Why the Future of the Insurance Industry is in the Internet of Things
The world of IoT, although still young, is forever changing the rules of the game for all its players. Its wide scope and endless possibilities are revolutionizing business models, creating unexpected partnerships, and favoring unique market opportunities for service providers. This is exactly the case for the Insurance industry, which, while traditionally conservative, has been fast to grasp the benefits of utilizing connected home and smart security and safety technologies to improve their business. Having their customers’ homes equipped with smart devices allows them to offer new value-added services, differentiating themselves from competitors. Although the practice is still in its early stages, back in 2015 45% of insurers already believed that connected devices would help drive growth in the following three years. But it is just now that this business strategy is starting to catch on. And it even has a name: Connected Insurance.
Insurance companies have much to gain by having their customers equipped with connected home solutions.
The first and most powerful reason is that connected devices help mitigate risks and reduce claims. How? The possibilities are many:
- A connected alarm will help stop a burglar from entering a house and stealing valuables.
- A smart water shutoff valve that will stop the water flow when a flood or water leak is detected.
- An intelligent thermostat will automatically turn the heat up to prevent the pipes from freezing when the outside temperature drops to a dangerously low level.
- A smart smoke detector will send an alert to the user’s mobile phone the moment it detects an anomaly, allowing him to take immediate action and prevent the house from burning down.
A real life example of such a method is the partnership between Liberty Mutual Insurance and Google’s Nest. Liberty sends Nest’s smart smoke alarms out to customers free of charge, and then takes up to five percent off customers’ insurance premiums once installed. Considering that the average claim for a residential fire is over $35,000, this implies significant savings for the insurer.
Big data analytics also play a huge role in this new business model.
Data interpretation and analysis will help insurance companies identify patterns and optimize their offerings, perfect risk assessment and control losses, so they can focus on prevention instead of reaction. As Andrea Silvello, from InsurTech News explains in this article, “connected homes and access to data gathered from smart sensors and devices will provide valuable insights that can lead to higher customer satisfaction, lower costs and risks, improved efficiency and prevention” while also allowing companies “to have real-time data regarding the conditions of a property prior to and after a risk alert”. Also, they will gain a better understanding of their customers’ behavior and the risk factors, which will result in better claims handling.
Healthcare insurers can also benefit from connected systems.
For example, insurance heavyweight John Hancock was one of the first to leverage the power of wearable devices, partnering with Vitality to distribute free Fitbits to customers, so that they could track their well-being. John Hancock incentivizes customers to stay fit – thus making them less at risk of filing a claim – by offering entertainment, shopping, and travel rewards and discounts.
Another example is where seniors living alone are equipped with smart devices that help prevent falls and receive immediate help in case of an emergency, favoring a quicker recovery. This will also result in less money spent in costly treatments caused by a fall that could easily have been avoided. According to the article, “health insurers are trying to transition from the traditional role as a simple player to a more central role where they become the point of reference for customers in health-related matters.”
But not only companies will benefit from the use of connected technologies. Homeowners will also see their policy costs reduced, given that smart technologies help reduce the risk factors a household can experience over time. Not only they will pay less for their insurance, but also have the peace of mind that their loved ones, their home, and their belongings have extra protection, helping avoid accidents and preventing unnecessary hazards, thus increasing customer satisfaction. According to Accenture, 80% of customers would be willing to change providers for more tailored insurance.
Insurance companies over the world have a unique opportunity to take the lead in offering this type of services to their customers and gain a significant competitive advantage in an otherwise very homogenous market, differentiating themselves from competitors, while building a tighter relationship with their customers, and reinforcing their loyalty.
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