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Eight reasons why insurers should be engaging with the Internet of Things
The Internet of Things will change everything: it is estimated that over 6.5 billion objects will be connected to the internet by 2015. It is one of the biggest technological leaps of the last hundred years. According to estimates by Cisco, a huge market beckons; experts estimate that the global market over the next ten years will be worth 14.4 trillion dollars. General Electric has calculated that 46 percent of the global economy can benefit from the Industrial Internet.
For many industries, this is opening up a growth market in which new business models and customized products and services become possible. I am convinced that this technological change will also have a huge impact on insurers and assistance service providers (by “assistance” I mean a service that immediately and directly helps the customers of insurers and other companies; the basic concept of assistance involves organizing or providing emergency help around the clock wherever it is needed).
The insurance sector is currently operating in a difficult market environment: companies are facing competitive pressures, increasing regulation, growing customer willingness to switch insurer, and low interest rates in the capital markets.
Against this background, here are eight reasons why the insurance sector should get to grips with the potential of the Internet of Things now:
1. New opportunities, new risks
While the Internet of Things holds out the prospect of helping to resolve the social challenges of our time and creating added value for individuals and companies, it also throws up new risks (the core of insurance business models) and threats for which there are currently no standard operating scenarios or security concepts. For example, attacks on transportation, logistics or healthcare ecosystems or the failure of individual constituent components might have a major effect on households, businesses, and even whole countries.
However, the Internet of Things will also change existing risk situations. Driver assistance systems and autonomous driving will significantly reduce the number of accidents and the amount of damage they cause in future. On the other hand, the issue of product liability will become more prominent. Insurers should study these threats and changed risk situations in detail and examine their effects on existing and future business.
2. Comprehensive product and service packages
The Internet of Things is transforming products into comprehensive services and solutions. We are witnessing a proliferation of bundles and packages, with different sectors often collaborating to offer exciting new product and service mixes. Examples include integrated smart-home solutions and mobility concepts such as DriveNow, which create additional added value as well as being unique and difficult for competitors to replicate
3. Optimized pricing
Many of the products and services that have sprung up thanks to the new technology reduce the risks faced by insurance customers, with a knock-on effect on the volume and size of claims. Examples include active protection against burglary, fire, and water pipe damage in smart homes. This means insurers can offer their customers enhanced safety and lower premiums for household and home contents insurance, giving their products a competitive edge in this price-sensitive market.
4. New, exclusive distribution channels
Insurance products and assistance services can be offered as part of integrated solutions. One such solution would be the bundling of maintenance packages with insurance cover for machinery and technical installations. New, exclusive distribution channels are opening up for insurers whose products form part of such bundles.
5. Cross-selling opportunities for assistance service providers
Services will be a major component of the new solution packages. Insurers’ assistance services put them in a good position to supply scalable packages to a growing market. For example, assistance service providers could be automatically notified in emergencies; this would then allow them to coordinate both immediate assistance and the claim settlement process.
6. New customer groups
The integration of insurance products with assistance services enables insurers to serve customer groups for whom few attractive products have been available before now. An example is systems for supporting senior citizens who live alone – also known as Ambient Assisted Living (AAL). The aim is to enable elderly people to lead an independent life for longer in a domestic environment. Insurers could offer policies covering appropriate equipment and care. In the event help and care is needed, it would be provided by assistance service providers or coordinated via specialist providers such as mobile nursing services.
7. Daily customer contact and on-demand offers
Products that are based on networked objects and services offer insurers the opportunity to gain direct and permanent access to their target groups. This enables them to give their customers offers based on their individual needs. Daily use of and interaction with networked products allows companies to obtain valuable information that helps them to understand the current circumstances and requirements of their customers and to offer them further products and supplementary services that match their current situation. This might also include the products and services of a company’s partners. If customers find this experience positive, it reinforces their confidence in the provider. This leads to new business opportunities.
8. Significant boost to the image of insurers
I see the Internet of Things as a big opportunity for insurers to move away from an image of being pure risk insurers (who are always looking to scrimp on payouts) toward being “smart life companions” who accompany their customers through all stages of their lives with complementary products and services, offering them comfort and security, helping them in emergencies, and of course paying out when an insured event arises.
In summary, I am convinced that the Internet of Things offers companies in the insurance industry unique opportunities with regard to differentiation and to successfully positioning themselves in a huge growth market. I think there are still some other good reasons for insurers – do you have ideas?