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Among the three emerging technologies poised to have a major impact on financial services institutions over the next few years, the internet of things (IoT) likely will have the greatest transformative effect on insurers.
As Accenture details in its report, Three technologies that are changing the financial services game, the availability of huge quantities of real-time data from embedded sensors in a wide range of internet-connected devices, along with advanced analytics, will allow insurers to offer many new and enhanced products and services. Indeed, we expect that the IoT will compel insurers to alter their business models.
Over the short-term, insurers could access data on behavioral factors that could shape and determine coverage and pricing, as there already are billions of connected devices worldwide. A few insurers already are repositioning themselves as key partners to their policyholders in preventing accidents and negative outcomes, instead of being just the back-up plan after an undesired outcome.
For example, wearable connected technology that can constantly record and share consumers’ health-related habits with insurers is beginning to significantly change the life and health insurance market. With this data, insurers could offer highly personalized discounts and other incentives to policyholders who make healthier lifestyle choices.
Meanwhile, auto insurers increasingly are offering policyholders telematics devices to record their driving patterns, rewarding less risky drivers with lower premiums or other benefits. A few carriers even offer policyholders real-time or retrospective driving coaching or both. And, in an effort to drive down homeowner losses, some insurers offer policyholders discounted rates for signing up with the home-monitoring services the carriers have partnered with.
We anticipate seeing only more of this. The recent Accenture Distribution & Agency Management Survey found that 44 percent of insurers cited connected devices as a driver of revenue within the next three years. And the Accenture 2013 Consumer-Driven Innovation Survey found that 78 percent of insurance customers are willing to provide relevant behavioral data in return for a personalized offering. But that means handling personal data responsibly will be critical to retaining customer trust and could even be a potential differentiator in the marketplace.
Over the medium term, insurers need to identify ways to efficiently manage, store and analyze all the connected data they collect to leverage IoT to its full advantage. That analysis will be invaluable in creating additional innovative and differentiated products and services. To that end, insurers should be developing or licensing an IoT platform that will serve as the hub and consolidator of all data received from the connected devices. Several services, including Accenture, already offer IoT platforms that can be licensed.
In addition, insurers should begin considering how the IoT might seriously disrupt and change the fundamental nature of insurance. For instance, if carriers’ risk management services prove effective, customers’ perception of insurers’ roles may change from being reactive accident compensators to proactive protection providers. In turn, customers may decide to withdraw from the traditional insurance market and self-insure or crowd-source their coverage with each other.
And since customer data will be much richer and more personalized, customers will expect to be treated as individuals. The frequency of interaction will be much higher. Rigid, siloed product portfolios will give way to liquid services that adapt continuously to meet customers’ changing needs.
These changes would require insurers to adapt organizationally. They would have to:
- Become more lean and nimble through new operating models and workforce structures.
- Develop and recruit workers with different skillsets than they have today, including better interpersonal skills and the ability to work within an environment that depends significantly on artificial intelligence.
- Adopt a governance structure that encourages innovations with a fast turnaround from conception to marketing.
- Learn to function successfully within an ecosystem of partners. That will involve sharing customers and their data as well as developing new skills, such as partner management.
Next time: Bockchain technology’s role in financial services.