The insurance industry has reached a critical turning point. New technologies and improvements in risk modelling underwriting metrics are enabling business strategies that improve the customer experience and at the same time increase profitability. But they need innovative thinking to be effective.
This new world is a challenge for many insurance executives, but it offers many opportunities. Forward-looking insurance firms are understanding that they can increase their profitability metrics and improve their risk modelling by investing in a range of technologies known as the Internet of Things (IoT).
IoT-based technologies can help insurers increase new business success rates, boost renewal retention, maintain claims best practices and improve overall loss adjustment expense ratios. They do this by vastly increasing the amount of data available, enabling them to better analyse risk profiles.
IoT sensor technologies have been implemented by many insurance companies in the vehicle property and casualty segment using a concept known as usage-based insurance. As drivers drive, sensors on their vehicles remotely gather data on their driving habits and characteristics, enabling actuaries to analyse driving behaviour in near real-time. At least one major insurer is trialling it. Telematics and ‘connected car’ technologies have the potential to automate the systems that allow underwriters to improve pricing by more accurately assessing risk. Insurers can close claims more quickly and improve loss adjustment ratios. This process improvement also leads to a positive customer experience, which has the potential to further improve profitability.
Insurance companies learned that by applying an IoT methodology to how their customers interact with risk behind the wheel, they can gather the raw materials data they needed to help create a lift in overall profitability. And they can do this while rewarding their less risky customers with discounts and enhancing their value proposition to the consumer (emergency road side assistance, vehicle recovery, vehicle maintenance alerts, etc).
As well as on-board sensors, the technology is now being extended to mobile phones, which increasingly also have motion sensors nowadays. Or home sensors that tell whether locks and other security systems are doing their job. That technology will be commonplace in a few years.
But this is just the beginning. Increasingly, insurance companies realise that they can improve many aspects of their business processes by using modern data analytics captured using connected IoT solutions. Interactions with existing products — when combined with demographic information and retail spending habits — can help insurance companies understand who to better target with their products and improve market timing.
Imagine, for example, sensors on pill bottles that can tell if people are taking their medication correctly, which can then flow through to reduce health insurance premiums. There are many applications of IoT technology to insurance.
To create a better customer experience, enterprises are using IoT sensors to collect and share customer preferences and build a seamless omnichannel strategy. Insurers can use IoT solutions to better understand group and individual buying behaviour, and more insightful analytics allows them to offer consumers the services and products they want, on demand.
For example, for more personalised experiences, customers can opt to share their mobile phone profile when they engage with an insurer. This is similar to how loyalty programs work in the retail market. This strategy offers a 360-degree view of the customer and better educates them about the insurance buying cycle, investment services, transparency into the insurance process and claims services.
Life and annuity companies are also beginning to reap the benefits of IoT for underwriting profitability. Group and individual life providers and workers compensation players are looking for ways to measure their customers’ adherence to proven healthy outcomes. Reinsurers are benefiting from the IoT by tapping into sensor data to view a more robust picture of the risks being underwritten around the globe.
And with cyber terrorism on the rise, insurance companies are looking to use IoT data in support of key global threat indicators tied to commercial business continuance and cyber breach products. Cyber threats compromise retailers and place personal identifiable information at risk.
Enterprise and mid-tier insurers are looking for ways to consolidate cyber risk data into a score, similar to a credit rating, to denote how to best underwrite cyber breach policies. Insurance companies are looking for automation metrics to indicate a policyholder’s cyber threat posture and help manage these risks on a personal and commercial level.
How will insurance companies look to consume the IoTs? At first, insurance companies tried to figure out the IoT on their own. Then telematics services providers emerged to help simplify the IoT data consumption value chain. Now, it’s the global technology solutions and communications providers that are not only consolidating the connected world, but making it more consumable for insurance providers to ingest.
These companies have made heavy investments to support a global view in providing IoT data to insurers. Paying close attention to global technology solutions and communications providers and their investments, and partnering in a meaningful way is one of the best ways to stay out in front of profitability in the insurance world.
Kerry Kirk is executive consulting partner at Verizon Australia, working on new technology with the company’s professional services partners.
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