Insurance, Innovation & the Internet of Things by Mark Breading

04/11/2014 20:24

What we've seen with vehicle telematics is just the tip of the iceberg. Imagine the same types of implications (and more) for every tangible item that the industry insures.


The Internet of Things is a hot topic these days. In the eyes of a few P&C insurance leaders, it is more than just a new tech trend to study -- it is the path to differentiation and a new future for the insurance industry. But let’s step back and explore why some are thinking in those terms, how the Internet of Things (IoT) might affect the industry, and what companies are actually doing about it. 

What’s the big deal?
The first era of the Internet was all about connecting people with information. That’s what the basic protocols of TCP/IP, http, and html were all about: making it easy to find and view information. The last decade has been more about connecting people with people -- the whole social media phenomenon.

But a new Internet era about things has begun -- not just the connection of the devices used by people, but also the connection of tangible items directly to the Internet and each other. Almost any physical thing you can imagine can be, and is being, connected to the Internet, such as packages, machines, buildings, roads, clothing, animals, and even human bodies. The collection of information coming from all of these things enables them to be constantly monitored and managed.

[Previously from Breading: Are Insurers Ahead or Behind on Analytics?]

And, as it turns out, this is a very big deal. A real-time information flow from things, coupled with wireless communications, GPS, and analytics, allows us to proactively intervene to improve the efficiency or effectiveness of that thing, anticipate and avoid problems, and predict and improve future usage.

How might it affect P&C insurance?
The question for insurance is whether or not this is a game-changer for our industry, or if it is mostly just applicable to others. The resounding response is that for P&C (and incidentally for life insurance as well), the potential for the IoT to be a driver of industry transformation is high. What we’ve seen with vehicle telematics is just the tip of the iceberg. Most insurers believe that telematics will reshape the private passenger auto insurance market and have a big impact on insurance for other private and commercial vehicles as well.

Imagine the same types of implications (and more) for every tangible item that the industry insures. Rather than evaluating risk, packaging coverages, and determining price based only on historical information, insurers now have the opportunity to rethink all aspects of the business based on real-time information. Sure, loss history information will still be critical to understanding risk, but no longer will post-sale activities be mostly about premiums, policy changes, and claims. Now the industry will be practicing loss control on steroids -- proactively suggesting loss avoidance and safety techniques with every type of insurance -- and offering related services that improve risk management.

When the implications of IoT are fully understood, there will be a ripple effect on customers, distribution, product, price, claims, and policy service. Virtually every part of the business will require rethinking and reimaging. In other words, innovation will be paramount.    

What are insurers doing about IoT?
SMA research in the third quarter assessed nine emerging technologies, including IoT. Insurance executives clearly believe that IoT has direct implications for insurance and will be a major force of change. When asked about the potential for innovation and transformation, 74% of the 88 respondents said that IoT will be a major disruptive force within five years, and 54% think that it will occur in three years! This appears to be a technology trend that many insurers are watching and beginning to act upon.

If that many of your peers believe IoT will transform the industry that soon, your company should probably be developing strategies right now. In fact, a number of companies have active pilots underway and are aggressively investing in IoT. The SMA survey also revealed that 74% of insurers plan to invest in IoT by 2016, with 7% planning significant spending.

Watch carefully what the 7% are planning and doing -- these are the innovators, the industry disruptors. From discussions with insurers, it is clear that these leaders are not just coming from the largest P&C companies, but also from the aggressive mid-tier companies looking to become the next Tier 1 players.  

The IoT holds great potential and carries great risk for P&C insurers. And the intersection with other emerging technologies, such as drones, driverless cars, wearable devices, and 3D printing, will make for an interesting and exciting time for insurers. The call to action for IoT is simple: Get started! Understand the potential! Start some pilots! Your competitors already have strategies and activities in motion.

For more, you can reference SMA’s research report, "Emerging Technologies: Reshaping the Next-Gen Insurer."  


Mark Breading, SMA partner, is a recognized expert in advanced technologies and their implications for the insurance industry. He has exceptional knowledge of data and analytics, customer communications in insurance, enterprise content management, and advanced technologies ...View Full Bio