The Rise of the Internet of Things
Following on from my last blog, where I discussed disruptive business models that are on the horizon for insurers, I now want to highlight one particular disruptive trend — the proliferation of ultra-connected devices in the Internet of things.
According to technology research firm Gartner, the Internet of Things will comprise 26 billion devices by 2020, almost a 30-fold increase on 2009. This proliferation of connected devices could enable insurers to not only offer their customers more efficient insurance but also help them better manage the day-to-day risks they face in their personal lives and businesses.
An early example of how the Internet of Things is starting to transform the industry is the use of vehicle telematics in the motor insurance space. Whilst not new, telematics and usage-based insurance have seen rapid growth as consumer acceptance of personal-data collection increases.
In the UK, the British Insurance Brokers’ Association (BIBA) revealed earlier this year that driving-behaviour-based motor insurance sales have increased by 61% since June 2012. It believes sales will continue to increase with the rise of new mobile applications.
We are only scratching the surface with ‘pay how you drive’ insurance. How far are we from translating this principle to home insurance, where sensors can now be used not only to monitor the risk of theft, fire and flooding – adjusting premiums dynamically – but also to help customers manage their risks?
Farmers in Kenya already have access to weather-index-based insurance, which covers farms as small as one acre by replacing costly farm visits with measurements from weather stations as the indicator of drought conditions. The weather stations measure the rainfall, and these measurements are compared with an agronomic model specifying crops’ rainfall needs. If the needs are not met, all farmers insured under that station automatically receive a payout.
Insurers must start considering how they as well as tap into the information flow created by digitally connected devices; otherwise they may risk a gradual attrition of their customers to non-traditional competitors that are already playing aggressively in this space.
In the US, Verizon has launched Verizon Telematics to offer safety and diagnostic telematics and fleet management services – a move that positions it as the potential owner of relationships with consumers that need vehicle cover. Google, meanwhile, has acquired smart thermostat and smoke-detecting hardware company Nest, readying itself for the ‘smart home’ of tomorrow.
Against this backdrop, forward-thinking insurers are assessing the role they have to play in enabling disruption and embracing innovation. The questions they must answer around privacy and data use are complex, but the rewards of getting it right could be enormous.
From next week, I’ll be diving deeply into vehicle telematics as one example of the disruption brought about by the Internet of Things. In the meantime, to read the earlier posts in this series, click here. Or have a look at the Accenture Technology Vision for Insurance 2014 to learn more about some of the trends disrupting the insurance industry.