The Insurance Industry to Brace the Big IoT Revolution – Benefits, Challenges & Solutions

We have all heard of this buzzword: Internet of Things (IoT)

Some of you may truly understand what IoT means and how drastically it has revolutionized the industries of today. But for many, it’s just another word that’s been making its rounds in the tech world.

So what is the Internet of Things? Simply explained,

IoT is a fundamental concept that means connecting everything – such as home appliances, tablets, smartphones, and laptops – to the Internet.

IoT connectivity sets a new bar for the insurance business. Based on sensors to calculate insurance risks and transform data into information that could add value to insurance, this new approach will completely transform the industry. The integration of IoT in insurance will increase productivity, streamline long-term goals, and enhance the profitability of the business. Leveraging IoT in insurance will ensure better experiences for the insurers and the customers.

Reports say that global spending on IoT is expected to reach $1 trillion by the year 2022. That’s huge!

Like many other industries, the insurance industry has seen a revolution of radical proportions due to the Internet of Things. From home insurance to auto insurance, IoT has changed the landscape by encouraging the integration of tech-based solutions in the insurance business.

Let’s take the auto insurance sector as an example.

1. The Effect of IoT on the Auto Insurance Industry

Auto insurers have to dredge up vast amounts of data to take calculated risks and set premiums. The sector solely relies on information like the age, address, credit history, run-ins with the law and such to determine the credibility of the driver.
Once that’s done, data is needed to evaluate driver behavior such as how fast and how often the vehicle is driven. IoT can help insurers assess risks accurately. We can leverage IoT to calculate the mileage and driver’s behavior at different locations using a telematics device installed in a port inside the car.
The device helps insurers calculate the following parameters:

• The Distance Traveled
• Location of the Vehicle (via GPS)
• Hard Braking
• Speed of the Vehicle
• Air Bag Deployment

How Does It Work?
The program is initiated via a web app or mobile app that enables user interaction. They enter their policy number into the system, install the device in the car, enter device ID, and allow the system to collect the data.

How Does It Benefit the Insurance Company?
Here’s how IoT benefits the insurance companies:

• It enables them to manage their services.
• Allows accurate individual risk assessment.
• Supports fraud detection and enhances security.
• It provides a better chance of recovering stolen cars.

How Does It Benefit the Customers?
The telematics in-vehicle device gives customers as well as the insurance company a clear view of the vehicle and its activity. The transparency of the entire process results in overall customer satisfaction.

2. The Challenges Faced by IoT in the Insurance Industry

Despite its many feats in various industries, IoT has faced some significant challenges in the insurance industry. The proper implementation of IoT requires lots of time and resources to get the software and revolutionize operations. Owing to these challenges, we don’t see a welcome adoption of IoT in the insurance industry.
Here are a few challenges IoT has faced in the insurance sector.

Business Models
IoT transforms typical business operations. In the beginning, the insurers may even face a slight decrease in revenue, but that would be for early stage only. As a result, many companies are reluctant to adopt IoT and improvise their business models.
Once the model is implemented, it would become more profitable for the insurance company.

Data Management
The increase in real-time data is too complicated to store, manage, and process efficiently. As a result, data-hungry insurance companies are always looking to invest in new data management tools and strategies.

Data Security
The more network connections we make, the more vulnerable our systems become to frauds and hackers. These days, the elevated need for cybersecurity is one of the elemental data security concerns for insurers. As a result, the insurers will have to make investments in IoT data security and fraud protection to ward off claims and breach of data.

Regulations
The insurance sector is a regulated industry closely monitored by public and government authorities worldwide. Regulation of the data gathered by sensors is one of the primary concerns of insurers. Due to the invasive nature of IoT, there’s an incremental need to regulate data privacy.
So, these are some of the major challenges faced by the insurance industry today. The IoT evolution cannot be effective unless we resolve these challenges and pave the way for smoother IoT adoption by the insurance sector.

3. Leveraging IoT – Effect on the Insurance Sector

Leveraging technologies like IoT has been a critical turning point for various industries. The technology has the potential to have a massive impact on the insurance industry in the upcoming years. From life and health to home and auto insurance, IoT will help companies prepare better coverage plans personalized to fit your insurance requirements.

Moreover, the integration of IoT will make cars and homes smarter. The use of telematics and videos allow companies to gather information on driver’s driving habits and then use this real-time data to offer discounts on insurance premiums. For insurance companies, this is an excellent opportunity for them to understand customer behavior and promote safe driving.

Similarly, companies are designing IoT-based solutions to gather ample information via motion detectors, sound, temperature, and humidity sensors, etc. Technologies such as this allow homeowners to keep tabs on their home expenses and maintain their homes. Home monitoring systems like fire sensors and burglar alarms allow homeowners to avail discounts when applying for home insurance.

For the health insurance sector, IoT has already proven to be elemental in consumer health accessories. These devices allow people to keep a check on their activity and diet. IoT provides healthcare services with information about people’s daily activity and diet. This allows insurance companies to evaluate their customer’s preventive behavior with respect to their food intake.

As IoT gains traction in the insurance sector, customers can now avail benefits such as cheaper premiums and swift settlement of claims. For insurance companies, information shared by the customers allows them to calculate risks, prevent potential hazards, and decide premium amounts.

Takeaway

Integration of IoT and the use of customized insurance have the potential to take the insurance sector to the next level. The customized approach will benefit both the insurer and the customer where drivers who abide by the traffic law will have to pay less in insurance; where as those who are rash drivers will have to pay more.

Consequently, this will benefit the entire ecosystem of life and responsibility from insurance companies and customers to walking pedestrians. The adoption of IoT in insurance can save lives, promote sensible driving, encourage cautious road behavior and make roads all over the world a safer place to drive.