Other parts of this series:
- Insurance industry is ripe for disruption and technology investors are eager to capitalize
- Insurance technology promises big returns for carriers and investors
- Rapid spread of the Internet of Things will broaden opportunities for insurance technology investors
- Insurers need to look for quality managers as well as smart technology when investing in start-ups
IoT development is being spurred not only by technology, but by the needs and opportunities of different markets.
Venture investors have been quick to recognize the potential of the Internet of Things (IoT) to radically transform the insurance industry.
Big insurers such as American Family, Aviva, AXA and Generali are financing a variety of IoT start-ups. Meanwhile, heavy-weight investors from outside the industry, such as Google, Bain and Kholsa, are also pumping substantial capital into fledgling IoT firms working on insurance solutions.
There’s no doubt that the potential of IoT insurance applications is enormous. Worldwide spending on the IoT is expected to nearly double to US$1.3 trillion in 2019, according to International Data Corporation (IDC). And spending in the insurance industry will accelerate dramatically over the next five years. Annual compound growth will reach nearly 32 percent, reckons IDC. Up from about $33.5 million last year.
Vehicle telematics dominated early IoT insurance development. And consequently has attracted a big slice of initial investor funding. However, IoT development is spreading quickly. And investors are surely going to follow this trend.
Our global Distribution and Agency Management Survey identified a big increase in IoT products and services that address homes and buildings as well as health and fitness applications. Much of this diversification occurred in the past 12 months.
Advances in technology, particularly sensors and wearables, are driving much of the new demand for IoT products and services. And opening a host of emerging applications throughout the insurance value chain.
However, it’s the incredible versatility of IoT technology that’s spreading it into a huge variety of new tasks and creating additional markets for insurers. Increasingly, IoT development is being spurred, not only by technology, but rather by the specific needs and opportunities of different markets. A myriad of specialized IoT solutions are being developed across a wide range of industries. And also in many different countries.
IDC reports that in Central and Eastern Europe, for example, smart buildings is the fastest growing IoT application. Whereas in Latin America it’s maintenance and field services, and in North America contextual marketing is rising fast. Telematics solutions for auto insurance continues to be a fast-growing business in the Asia-Pacific region.
IoT development and the start-ups that drive much of this innovation will increasingly address more and more diverse applications as well as a wider range of regional applications. Developing nations, such as India, will be an important focus. Big investors, insurers and other major funders, will be faced with an escalating array of options and opportunities. Spotting the potential successes is likely to get a whole lot harder.
In my next blog post I’ll discuss some of the key reasons why many insurance technology start-ups fail.