You wake up in the middle of the night feeling cold, and reach for your phone to turn up the thermostat. When you drive to work, you use your car’s navigation system to determine the best route. While smart products that make this kind of convenience possible aren’t universal yet, they’re little by little becoming a part of everyday life for people around the world.
McKinsey predicts that by 2025, people will own over 50 billion IoT devices. As an industry, IoT is already huge. As a part of the way people live their lives, it’s poised to become a game changer on a number of different levels.
What is IoT?
IoT stands for the Internet of Things. It describes a growing body of products that are connected to the internet. IoT products generally offer convenience for consumers because they can be controlled by smartphones and computers, and they provide information that updates in real time. They have value to companies both because of the profit from the products themselves, and because they can track and send data on how people use them.
What Does IoT Have to Do with Insurance?
Profitability in the insurance industry is directly related to the ability to accurately predict risk. These calculations are imperative to determining the right amount to charge for premiums so that the money a company pays out in claims doesn’t end up costing more than what customers pay in.
IoT devices do something that’s extremely important for those calculations: they collect data. By collecting data about human behavior in a number of different contexts, insurance companies have a wealth of information they can use to better understand which types of actions lead to heightened risk. And they have a better record of specific incidents that occur, which can help in investigating what happened and processing claims.
Insurance companies can also use IoT devices as a way to incentivize customers toward behaviors that reduce risk. The insurance industry has a long practice of providing different rates to different customers based on what demographic data says about their level of risk, but with IoT you can start to give customers some control over the process. A customer can choose to opt-in to an IoT tracking program that gives them the chance to prove risk-reducing behaviors in exchange for discounts or rewards.
While some of these updates may be controversial—some customers are wary of their actions being tracked—they can potentially provide benefits to both customers and insurance companies.
IoT in Insurance: 6 Opportunities to Explore
What does all that look like in practice? A number of insurance companies have already put IoT devices to work, and others have started to think about what’s on the horizon as IoT technology develops. Here are a few of the main opportunities IoT offers for the insurance industry.
1. Using IoT devices to track driving behaviors.
Some drivers are unrepentant risk takers, while others diligently stick to the speed limit and always slow at yellow lights. Insurance companies need a way to identify which drivers are which before they can match premiums and policies to the level of risk the driver takes on.
Telematics devices now provide that option. Some insurers already offer opt-in programs where drivers can agree to use a telematics device to track their driving, in the hopes it will show they’re a safe driver worthy of cheaper rates.
In addition to using telematics to incentivize safer driving, insurance companies can use it to better understand how driving behaviors relate to risk. Increasingly, cars are built with this kind of tracking software built in. And many drivers voluntarily use apps that track their driving, such as navigation and ridesharing apps. That’s a lot of valuable data for insurance companies to potentially tap into.
2. Using smart home devices to measure risk, while improving safety.
Smart home devices are another big sector of the IoT industry. These are valuable to the insurance industry for a couple of reasons.
First, smart home devices can save insurance companies money by reducing the risks homeowners face. Smart sensors can give homeowners an early warning about leaks or fires, while smart locks and security systems reduce the risk of theft. Some insurance companies have started providing customers discounts for installing smart home security devices or even including them with the cost of the insurance.
In addition, home security devices can transmit data valuable to insurance companies. Tracking information like how often homeowners come and go, what temperature they usually keep the home, or how much water they use, can lead to insights into the correlation between people’s everyday activities and the home repairs they deal with. It’s another opportunity for companies to better estimate risk.
3. Using commercial IoT products to prevent damage and improve safety.
What smart home devices do for individuals, commercial IoT products can do for companies. IoT devices can help quickly identify potentially costly problems in commercial properties, like frozen pipe leaks or humidity changes. And wearables can help track the movements of employees, making it possible to identify and reduce behaviors that could lead to injury.
At the same time, the data IoT products track can help insurance companies better understand the types of conditions and behaviors that lead to damage or injury. That helps them set better rates, and provide useful information to commercial customers on ways to reduce their risk.
One way that insurance companies, as well as other participants across supply chains, can benefit is to have more transparency, and that is precisely what the logistics startup Evertrace is doing.
4. Using IoT to track and incentivize healthy behaviors.
While many aspects of health are outside of a person’s control, healthy habits can have an influence on the health issues people face. For the health, life, and long-term care insurance industries, that means there’s an opportunity in using health tracking IoT devices to better understand customer habits. Fitness wearables can provide information on frequency of exercise, sleeping habits, and typical heart rate, all factors correlated with health.
While tracking a customer’s health and habits can get into tricky moral territory, insurance companies John Hancock and Oscar have had success getting customers to opt in to sharing health data by offering incentives for healthy behaviors. Similarly, dental insurance company Beam offers customers a smart toothbrush that tracks their brushing habits and provides discounts for those who brush regularly.
One Berlin-based startup, AssistMe, is pioneering precision care using the advantages of IoT. They empower high-quality care delivery using a digital assistant, AIDMATE, that closes the loop between care givers and care recipients.
AssistMe's CTO Pedro Silva in the NBT IoT Lab
5. Using IoT devices to inspect damage and detect fraud.
For property insurance companies, hiring people to inspect damage and investigate claims is a big cost, especially if agents have to navigate areas that have become difficult to access due to the destruction. IoT devices can take some of that work off the shoulders of human agents.
Drones are now in use by insurance companies to survey the damage in disaster areas. They can get a snapshot of the damage much faster and at much less risk than human inspectors can. And telemetrics and home security systems continually track the kind of information that makes it easier for insurance companies to investigate claims.
With IoT devices, companies can save money on investigating claims without risking accuracy.
6. Identifying new categories of insurance products.
This is a huge opportunity for the insurance industry. While IoT has a role to play in how insurance companies provide and monitor the types of insurance products already on the market, it also presents a wealth of new potential categories of insurance.
This includes more obvious opportunities like the need to insure valuable IoT devices like autonomous cars and drones. But it also extends to more complex opportunities, such as helping protect companies and individuals from the increased cybersecurity risks that come with having more connected items.
IoT is the Future of Insurance
The insurance industry has already embraced IoT technology, but the current use cases are far from the only opportunities that exist. For creative entrepreneurs, the growth of IoT presents exciting new business ventures to explore. By keeping your eyes and mind open, you could come up with the next big idea for IoT in tech. And if you do, Next Big Thing can help you turn that idea into a thriving business.
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