IoT Value Clear for Insurance Industry

It is hoped--perhaps expected--that application and service providers will have a far easier time convincing potential buyers of the business value of Internet of Things features, compared to some other innovations of recent decades.

Unlike some earlier value propositions, which generally revolved around automation, and the cost side of any business, IoT value tends to come from the revenue and margin side of the business.

That tends to get a better reception from decision makers.

On the other hand, the Internet of Things should also blur industry boundaries, allowing new competitors--especially those not traditionally in the insurance industry--to create services that take market share.

Such porous industry boundaries typically happen when important new technology gets deployed, and virtually always when markets get deregulated.

source: AT Kearney

Consider the benefits for insurers. IoT devices that monitor actual user behavior will allow better predictive models, which in turn will allow insurers to better manage risk.

The IoT will change every part of the insurance value chain, including product design, pricing, underwriting, service and claims.

The value for policyholders is reduced premiums. For insurers, the value is reduced loss and lower overall costs.

Over time, insurance premiums will decrease proportionately to decreases in losses.

Auto insurers and health insurers provide clear examples. Simply, trucks equipped with monitoring capability have fewer accidents than trucks without monitoring.

Property insurance companies are increasingly using drones to assess damages after an incident has occurred. Consulting firm Cognizant estimates that drones will make insurance adjusters' work flow 40 percent to 50 percent more efficient.

Healthcare insurers are giving customers free fitness trackers and offering lower premiums or other benefits for meeting daily exercise goals, which in turn contribute to greater health and lower health intervention outlays.

Home insurance companies are incentivizing customers to install connected devices that warn of potential danger to properties. With the average claim for a residential fire

at more than $35,000, the opportunity for claims reduction can be significant.

IoT-based analytics can be used to predict future events, such as major weather patterns. This can help insurers better price policies and prepare customers for upcoming incidents, which should help reduce damages.