How is the internet of things reshaping business models in insurance?

The Internet of Things (IoT), a growing network of connected devices, has a lot to offer the insurance industry. As more and more sectors of the economy adopt IoT it is becoming an increasingly important factor. According to one report around two thirds of enterprises are already using IoT applications and the number of internet-enabled devices in the average UK home is now 10. IoT can have an impact on many things, from strategy to business cases. In terms of business models in insurance there is one particular way in which IoT could reshape perspectives and that’s with respect to risk prevention.

Risk prevention through real-time risk mitigation

IoT technology is going to have an increasingly big role to play with respect to real-time risk mitigation. For example, it can act as a warning that then triggers a human response. Or it can be a fully autonomous response that doesn’t require any human intervention. The IoT role in real-time risk mitigation can be triggered when three specific situations arise:

  1. Specific safety tasks, such as a scheduled inspection, have been missed
  2. A situation that can be defined as risky arises, for example where liquid is spilled on the floor of a public space
  3. The consequences of an event that has already happened, such as an injury or a patient not properly following the requirements of their treatment

Real-time risk mitigation relies heavily on IoT and as this technology is still developing we are really only seeing a small part of what is possible right now. Car insurers, for example, have integrated real-time warning systems into telematics programmes that are designed to help make users better drivers and reduce insurer’s losses. Sensors that detect water leaks are a great example of how a preventative approach can help to reduce cost consequences. However, while the concept is sound there is still some work to do generating demand and establishing a sustainable business case for this.

Risk prevention through promoting less risky behaviour

There is plenty that insurers can do to help anchor a more positive risk culture and promote more awareness in society. Safer habits in communities usually require three key elements: creating awareness of the risk level, generating opportunities and ideas for a change of behaviour, and putting incentives in place to enable a change in behaviour.

IoT can be integrated into this type of risk prevention model through behavioural economics and gamification. For example, in the health sector we are already seeing personalised suggestions and challenges being put forward to customers that utilise information that has been registered by a mobile device or data from wearables. In the auto sector, telematics can provide an accurate picture of driving style to individuals and tips on how to improve this can be automatically displayed in the gamified context of helping people improve their driving ‘score.’

The Internet of Things is going to have a big impact on the insurance sector and is currently heavily influencing risk prevention models. This is embryonic technology that still has a long way to go but which has huge potential.

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Mandon Software is a UK-based company founded in 1999. We work with customers in a wide range of insurance lines, from marine to healthcare. We are experienced in working in the Lloyd's market and pride ourselves on delivering excellent customer services at all times.