The Internet of Things is the concept whereby everyday objects have the ability to send and receive data. This may sound like a simple idea, however can we really begin to imagine the possible scope of the IoT and its impact on our everyday lives? Gartner; a specialist information technology and research organisation estimates in 2020, “25 Billion Connected Things Will Be in Use”. The possibilities, in truth, are rather endless and this poses new opportunities and threats for companies; and in particular insurance firms.
The Beginning of IoT
We can already see the first ideas forming. New products such as Roost; a smoke alarm that alerts you the moment smoke is censored, by sending an SMS message to your smartphone. Hence, if you are away from home and receive a text from Roost you know immediately to call the fire brigade. This is smart, efficient and accident preventative. Black boxes installed into cars which measures individual fuel consumption, acceleration, braking and much more. This enables insurers to monitor drivers’ behaviour and charge premiums accordingly. CBR believe the “connected car” could be a huge component of the IoT market and a driver of growth as it holds immense potential to add trillions to the global economy. The aforementioned examples illustrate the changing insurance market and therefore the need for insurance firms to restructure their underwriting processes, as we see both the opportunities for growth become available and the risk level alter.
The landscape of risk associated with insurance will change with the rise of the IoT. Data will become more easily transferable and will give firms greater information with which to perform underwriting. Risks can be prevented with early detection and this can be due to the efficiency with which data is transferred. Insurance schemes can be more personal and customer orientated as more information surrounding individuals become available. This is ideal for insurers as they can underwrite more accurately given “perfect” knowledge of their customers.
Adaptability & Competition
Mckinsey Global Institute believes:
“The IoT has a total potential economic impact of $3.9 trillion to $11.1 trillion a year by 2025”
Therefore; indicating IoT as a potential growth area for firms to focus on. Strategy consultants Roland Berger believe for insurance firms to compete in the growing IoT market, they need to do one of two things. Either; build a leading IoT system or offer IoT linked insurance. The latter would appear as a way for firms to keep up with the market. The prior, on the other hand, would give an edge over competitors. In an already competitive market, this may be the brave action to take. However Roland Berger believes most insurers will have to make partnerships or use the platforms provided by those who have the best ability to create the IoT systems, such as the manufacturers themselves or other tech giants such as Apple and Google. And, we can see this happening already. BMW (the manufacturer) built the “first factory-fitted telematics to offer drivers insurance premiums based on their usage”. Allianz (the insurer) then took the initiative to partner with BMW and offer motor insurance through part of BMW’s connected drive technology. A trend to continue perhaps?
The IoT will alter the focus of insurance firms and will change the way in which insurers underwrite. Those who can price correctly will be able to keep up with the changing market, however those who take the initiative and brand their own, or partner those with IoT systems may increase market share as we enter into the new world. With such varied speculation surrounding the potential of the IoT, who knows how invaluable this may prove to be.