In my first two posts in this series, I explored the risks and opportunities the Internet of Things and related innovations create for insurers. Now, I’d like to have a closer look at how access to connected devices and the volumes of big data they produce could underpin next-generation business models for insurance carriers.
The tendrils of the Internet of Things are beginning to reach nearly every insurable asset and life in the world—cargo ships, farm irrigation systems, factory equipment, telematics systems in cars, home thermostats and security systems, and even fitness wearables such as wristbands and eyewear worn by health and life customers.
Conservative independent estimates place spending on the Internet of Things worldwide at $20 billion in 2012, rising to $500 billion by 2020. More optimistic predictions of the value it will create range as high as $15 trillion of global GDP by 2030.
These devices gather reams of real-time data about the lives and assets insurers cover — for example, contextual information such as temperature, moisture readings, or GPS location. What’s more, each of them shares this data with other devices and systems in the Internet of Things. Thus, a cluster of connected devices and sensors (in future, a single motor vehicle alone might have several) could act as a self-regulating ecosystem.
As these devices become smarter, they could alert other devices to take automated actions or let a human operator know there’s a problem. For example, an overheating machine could shut itself down before it is damaged when a sensor warns it to do so. In this sort of environment, as I mentioned earlier, an insurer’s role might change dramatically from covering risk to helping clients manage it.
There are already some early examples of this thinking in action. Germany’s largest insurance group, Allianz, has entered into a digital alliance with Deutsche Telekom, for example. Together they plan to offer a solution consisting of technology, assistance services and insurance that will allow customers to monitor their homes using sensors and their smartphones.
If there’s a problem such as a burst water pipe, sensors will automatically inform the user through his or her smartphone as well as alert Allianz’s emergency hotline. If necessary, Allianz will organize repairs and settle the bill.
An example in motor insurance is an intelligent driving service from Finnish telecom carrier Sonera. This service uses telematics data to provide customers with information on traffic congestion, roadworks, accidents and nearby parking spaces. Sonera hopes to bring insurance carriers on board for this solution — as an aside, this highlights how the Internet of Things is opening gaps for other industries to target insurance customers with innovative solutions.
As these examples show, savvy insurers could stretch their business models beyond simply offering cover to their customers. Rather than calculating the risk that something bad will happen to a customer and paying a claim if and when it does, they could find ways to move into new markets and services.
Some are already investing in reducing the chance the risk will actually happen, as well as in services and solutions that are valuable in the customer’s day-to-day life. Carriers thus have an opening to redefine their relationships with their customers, muscle into new markets, protect existing revenues and grow profits.
And they can position themselves for a world where they don’t make money solely from selling policies. In future, they’ll analyze the policyholders’ hazards and risks, providing actionable recommendations for minimizing losses and even optimizing performance, and aggregate a range of value-added services.
First, however, they must earn customers’ trust to leverage their data. This is the subject of my next post in this series.