared with, how it will be kept securely and how long it will be kept. The challenge is to ensure that the customer understands and agrees with the way this data is being collected and used.
Stringent Regulations: The entire BFSI industry is highly regulated due to the sensitivity of the information and the amount of damage that can potentially occur with data hacks/leaks. The nature of IoT devices is invasive, to begin with, and may pose a formidable challenge to insurance regulatory authorities in cases of the mobility of IoT data as well as privacy issues.
The insurance industry is embracing digital transformation through various forms. AI and IoT are thriving as they play an active role in a customer’s daily life. The world is shifting to customer centricity and many key players in the insurance industry are doing whatever it takes to keep their customers satisfied. With fast and effortless policy acquisition, claims processing, and underwriting, the end goal is clear: keep the customers happy. With the constant evolution taking place, insurers need to ramp up their digital transformation efforts and focus on a continuous process that will ultimately help them stave off business disruption and pivot in the right direction.