Other parts of this series:
IoT and analytics is transforming our industry and are among InsurTech’s biggest growth drivers
As I have said before, Insurance is a data hungry business. Data is the foundation to almost everything across insurance – from risk profiles driving underwriting and pricing, to customer orientated data understanding further risk, but also knowing what products suits which customers. In my previous blog, I mentioned that the Internet of Things (IoT) is playing a key role in delivering new levels of personalisation and better real-world outcomes for customers. With the number of ‘connected things’ increasing by 5.5 million every single day – and forecast to exceed 21 billion devices by 2020 – insurers will also need to leverage next-generation analytics to make sense of all these new types of data.
IoT and analytics need to go hand in hand – with so much data available through IoT increasing personalisation and allowing insurers to know much more about risk profiles and customers, analytics is the critical “back end” that will enable enhanced decision making and ensure the insurance companies have a view of what’s going on! Critical for an increasingly dynamic market and increasingly diverse set of data.
IoT and analytics is transforming our industry and this is reflected in InsurTech. These two categories are among InsurTech’s biggest growth drivers, with many startups jumping on IoT and analytics as their technology bandwagon. The number of funding deals related to analytics and big data soared from 24 in 2014 to 69 in 2016. And, in the case of IoT and connected insurance, the number of deals almost quadrupled from just 6 in 2014 to 22 in 2016. Collectively, these segments accounted for at least $620m worth of funding in 2016 – roughly 36% of the total InsurTech pie. Much of the activity is in areas like Connected Home, Connected Car and Connected Health.
The number of InsurTech deals related to IoT and Analytics has surged over the past two years:
Source: Accenture’s global analysis of more than 450 InsurTech deals, based on data from CB Insights plus our own primary research.
Globally, the Connected Home market is forecast to be worth $150 billion by 2020, but insurance will represent only a small part of the overall picture. The main elements of the Connected Home revolve around energy consumption, security, maintenance, infotainment and home health (or telemedicine). Nonetheless, insurers are busily partnering with utility firms, device manufacturers and other tech providers – not just to be able to better understand their customers’ lives or offer them personalised pricing, but to actually reduce the risk of accidents and claims happening in the first place. Smart water meters preventing escape of water is a great example of this.
This household insurance eco system is something that I personally will be exploring later this year. I’m about to embark on a large home build project myself (including uprooting my family into a static caravan to stay out of the way of the builders!) and I plan to ensure my finished home benefits from “better care” with a host of IoT devices connecting my water system, boiler, burglar alarm and smoke detector feeding into a specific insurance policy that’s more about prevention rather than protection, specific to my home.
The original Insurance IoT, ‘telematics’, remains a relatively niche product in most countries and adoption is less than 1% globally, although IHS estimate that market penetration in Europe, Asia and America could reach 15% by 2020. The broader concept of the Connected Car, of which there could be around 250 million in use globally by 2020, has the potential to drive up these adoption rates whilst also giving insurers a new platform to offer other types of service.
Wearable technology and home health monitoring devices are steadily improving both our understanding of our bodies and our ability to care for them. However, whilst many health insurers are starting to make use of these devices and data-feeds, the life insurance sector seems far slower off the mark. The same is true within the InsurTech space, as the majority of startups appear to target non-life applications. In fact, deals related specifically to life insurance accounted for just 7% of all InsurTech deals in 2016.
But all of this raises an interesting ethical question for the industry. The fundamental, age-old purpose of insurance is to allow people or companies to pool their risk, thereby obtaining relative safety (from unfortunate or unforeseeable events) in numbers. But personalisation is gradually allowing us to de-pool that risk. Insurers are starting to understand, at an increasingly personal and forensic level, which policyholders might be more prone to unfortunate or unforeseeable events – and to price accordingly, or to refuse cover altogether. Not such good news for bad drivers or those of us who don’t make sufficiently regular use of our gym memberships.
On the flip-side, some InsurTechs are coming up with innovative, and increasingly social, ways for people to pool their risk – sometimes without the need for an insurance company at all. In my next blog, I’ll be taking a look at Peer-to-Peer (or P2P) insurance, the Sharing Economy, and what opportunities and challenges this presents to startups and insurers alike.
Thanks for reading.