Extending the Value of Insurance IoT Across Lines of Business

While IoT may seem daunting, the benefits of insurers are many, and those who are prepared will win the long tail race for today’s connected insurer.

(Image credit: Gerd Altmann.)

Insurance, perhaps more than any other industry, now relies on the power of data to drive results. Today’s connected insurance revolution, at its core is about making insurance better through the Internet of Things (IoT). Insurers achieve sustainable competitive advantage by excelling in three domains: risk management, claims management, and customer management. Insurance IoT uniquely impacts all three of these core insurance competencies across lines of business. Insurers are already leveraging IoT to improve outcomes across almost every major line of insurance.

Risk management

Traditionally, insurers have used proxy data to identify the risk of loss for an asset. For auto lines of business, actuaries use factors including age, gender, and credit score; homeowners’ insurance uses location and marital status; workers’ compensation uses business type.

The IoT gives insurers access to real-time, individual, and observable data on an asset’s (or person’s) risk of loss. This data is directly actionable for risk pricing and mitigation. By identifying actions or behavior that are causative of risk and leveraging IoT sensors that monitor these behaviors, insurers can create algorithms that tie observed behavior directly to pricing models. Insurers can similarly leverage this data for risk mitigation by providing timely and specific feedback to insureds rewarding safe behavior and warning of risky behavior.

Claims management

The claims management function has relied on subjective policyholder reporting and after-the-fact analysis, regardless of business line. IoT allows insurers to detect loss events in near real-time through dedicated event detection sensors (e.g., connected smoke detectors and telematics-based crash detection) or through behavior monitoring sensors and advanced analytics (e.g., heart attack detection through a wearable sensor). This use of IoT sensors for claims management enables insurers to mitigate losses, combat fraud, decrease claim settlement time, and improve policyholder satisfaction.

Customer engagement

Most policyholders only interact with their insurer when they file a claim (on average once every 7-10 years) or during policy renewal. Nearly all insurers struggle to engage with their policyholders in a positive and constructive way.  As Bain & Company points out, it can be difficult for insurers to build loyalty as they generally have fewer interactions with customers than other businesses, for example, retail banks. This lack of engagement contributed to the commoditization of personal insurance. Low engagement, combined with highly price-elastic customers, leads to customer churn that costs the insurance industry almost half a trillion dollars per year.  Low retention rates and the high cost of new customer acquisition are a major business challenge across the entire insurance industry. IoT can help insurers engage with customers, reduce acquisition costs, and improve retention rates through:

  • Improved customer segmentation: IoT data gives new insights into customer behaviors that can be leveraged for upselling and cross-selling opportunities across business lines. IoT data allows insurers to ask—and answer—new and more complex questions about their customers and prospects than ever before.
  • Personalized insurance offerings: Deeper understanding of policyholder behavior and individualized risk data allows insurers to personalize insurance offers to their customers’ needs.
  • Value-added services: Smart sensors can significantly improve the value proposition of existing services (e.g., adding location data to roadside assistance calls to improve response time). Insurers can also add new value-added services to differentiate themselves in the market. For example, insurers can offer truly personalized health and wellness programs to life insurance and workers’ compensation programs by leveraging wearable IoT devices.
  • Behavior-based feedback and engagement: With IoT-based monitoring individual behaviors can be detected and acted upon in near real time. This enables insurers to provide feedback in the most critical moments to either positively reinforce safe behaviors or educate about risky behaviors. Additionally, if a loss event is detected, insurers can provide immediate support to mitigate losses, protect policyholder safety, and reduce the time it takes to settle.

So, while IoT may seem daunting, the benefits of insurers are many. Those who are prepared will win the long tail race for today’s connected insurer.

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Geoff Werner // Geoff Werner is Chief Global Marketplace & Analytics Officer at Octo Telematics. He has over 25 years of experience in the insurance industry, where he has specialized in pricing and product management. Werner joined Octo in 2017 as Group Vice President DriveAbility and Consulting following 7 years at Willis Towers Watson where he was the Global Telematics Product Leader. Prior to Willis Towers Watson, Werner held a variety of positions at two top 10 US insurance companies and started his own consulting firm which he ultimately sold to Willis Towers Watson. Throughout his career, Werner has focused on the implementation of new products and processes leveraging innovation, including: developing and managing the DriveAbility product to provide telematics scoring services for participating insurers, implementing new rating and tiering plans using new analytical techniques, improving management information processes and assisting companies analyze and respond to legislative changes. An expert in pricing, Werner is co-author of the textbook that the Casualty Actuarial Society (CAS) uses to teach ratemaking to all actuaries.

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