Over the past few months, in some of my blog posts and videos, I’ve explored how the Internet of Things might bring widespread change and opportunity – and disruption – to the insurance industry. The rise of the Internet of Things is, in my view, enabling insurers to review their business models and ask themselves some fundamental questions about what they do, what they could do and what they should do.
The reason for this is simple. As we move towards a connected world, the proliferation of sensors and devices in offices and factories, and in consumers’ homes and cars – even on their person – will deliver unprecedented volumes of data about real-time events and conditions, and customer behavior and lifestyles. As individual risk profiles are fleshed out with much more granular data, the traditional notions of risk estimation and pooling are likely to disappear. The identification and management of risks will become much more personalized and efficient, and as a consequence the value proposition of insurance will change.
Accenture’s Consumer-Driven Innovation survey showed, earlier this year, that 81 percent of insurance customers would be happy to give insurers access to this data if it freed them from the tyranny of having their individual premiums determined by the circumstances of the group. After all, research has shown repeatedly that most people believe they are better-than-average drivers, and who really believes that the tornado is going to flatten their home? If, in addition to the prospect of lower premiums, customers are offered useful data-driven services, insurers are likely to have access to a veritable wealth of information.
What would be the value of all this information? The most obvious answer is insurers could use it to improve their underwriting and pricing. It would improve the efficiency of claims processing, and make it easier to detect and prevent fraud. The impact on profits would be immediate and significant.
Accenture’s recent Claims Customer Survey showed that customers who submit a claim are twice as likely to switch providers as those who don’t, regardless of their satisfaction with the claims process. So insurers that manage to reduce the incidence of claiming not only cut their loss costs – they also improve their retention rate. The Internet of Things promises to make it much easier for insurers to help customers manage their risk. One example is sending the warehouse manager live footage of a suspected break-in, direct from on-site surveillance cameras to his mobile phone. Another is using vehicle telematics to offer new drivers real-time coaching on safer driving habits.
Big data is also indispensable to insurers that seek to answer the call for more personalized products and services – our research showed that 80 percent of customers would switch to a provider that offered them personalized services. The ability to offer the right product to the right customer, at the right time and through the most effective channel, will be critical to growth.
A deep understanding of the customer is also one of the drivers of the ecosystems that are becoming more commonplace. The carrier that owns and can act on these insights is ideally placed to set up a diverse suite of partnerships that address a broad spectrum of the customer’s needs. The array of offerings would extend beyond insurance, creating entirely new revenue streams. They would also open up countless opportunities to engage on matters that are important to the customer – and that generate not only new income but additional data.
If all of this sounds too good to be true, it’s because there are indeed a number of threats inherent in the connected world. In my next post I’ll explore these, and some of the steps carriers should consider to prepare themselves for a very different future. In the meantime, you might be interested in reading our white paper on the Industrial Internet of Things, and its implications for businesses.
More about that next week.