The Internet of Things (IoT) is creating major new opportunities for the insurance industry. IoT data can help insurers more accurately price premiums, create better models for future payouts, and offer products with incentives for good behavior.
This comes at an important time for the insurance industry, which has struggled to develop long-term growth strategies. 75% of insurance execs expect they will feel pressure to innovate from new data sources, such as IoT devices, within three to five years, according to a survey.
The auto insurance sector has already begun embracing the IoT through a new product called usage-based insurance (UBI). UBI policies use the IoT to monitor clients’ driving habits in real time and price premiums based on the risk the company sees.
One in five US households participated in an auto UBI program in 2015, up from 13% in 2013, according to a survey.
But in order to get people to adopt UBI policies, insurers will need to effectively market the products and be transparent about which driving behaviors will cause their policies to go up or down.
The health and life insurance sectors are beginning to leverage wearables to give consumers incentives for good behavior. 39% of insurers surveyed said they have either launched or are piloting insurance programs that leverage health and fitness monitors, up from 10% in 2014.
But data privacy safeguards will be critical if this type of monitoring is to take off. Health data is some of the most sensitive personal information.
Home insurance companies are encouraging consumers to use connected home devices to keep their properties safe. Internet-connected cameras, water sensors, and smoke detectors can potentially minimize the amount of money an insurance company has to pay should any damage occur.
The IoT has also created a new type of insurance coverage — cyber insurance. The adoption of IoT devices by large enterprises has created lots of new entry points for hackers to infiltrate a large organization’s systems. Companies are investing in these policies to offset the huge costs associated with breaches.
Drones, a major IoT product, are helping insurers assess damages and creating a new business opportunity. Insurers can deploy drones to record and monitor damages faster and more safely than using an employee to do this. For enterprises that employ drones, insurers are beginning to insure the devices in case of crashes or damages.