The Internet of Things: a slow revolution
In an increasingly interconnected age, IoT technology has been used in personal lines to improve pricing accuracy, but this innovation in data collection has yet to make an impact on business insurance
Technology has allowed many industries within financial services to innovate in new ways and now the application of ‘internet of things’ (IoT) technology has become an area many executives are starting to seriously consider.
For the unacquainted, IoT tech refers to a network of devices that communicate with one another through wireless internet connection. This can include the use of sensors, which opens up a range of data collection and analysis benefits to businesses.
“The growth of IoT-enabled devices has given insurers the ability to give much more accurate pricing around a given risk,” explains Ben Davis, insurance lead of emerging technology and international at corporate insurer Superscript.
“We can collect so much more usable data by embracing IoT technology and get to a better price point to offer a product that’s much more customer-centric than it is today,” he says. “People want to pay for what they use, not be lumped into an annual opaque policy that requires multiple paper-based application forms.”
Getting with the programme
IoT solutions are already being used by insurers within the motor industry. Here, telematic systems use sensor devices throughout a vehicle to create a full picture for insurance third parties.
ThingCo is an insurtech company that has developed a device called Theo, designed to stick to the windscreen of a car and collect data from every journey. The device creates a driving ‘score’ based on a wide range of factors, including speed relative to real-time speed limits, miles incurred, driving patterns, aggressive acceleration or braking. These driving risk scores are then used alongside traditional rating factors for the pricing of risk on renewal or for mid-term premium adjustments.
“The ability to collect second by second data driving data, and even more granular information in a crash situation, means we can understand exactly how the vehicle is being used,” says ThingCo managing director Ray Westwick. “For example, we know the moment of impact in a collision and the force of that collision, we know when someone is speeding consistently over a given period, we know when the car is sitting idle.”
Westwick explains how, in the event of an accident, a crash alert kicks in and activates a voice command using Amazon Lex and Amazon Connect in the device. The real time interaction with the customer using the device’s inbuilt microphone and speakers means they can immediately confirm or deny the accident, reducing false alerts and putting insurers in greater control.
The advantages of greater data visibility are clear, potentially allowing insurers to price risk more accurately and overall lead to better management of their liabilities. These benefits are now being recognised for the front end of insurance businesses.
Embedding IoT in pricing
“While insurers want to see a reduction in risk, customers inevitably need to see a monetary or product benefit,” says Rebecca Clapham, managing director of Direct Line business insurance.
“The savings are big enough to make it desirable for customers to share their data and the risk benefits make it beneficial for insurers to fund the device,” she says. “Ultimately the magic recipe is about the tech being affordable and the customer winning because they get more value. If we can make this happen more often, I think the IoT has great potential.”
Despite this recognition of the benefits IoT solutions can bring, the wider insurance industry has been slow to fully integrate it. Westwick has been working on telematics and motor insurance since 2009 and still sees firms struggling to effectively embed IoT into their risk pricing systems.
“The insurance industry has found it difficult to make telematics work economically across all sectors, since essentially the technology has been given away free and the risk benefit to outweigh the cost is difficult to achieve,” he says.
“Ultimately, telematics has to deliver, in lower claims loss ratios. Consumers need to be incentivised to drive safely and the data should be used to drive the first notice of loss process to help cut fraud, speed claims handling and deliver a great customer journey.”
Keep the client happy
Customer retention may drive greater IoT adoption among insurers, as it is clearly recognised the benefits this tech can bring to clients – the efficiency in how they access insurance products.
IoT solutions are being increasingly used in the real world and this has led to audiences becoming more tech-savvy. People already use AI home assistants, and smart watches linked to their phones and other devices, so what is stopping this being extended to the interaction with financial services?
IoT tech provider Cognizant already works with several insurance names and David Sexton, head of the firm’s insurance practice in UK and Ireland, sees it as only a matter of time before this is being used directly by consumers.
“Looking to the longer term, we may see a shift in commercial insurance towards a greater appetite for self-insurance, with re-insurance type contracts, as businesses use IoT to manage their own risks better,” says Sexton.
“For personal insurance, as long as policyholders are willing to share their data, insurance could be built into their IoT devices. For example, theft insurance built into a home security package, car insurance built into car telematics, or even health insurance built into your smart watch.”
It seems insurers are delaying at their peril. There are numerous examples of businesses using technology to cut out counterparts and go straight to the consumer (AirBnB, Uber, Deliveroo etc), and Davis at Superscript points to insurers’ sluggishness to partner with tech providers as a potential risk now.
“Insurance has largely been insular and myopic, just focusing on current market conditions and not what they’ll be in two or three years’ time, leading to knee-jerk reactions and wildly swinging appetites,” he says.
This is slowly changing, but there is a threat from technology companies, who look over the fence and see that insurance has enjoyed its reign for far too long.
As Davis concludes: “To survive in this industry, insurance needs to embrace new data-driven principles and insights, or they’ll find customers have moved to someone else who is natively digital and much more customer-centric.”