The Internet of Things in Insurance – EY Paper
Article Synopsis :
Until recently the Internet of Things (IoT) was on the strategic agenda of only the most progressive insurers. 2016 is the year IoT goes mainstream in insurance.
The most impactful IoT data streams for insurers are likely to include:
- Wearable or personal technology
- Sensors on objects
- Location-based sensors
- Other geographic information systems (GIS) that provide geophysical, topographical, climatological and hydrological data
“The Internet of Things in Insurance” from EY explores the processes, functions and areas where IoT will likely have the biggest business impact. The report also discusses risk management and the operationalization and monetization of IoT data. In summary:
1. Processes, functions and areas where IoT could have the biggest business impact:
Iot helps build direct relationships with customers, which opens up new sources of unfiltered raw data helping insurers gain insights into customer wants and needs toward the development of customized product solutions. Unfortunately insurers rank last of seven major industry segments with only 36% of carriers reporting the ability to use insights from new data sources to boost customer value (compared to 54% for retail).
Per the report, there are an estimated 5 million active UBI policies in 35 different countries. From this relatively low base, EY estimates UBI policies will reach 15% market penetration by 2020 in Europe, Asia and the Americas.
IoT data combined with analytics lays the foundation for new business models. IoT also has the potential to disrupt the functional value chain across underwriting and claims processing as it expands the risk-assessment horizon. Already IoT’s role is expanding in Commercial lines with the deployment of in-vehicle sensors and tracking devices. IoT is also helping Life carriers tap younger customers with access to automated retirement planning and more simplified and affordable products tied to lifestyle.
2. The biggest and most important risks to manage – including data security:
IoT generates new streams of data – and new data privacy and security risks for insurers. Important points to consider include:
- Security teams must look beyond the perimeter of protecting corporate assets.
- Technology teams should embrace new technologies in the areas of proactive network monitoring, identity and access management, supply chain security, industrial systems security, and the embedding of privacy and security in product design, augmenting traditional efforts.
- Product teams should proactively assess and negate potential security risks at the earliest stages of product conceptualization and design.
Other swing thoughts around data security include:
- Prepare plans to address customers who demand more value
- Enhance generic policy statements and protocol
- Don’t store or maintain customer data
- Engage with regulators and peers to build effective policies
- Build organizational resilience as part of IoT cybersecurity solutions
3. Best first steps for insurers seeking to operationalize and monetize data originating from IoT:
Engage with customers to find the right opportunities for IoT. Some of the tactics to do this are:
- Test and learn with wearables
- Create product bundles
- Consider downselling and upselling depending on customer profits or premiums
- Engage with underwriters who play an active role in product design
- Solve legacy issues via a holistic approach rather than a targeted solution
The report contains a concise table outlining action plans with first steps in the following key areas: Customer Data and Security, Analytics, Product Innovation, Underwriting, Life and Claims.
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Digital Insurer's CommentsIoT-enabled self-service, self-improvement and claim prevention are all inevitable because they ultimately lead to lower premiums for (most) customers.
IoT forces insurers to stop selling products and start selling experiences – a completely different ballgame for which many insurers aren’t equipped.
Pure innovators, startups and the like, see a potential gold mine. For legacy insurers it’s the innovator’s dilemma: Where do you disrupt yourself and at what rate?
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