The Internet of Things (IoT) will rapidly become a HUGE challenge for insurers. The total market for wearable wireless devices in sports and healthcare will grow to 169.5 million devices in 2017, up from 20.77 million in 2011, a CAGR of 41% over six years. By next year, it is expected 1 trillion devices will be connected to the Internet, including many of our cars. By 2019, it is predicted there will be 5.6 billion smartphones. You can bet that where the IoT is concerned, there will be “an app for that.” Our smart phones will become devices that help connect everyone and everything.
Given this explosion of interconnectivity, the IoT represents a danger and an opportunity for insurance providers. First, let’s discuss the opportunity. Innovative insurers will harness the IoT’s power to enhance their relationships with their customers, improve pricing, make claims processing more efficient, decrease fraud and improve risk management, achieve a better understanding and response to customer sentiment, and tailor new insurance products to individual customers’ current situations, including offering location-based products and services. To accomplish this, insurers will need more than access to the structured and unstructured big data spawned by the IoT. Insurers will need to analyze the right data in real-time so that customer interactions are based on relevant up-to-the-moment information and operations are refocused around customer needs.
This brings us to the potential danger. More accurate pinpointing of insurance risks and insurer operations streamlined around customer needs should result in smaller premiums charged to policyholders. In turn, this should lead to reduced losses as insurers learn to better control risk. Over time, this could mean an overall shrinking of the insurance industry, as insurers become better able to insure more accurately, pinpoint price, and focus their operations.
But, this assumes a world in which insurance products remain largely the same. I believe that the IoT will enable Smarter Insurance to develop revolutionary new products that will actually grow the insurance industry. The IoT will allow insurers to increase product relevance and variability allowing customers to define their insurance experiences. Pay “as and when needed” insurance products will emerge that will make purchasing as easy as a quick reply to a text message – no additional paperwork or approvals needed. Not only will the IOT support flexible new product experimentation with existing and target customers, it will allow innovative companies to extend their reach to insure the formerly uninsured who will be enticed by “pay only when you really need it” options. One can envision a future when insurance providers and their customers establish a symbiotic relationship, with insurance products motivating and rewarding safer and healthier customer behaviors.
Whether you believe that the IoT represents a danger or an opportunity for insurers (or both), one thing is clear. Insurers can no longer be complacent, relying on regulatory barriers to protect them from the rapid pace of technological advancement. What’s an insurer to do? Insurance providers can embrace the IBM Smarter Commerce portfolio to leverage the IoT to:
- Do better the things they are already doing (e.g., segmenting and targeting customers, claims processing, improving current products and services)
- Achieve strategic objectives (e.g., reshaping operations to be customer-centric, tighten the insurer’s value chain through more effective partner and channel collaboration)
- Be transformative (e.g., create new products and services)
There is no doubt that the IoT will change the insurance business. IBM’s Smarter Commerce portfolio can help insurers get ahead of the curve.
For more food for thought, insurers can check out IBM Smarter Insurance, IBM Smarter Commerce and “Winning Strategies: How industry leaders are excelling outside the comfort zone.”