By focusing their Internet of Things efforts on minimizing losses and aligning premiums with risk levels, commercial lines insurers can improve customer relationships and enrich their value proposition.
The unrelenting digitization of our physical world has forever changed how we live, work and play. This phenomenon has most recently given rise to the Internet of Things (IoT) — a global network of sensor-enabled, connected devices that link and share data through the Internet. The resulting insights allow companies to simplify processes, ensure business continuity and significantly improve operational performance.
We believe that in the intermediary-driven commercial lines world, carriers can use IoT insights to strengthen customer relationships and enrich their value proposition. To do so, they should focus their IoT efforts on loss prevention and aligning premiums with risk levels.
When dealing with their large-business customers, for example, carriers can use the data that customers are likely already collecting through the IoT to develop innovative services and programs for specific industry segments to improve underwriting, pricing, loss mitigation and claims resolution. These initiatives can lead to new partnerships and distribution models in which carriers work directly with device manufacturers and service providers.
For smaller customers that have yet to invest in the IoT, carriers may need to provide some education on IoT benefits. For example, while carriers may not have historically performed safety and risk inspections for small businesses, they could begin to do so with the IoT, improving their ability to assess risk exposure and prevent loss. For warehouse or restaurant customers, for example, intelligent sensors embedded on water mains, smoke detectors or other infrastructure elements could inform carriers about maintenance needs to avoid loss.
Top IoT Scenarios
In either case, the IoT will require commercial lines carriers to change their core business processes and technology platforms, and determine how IoT data can best be used. Here are three scenarios that we believe will help commercial lines insurers convert the potential of IoT into game-changing business results:
Scenario 1: Reduce loss costs and improve pricing accuracy via real-time monitoring of property conditions.
Intelligent sensors on HVAC units and boilers can monitor conditions such as temperature, pressure, leaks and the potential for freezing. When pulled together in real time, this information can signal early warnings of faulty equipment. The insured party could be notified, or remote diagnosis and maintenance could be performed. Carriers could also use the information to investigate claims, leading to operational efficiencies, or create predictive models, leading to usage-based payment models.
Scenario 2: Enhance pricing and determine liability for smart/driverless vehicles.
With driverless vehicles already moving from high-concept to practical application, insurers need to modify not only how they market future policies, but also how they underwrite, price and administer claims. Intelligent sensors embedded in these vehicles can continuously track miles driven in both manual and driverless mode, while calculating factors such as acceleration, braking and distance between vehicles and objects. The result: pricing will be based on risk exposure (e.g., if the car is driving 60% in driverless mode, the rating would consider risk factors for 60% in driverless mode and 40% in manual mode). Such insights will help carriers competitively price policies and open the way for “pay as you behave” models.
Scenario 3: Facilitate faster return-to-work and reduce claims payout.
Employers and insurers have struggled to reduce spiraling workers’ compensation costs, to little or no avail. One way to reduce claims costs is to implement a return to work (RTW) program. Such programs can use information from sources such as wearables and mobile health monitors to keep a close tab on the overall progress of workers’ recovery and ensure their return to work is authorized and timely. Physicians can also leverage mobile collaboration tools to communicate with injured workers and the RTW coordinator. This capability can motivate workers to get well, lower costs and optimize RTW outcomes.
Of course, carriers will face an array of challenges when implementing and scaling their IoT solutions, including communicating the value proposition, addressing privacy and security fears, managing data and dealing with the lack of standards. Carriers also need to resolve several important questions, including:
How can we effectively pilot and understand the IoT’s value proposition?
Which industry segment should we target for pilots?
Are our customers currently using IoT sensors, what kind of data are they collecting, and would they be willing to share it with us?
What kind of partnerships should we develop with IoT device manufacturers and service providers?
What new training programs/skills should we develop for our staff (e.g., underwriters, risk engineers, claims adjusters)?
If our pilots are successful, how fast can we scale and become operational?
Insurance Innovation with the Internet of Things
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Despite the hype, the Internet of Things (IOT) is taking substantive shape in the insurance industry. Initial pilots offer a glimpse of how a tightly interconnected physical and digital world can drive breakthroughs in productivity, organizational efficiency, and entirely new product and service models that radically improve customer experiences. Tune in to what opportunities and challenges this can present to today’s insurers.
Our IoT framework helps carriers address these challenges and answer these questions so they can think big, fail fast and scale quickly. Harnessing the IoT’s potential will require insurers to accelerate innovation, revamp business strategies, rethink operating models and processes, and make smart investments in new capabilities and talent. As carriers take on these challenges, they need to remember that achieving strategic differentiation is crucial to reaping the long-term benefits of the Internet of Things.