The insurance industry must face a huge shift in mindset if they want to advance and stay relevant to their customers. Historically, every insurance company has focused on making their core as good as possible in order to mitigate any risk. Insurance at its core is risk-averse. But the landscape is changing and IoT in insurance is becoming common.
Large companies are investing in insurtech startups that are using IoT to create connected insurance. And with the money behind these new technologies, they are gaining momentum. Last year insurtech companies raised $2.6 billion—more than the previous five years combined.
IoT and Telematics Pose New Opportunities for Insurers
Technologies like IoT provide a huge opportunity for insurers to improve their products and the way they interact with their customers, and many insurance companies have already started to experiment. Car insurance companies are starting to use telematics to track how much and how well you are driving in order to reward customers for good driving behavior and to charge less if you drive less. Metromile, for example, is offering a usage-based, pay-by-the-mile car insurance in the US.
Life insurance companies have experimented with incorporating health tracking devices to integrate wellness benefits with their customers’ insurance plans.”
Life insurance companies have experimented with incorporating health tracking devices to integrate wellness benefits with their customers’ insurance plans. John Hancock offers policy holders discounts for wearing Fitbit wristbands and rewards customers with points for various healthy activities. This smart life insurance is an example of how companies are starting to make insurance more immediate and relevant in the daily lives of their customers.
Another example of IoT in insurance is carriers who are experimenting with data from connected buildings, and offering reduced premiums based on monitoring utilities to understand water leakage, fire or occupancy trends. Many of the building’s systems are designed to be purely reactive, like the smoke detector that raises alarm when it detects smoke. But with this data, insurers are finding that they can start to do predictive maintenance by detecting potential problems before they occur, reducing claims. Aviva is integrating Leakbot, a smart connected water leak detector, to offer a solution to the issue of water damage through its ability to detect leaks in a home, spotting them before they have a chance to become big problems.
Going forward, these types of technology-infused products will become the norm across all segments of the insurance industry, as providers look to attract and retain digitally savvy audiences. Insurers are starting to take notice, and half of them believe they will lose 20 percent of their business to fintech companies over the next five years. Insurers are faced with the challenge of how to adapt to this shifting landscape and create new connected products rapidly.
Half of insurers believe they will lose 20% of their business to fintech companies over the next five years.
The Internet of Things is the new and shiny toy, and from the examples above, it is evident that the opportunities are vast and the value payoff could be huge. But it is important to emphasize the word “new” here. There is no shortage of impressive, potentially groundbreaking ideas out there, but the technologies are still very new and therefore the solutions are not well defined, requirements are loose and changing, and ideas are hard to prove.
With the lack of use cases already out there, it is challenging for insurers to understand the value of the data and for their customers to even know what they want. For this reason, insurance companies are frozen with fear at the idea of taking such a risk without knowing the payoff. This is why it is important to constantly experiment and get something into the market quickly without spending a lot of time and money. With this nascent technology comes uncertainty and the need to adapt quickly to changing conditions and transform your business in different ways.
Enable Rapid Experimentation
In order to adopt a development process that allows for this rapid, low-cost experimentation, insurance companies need to approach IoT applications with a willingness to fail often in order to figure out how to succeed sooner. Thomas Edison didn’t invent the lightbulb with a brilliant eureka moment. Instead, he was an experimenter. In his eyes, he thought, “I have not failed, I’ve just found 10,000 ways that won’t work.”
I have not failed, I’ve just found 10,000 ways that won’t work.”
The new mindset for insurers around risk also comes down to budget. Insurance companies need to fund these projects in different ways and need to make an investment with an understanding that the business value may well be zero and that they may lose money at first. However, if insurers are able to test these ideas rapidly and at low cost, the risk is alleviated.
With that idea in mind, companies need the right set of tools and processes to foster this low-cost, high-value experimentation. Some best practices for fostering rapid experimentation in your organization include:
- Allocate time and resources for this type of experimentation to prove to your organization that this new approach can work, and then scale it widely as a new mindset.
- Create cross-functional teams that include the business and IT. Bring together a person with an idea and someone with the technical aptitude to bring it to life.
- Use visual, model-driven development in order to create a common language between business and IT to allow for faster experimentation and greater collaboration.
- Create a feedback loop. It is important to have a mechanism to continuously capture feedback from users that you can take back into the process for continuous innovation.
- Test a minimum viable product (MVP) early in the process to ensure the ability to change direction with minimal risk based on what you learn.
Remember: It is important to get these ideas out there quickly in order to validate or invalidate them. Don’t get stuck in the “it must be perfect” mindset. Instead, build and deploy an MVP and continue to iterate with feedback from customers to create the right new experiences.