Mckinsey points out the number of networked devices is more than the population since 2008. Undoubtedly, the internet of things (hereinafter IoT) has entered into our daily lives and is disrupting industries. IoT generally describes the network of physical objects such as mobile phones, watches, and security systems that are embedded with software, sensors, and other technologies. These connected devices can collect and transfer real-time information.
In recent years, executives in the insurance industry have begun to explore the potential of IoT technologies. With abundant real-time data from IoT devices, insurance companies are able to provide more personalized products and reduce operating risk. By collecting customers’ personal IoT data, insurers can examine if their current product offerings cover the needs of customers in different segments or provide more personalized insurance advice, which enables insurers to design products that are more aligned with the market demand.
Besides, information asymmetry and fraud are also major problems faced by insurance companies. Traditionally, insurers used to evaluate customers’ risk via superficial data such as gender, age, job types, yearly income, and some historical data, which may severely deviate from the true risk that only customers know. What is even worse, the information asymmetry between insurers and customers may make insurance frauds hard to be detected. Fortunately, real-time data from IoT devices could alleviate those problems since insurers can keep good track of the real and latest situation. The insurer therefore can reduce their operating risk by taking actions to prevent unnecessary damages or expenditures when capturing anomalies, which is changing the operation patterns of insurance companies from reimbursement afterward to prevention beforehand.
However, some concerns receive awareness while insurance companies are revolving with IoT. Through sharing real-data IoT data, insurers will provide discounts for customers with low risk while penalizing customers with high risk more than traditional insurance models do. This situation may incur actions from the government and objections from the public. Moreover, customers are also probably not reluctant to share their private data with insurers. Thus, although IoT can bring significant advantages to insurance companies, they may still need to overcome lots of obstacles during the realization process.
References:
Valuemomentum (2022) IoT in Insurance: Opportunities and Challenges https://valuemomentum.com/blog/iot-insurance/
Mckinsey (2019) Digital ecosystems for insurers: Opportunities through the Internet of Things https://www.mckinsey.com/industries/financial-services/our-insights/digital-ecosystems-for-insurers-opportunities-through-the-internet-of-things
SAS, 5 Challenges for IoT in the insurance industry
https://www.sas.com/en_ae/insights/articles/big-data/5-challenges-for-iot-in-insurance-industry.html
Deloitte, The Internet of Things in insurance
https://www2.deloitte.com/tr/en/pages/financial-services/articles/innovation-in-insurance-internet-of-things-iot.html
