The internet of things (IoT) is growing rapidly globally, as the number of connected devices continue to grow and are projected to grow beyond 50 billion in 2025¹. The massive growth coupled with continuous improvements in the computing power of these devices is giving rise to newer possibilities and enhanced potential for the insurance industry. Technological advancements in IoT have the potential to generate new revenue sources (e.g. usage based insurance, monetization of data, insights based new sales) and reduce costs (e.g. proactive safety, pattern-based fraud prevention).

However, there are two big questions looming large for the insurer:

(1) Will this new technology help drive differentiation in the marketplace and

(2) Will it stand the scrutiny of the rigors involved in a solid and financially profitable business case?

While IoT technology is continuing to evolve, the real test is whether the technology will benefit both the insurance carrier and the insured. Until the industry as a whole cannot get the engagement index going high with the insured, whether personnel or commercial, the chances of the insured opting-out remain high, and thus, could limit the potential of this technology.

Industry pioneers like Progressive Insurance, started in the right direction with usage-based insurance in the automotive sector². Firstly, their Snapshot program is directly aimed at rewarding the insured with monetary benefits, when they are able to drive safe and avoid high risk driving behaviors, and has resulted in higher stickiness with their insured population. Secondly, the Snapshot program has withstood the financial scrutiny by actuaries and finance professionals, and has reshaped the way insurers are assessing, pricing and limiting risks to their product offerings.

The insurance marketplace has many opportunities that are good candidates to be put against the two-big-question-test. Outlined are a few of those use cases:

• Oil and Gas refineries: Safety is paramount in the energy industry (e.g. BP Oil leaks in Gulf Coast), and they have invested heavily on sensor and early warning infrastructure. Some of the most common reasons for claims are man down/hurt, fire and hazardous gas detection, equipment condition deterioration, oil field vehicle accident, oil and gas leaks. Insurers need to collaborate with their Oil & Gas industry clients to make use of the IoT data to look for early signs and prevention of these costly accidents and claims avoidance.
  
• Public and private infrastructure:  The commercial infrastructure OEMs have increased the variety of sensors that monitor safety breaches ranging from smoke, water leakage, fire onset, toxic fumes, weight bearing structure overload, mold and mildew amongst others. The integrated use of infrastructure management systems along with IoT datasets will help better equip the loss prevention programs with insightful next actions.
• Retail and grocery chains: Millions of people visit these stores routinely and these locations have potential hazardous locations e.g. grocery and convenience store aisles, salad bars, sea food storage, water/beverage/milk/liquid storage areas. There are additional issues around transparent liquid spillage, and limited visibility due to poor lighting conditions or obstructions, which can be source for litigations and huge losses. Usage of IoT devices at accident prone areas to track human traffic, cleaning and debris removal is on the rise. In addition, logging of activities for compliance reasons, preparation of first report of injury and early actions are being taken to reduce the total claims related losses.
• Smart homes: Connected devices are invading homes like never before e.g. front door bells, heat monitors, baby monitors, IoT enabled white appliances, lighting and entertainment control, pipe leakage sensors, to name a few. The wealth of data being generated by these devices, is an area for new insurance product innovation and also increasing engagement index with the insured.  
• Wearables and connected health: There are new wearables (watches), and a growing range of smart apparels e.g. patches, socks and shoes and a whole range of industrial worker safety wearables. These devices can help capture biometric data, bad posture and odd joint angles etc. that can help prevent injuries and avoid costly medical and disability insurance claims. 

What can insurance carriers do to make these use cases pass the two-big-question-test?

1. Develop your technology partner ecosystem: Explore the IoT product marketplace and ecosystem carefully, study the product roadmaps and build an ecosystem of IoT technology vendors and system integrators. This will enable you to clearly visualize the program and have confidence in actually delivering this new capability to your insureds.
   
2. Continuous experimentation in new markets and products: Look at adjacent businesses to your current market posture and include IoT in your new product design. You may choose to just add new coverages or do a total revamp of your product line, with a thorough product launch business case.
3. Integrate this technology into operations early: Insurers have not always made new technologies integral to their daily operations, hence many of them tend to have the band-aid effect. Collaboration between the innovation team and operations team to redefine new processes for deeper adoption is essential.
4. Keep a long-term horizon: IoT is an evolving arena and requires the investor mindset, as the business case for many of the use cases will become better with time.

Finally, it is incumbent on the insurance carriers to make this technology easy to consume for the insureds, wherein they see greater financial benefits (e.g. better pricing, rebates and discounts) and better convenience (e.g. less downtime, faster repairs, reduced employee absence).

Reference

1 https://www.mckinsey.com/industries/financial-services/our-insights/digital-ecosystems-for-insurers-opportunities-through-the-internet-of-things

2 https://www.cnbc.com/2018/10/05/new-kind-of-auto-insurance-can-be-cheaper-but-tracks-your-every-move.html

Vinay Sharma

Digital Sales Director for Insurance Vertical - Americas, Wipro

Vinay leads the US Digital Practice for the Insurance vertical and is focused on the application of digital technologies to help clients create a competitive edge in the marketplace. He has worked with many insurance carriers in property & casualty, and health insurance space helping address issues at the intersection of business and technology.