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How the Internet of Things is changing the insurance industry

How the Internet of Things is changing the insurance industry 

With today’s nascent IoT growing rapidly, the insurance sector is responding. According to PricewaterhouseCoopers in 2015 63 per cent of insurance CEOs reported that IoT will be strategically important to their organization.

In many cases, it already is.

On the road: usage-based telematics and insurance (UBI)

Usage-based insurance (UBI) devices monitor driving habits – acceleration, hard braking, time of day on the road. The promise of reduced insurance premiums gives drivers an incentive to drive more carefully. UBI is also a more equitable way of pricing car insurance: demonstrably safer drivers get lower rates.

In Canada and worldwide, there are 230 active UBI insurance programs with 12 million connected customers.

Desjardins General Insurance Group (DGIG) was the first Canadian insurer to widely offer UBI in Ontario and Quebec. Its Ajusto program offered customers a discount of up to 25 per cent. Since 2015, they have also offered a sophisticated Ajusto smartphone app which provides a more complete and balanced evaluation of driver behaviour using more factors, including speed and cornering.

Other companies now have UBI programs of their own and in England, mobile network operator O2 claims to be the first mobile phone company there to offer car insurance with the launch of its IoT-based monitoring service, O2 Drive. The app also enables customers to earn points and purchase products and services.

At home: monitored home security systems

Home security systems are also now by default connected to the Internet since the value of monitoring is in the speed of response.

Motion-triggered security cameras and sensors can monitor for break-ins, fire and even basement floods with an email or test alert.

Allstate Home offers a 25 per cent reduction in Insurance Premiums for the first year when customers sign up for two years with Rogers Smart Home Monitoring Plan. In the U.S., State Farm® and Liberty Mutual Insurance customers may get insurance premium discounts if they opt for Canary, a home security system that connects to the Cloud.

Health: fitness trackers

Taking the lead from auto insurance carriers, life and healthcare insurers also offer UBI-connecting IoT devices like FitBit to track clients’ activity and offer discounts or rewards for healthy behavior. Some insurance carriers are so enamoured of the benefits, they are giving clients free fitness trackers if they sign up for a policy.

In Canada, Manulife rewards clients who use fitness trackers, get flu shots and go to the doctor with discounts.

Future applications could include blood analysis to predict heart attacks or issues with sugar levels, and provide proactive alerts.

On the Insurer Side: big data brings big savings

All that data being collected by cars, home security sensors, wearable monitors and a myriad of other public sources has great value. Big data analysis can be mined for predictive outcomes, and in turn can help insurers set better pricing levels while mitigating risk, the core essential of the insurance business model.

Rather than compile actuarial tables which extrapolate risk based on historical data, real-time analysis of massive data from the IoT allows predictive risk analysis and more preventative, proactive strategies to mitigate that risk.

All this adds up not just to a major shift in technology usage and customer connectivity, but also a shift in how insurance companies manage their business lines.

There’s another area which IoT is opening up and that’s the relationship between the insurance carrier and the customer. With personalized data and personalized policies, interactions with clients increase.

Thus, I believe the rigid, siloed, product-based portfolios will give way to liquid services which adapt continuously to meet customers’ changing needs. Insurance companies will learn to function successfully within an ecosystem of partners. This will involve sharing customers and their data as well as developing new skills, such as partner management. 

Further, I’m convinced the role of IoT in insurance will continue to grow as carriers become more tech-savvy and as many more millions of devices and sensors connect via the Internet, creating a torrent of data to be mined for hidden gems – and thus monetized.

Adam Mitchell is president of Mitchell & Whale Insurance Brokers Ltd., a family-run business operating since 1948. Based in Whitby, the company is licensed throughout the province and works with customers across Ontario.

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