Other parts of this series:
The Industrial IoT (IIoT) is already disrupting all kinds of industries. To capitalize on this trend, insurers will have to adapt, innovating across the entire value chain and combining insurance with technology, ecosystem services and partners.
The IIoT is digitizing and intelligently automating the industrial sector, changing the structure of the industry, the nature of risk, and the role of insurers. The opportunity is immense. For insurers, capitalizing on the IIoT will mean rewiring their businesses.
Insurers need to meet new customer expectations, develop new products for more connected environments and cater for new risks. As industry lines blur and new players enter the market, insurers will also need to review their business models and roles, repositioning to lead as well as follow as they become participants within larger ecosystems that sell outcomes and experiences, not things.
Delivering connected insurance – the models
Delivering connected insurance will require significant adaptation of traditional approaches. It implies a line of tasks that stretches from data collection, over the engagement with partners, to insurance operations. Three broad approaches—a retail/resale model, a data sourcing model, and an end-to-end model—describe the role insurers may adopt to penetrate the IIoT market.
Using a domestic security system as an example of a system of connected devices, an insurer may:
- In the simplest instance, hand out a discount if its customer makes use of the security system (a risk-reducing IoT solution) that is either provided by the insurer itself or a third-party. This is a rebate model.
- Use the granular activity data sourced from the security third-party (e.g., how often doors are locked) to dynamically set the premium. This is a data sourcing model.
- Tightly control the whole value chain from sensor to operations, and also provide the security system. This is an end-to-end model.
- Provide only a very tailored product for the home security provider, which sells it through its own sales or customer interaction channels. This is a utility model.
This example extends easily to the industrial sector, where connected equipment and systems within manufacturing, transport, logistics, energy and other industrial organizations play critical roles within operations and supply chains, offering the means to manage risk.
Partnering within an ecosystem
A data sourcing model, for example, can be applied to anything from a single device to composite products (e.g., cars, ships) to whole facilities (e.g., smart mines). In such a scenario, an insurer may draw on the sensor/ hardware installations of its customers. These installations may be owned by the customer, or the insurer may partner with the device or system provider to access data and provide the insurance product.
Smart-ship insurance offers an example.
- The shipping company shares ship data with stakeholders – among others, the insurer.
- The insurance premium is efficiently calculated. It may be usage-based and determined by inputting details of the trip and its risk factors (e.g., the cargo, ship characteristics, route chosen and weather conditions).
- The current insurance product can be evolved into a holistic supply-chain product where the shipper directly includes the end-to-end risk premium in its pricing.
- Additional risk management services might be provide—e.g., new pirate or terror warnings could be sent quickly to the company and the ship’s captain.
Key enablers of this model would be partnerships with shipping companies and logistics players, big data and analytics capabilities, and ecosystem management capabilities.
Which role will your organization choose to play?
Insurance opportunities along the IIoT value chain
Connected insurance exposes opportunities for insurers along the entire IIoT value chain, from device provisioning to data collection or procurement, product design, data analysis, value-added service or insurance operations, marketing and distribution, and the ecosystem interface.
An end-to-end model would see the insurer supplying the hardware (from partners), all services, and the insurance product, with ecosystem partners potentially contributing services.
However, there are more variations on these approaches.
Variations on a theme
A utility insurance model may see an insurer provide insurance as a service into an existing ecosystem orchestrated by a different party. The insurer may be one of many insurers providing services within this ecosystem, or may be the only insurer contracted to the orchestrator. In both cases, the orchestrator may help “sell” the insurance product.
In this scenario, value added services may be part of the insurance proposition. Where a single insurance provider is involved, service quality, efficiency and price may be critical features that would drive strong adoption of the insurance product in the ecosystem.
The IIoT opportunity is an exciting one for insurers.
Defining an IIoT strategy
Insurers exploring their IIoT options need to incorporate an IIoT strategy as part of their digitally-enabled business strategy.
Key questions to ask will be:
- What lines of business can benefit most from the IIoT today?
- What data is most influential and what business model should we pursue to make use of it?
- What ecosystem partners or IIoT data providers do we want to work with?
- What are the most promising product ideas and their minimum viable products?
However, as this market is still immature, insurers should keep the bigger picture in mind—initiatives should not focus on immediate profitability; they should be aimed at extending the organization’s capability set.