For today’s consumers, the internet is such an integral part of daily life that we now struggle to imagine life without it. To date, proliferation has largely been driven by content and speed but we are now entering a new phase of growth where the everyday ‘things’ around us will be connected to the web. This is the Internet of Things (IoT) and it is going to have a huge impact on the way consumers interact with their environment and service providers.
This new phase of the Internet’s growth has the potential to be a game changer for insurance but few have actually developed consumer strategies. This is a little surprising given many other industries have already made big bets in what is widely recognized as multi-trillion-dollar opportunity.
In the US, all the major retailers have entered the space alongside service providers such as AT&T and Comcast. The big tech players, Amazon, Apple, Google, and Microsoft have made their move with differing strategies and business models. The UK is following fast with British Gas leading the way and retailers like John Lewis and Dixons entering the market. These businesses recognize that the ability to refine and exploit data from devices to deploy new value-added services will be critical to their success in a connected world.
Given that data is the lifeblood of the insurance industry it’s surprising that they have been slow to enter the market.
Historically, the traditional building blocks for assessing risk have been simple. Insurers use information about the customer (credit risk, history of claims, etc), their property (type, size, cost of rebuild), and the location (weather, local hazards, etc). In the future, mixing this with IoT data will give much deeper insights. Data from devices in the home, information on the services customers use, and insights into personal behavior, will all help insurers make smarter decisions and to develop better business models.
The traditional insurance business models have significant limitations in a digital age. Consumers don’t really have a relationship with their insurer. Consumers call once a year, haggle over price, and then pray they never actually use what they just bought. The insurance discounts offered as enticements make little sense. Savings are offered for having security systems and fire sensors even though more than half the customers never switch their alarms on and the fire sensor batteries are flat!
The IoT should excite the traditional actuarial teams. Real time data from devices that can reduce fire, flood and theft losses has huge benefits. In the US, the Boston Consultancy Group estimated it could reduce annual claims by 40%-60%; with almost $10Bn a year in claims, that is a huge saving.
However, there is a bigger opportunity. Insurers can use the IoT to reinvent how they engage with customers by bundling smart home and IoT products and services with policies to deliver more value and drive consumer engagement. Most customers with smart home systems interact on an almost daily basis with their service provider. Moving the brand from an annual to almost daily interaction and shifting from being reactive to losses to become proactive by providing systems that help prevent them, will deliver real benefits both consumers and the insurer.
There are challenges. The IoT is a technology that insurers do not really understand and supplying hardware is not something they have ever done. However, if that’s a stretch, they can forge new partnerships with the companies that can supply and support smart home solutions. Security and data privacy are also real issues but many leading smart home service providers have developed robust systems and policies.
The biggest mistake insurers could make is to ignore the threat and ponder. Retailers made a that mistake when they failed to recognize the power of the internet. They were confident customers would never buy on the web and before they realized they were wrong, new entrants such as Amazon had stolen huge market share.
If you would like to learn more about how we might be able to help, contact us.