Technologies like IoT and insurance telematics provide huge opportunity for insurers to improve their products and the way they interact with their customers, and many insurance companies have already started to experiment. However, a huge shift in mindset is needed to be able to reap the benefits of these new technologies.
Improving existing business and expanding value propositions with IoT
Car insurance companies are leveraging the connected car and telematics to create user-based offerings. By tracking how much and how well you are driving, the insurer can reward customers for good driving behavior and charge less if you drive less. Metromile, for example, is offering a usage based, pay-by-the-mile car insurance in the U.S. to save low-mileage drivers a ton of money. Vehicle safety and security will also improve with systems that can detect imminent collisions and take evasive action.
Life insurance companies have experimented with incorporating health tracking devices to integrate wellness benefits with their customers’ insurance plans. John Hancock offers policy holders discounts for wearing Fitbit wristbands, and rewards customers with points for various healthy activities. This smart life insurance is an example of how companies are starting to make insurance more immediate and relevant in the daily lives of their customers.
Other insurance companies are experimenting with data from connected buildings and offering reduced premiums based on monitoring utilities to understand water leakage, fire or occupancy trends. Many of the building’s systems are designed to be purely reactive, like the smoke detector that raises alarm when it detects smoke. But with this data, insurers are finding that they can start to do predictive maintenance by detecting potential problems before they occur, reducing claims. Aviva is integrating Leakbot, a smart connected water leak detector, to offer a solution to the issue of water damage through its ability to detect leaks in a home, spotting them before they have a chance to become big problems.
Going forward, these types of technology-infused products will become the norm across all segments of the insurance industry, as providers look to attract and retain digitally savvy audiences. As sensors and connected devices proliferate inside the car and home, they will generate a huge amount of data, leading to better decision making across the industry. Insurers are starting to take notice, and half of them believe they will lose 20% of their business to fintech companies over the next five years. Insurers are faced with the challenge of how to adapt to this shifting landscape and create new connected products rapidly.
Rapid experimentation is the new normal in insurance
The insurance industry must face a significant shift in mindset if it wants to advance and stay relevant to its customers. Historically, every insurance company has focused on making its core as good as possible in order to mitigate any risk. Insurance at its core is risk averse. But the landscape is changing. Large companies are investing in insurtech startups that are using IoT and insurance telematics to create connected insurance. And with the money behind these new technologies, they are gaining momentum. Last year insurtech companies raised $2.6 billion — more than the previous five years combined.
Eighty-five percent of insurers say that customer engagement and experience is a top strategic initiative in 2016, and 45% of insurers say that changing customer expectations is the business driver triggering investments in these new technologies. So it is evident that insurers understand the need for change and want to invest in new technologies to create a better experience for their customers. But as I mentioned in my last article, these technologies are still very new and therefore the solutions are not well defined, requirements are loose and changing, and ideas are hard to prove.
To remain relevant and to benefit from IoT and telematics, insurers must prepare to act now. But when entering a nascent market, it is important to constantly experiment and get something into the market quickly without spending a lot of time and money. In order to adopt a development process that allows for rapid, low-cost experimentation, insurance companies need to approach IoT projects with a willingness to fail often in order to figure out how to succeed sooner.
Success will come with the ability to differentiate in an increasingly competitive market. IoT is one way insurers can achieve differentiation. Insurers have an opportunity to learn and adapt while the market is still evolving and take a unique position in strengthening the value of their products. The leading insurers will use new technologies and the data they gather to position themselves as innovative and responsive to customer needs.
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