IoT, Sensor Data, And The Future of Insurance

Uwe Hofstaetter

The insurance industry is facing a set of challenges that will likely have a massive influence on the majority of insurers’ business model. In fact, 75% of insurers believe that industry boundaries will dramatically blur due to the IoT and other platforms. And while most insurers are still focused on selling insurance coverage and paying in the event of damage, loss, or claim, customer expectations are changing quickly and massively. Customers are asking for much more than the insurance we have been providing them with for decades.

Addressing new customer expectations

New technologies like sensors or IoT-connected devices are becoming more widespread, and customers expect their insurers to use and innovate with these technologies. Customers are also unwilling to continue paying for prepackaged products; they want custom coverage for their individual life situations. What’s more, customers now expect insurers to be able to offer on-the-spot, individualized products and solutions. Answering the call, new players in the industry are emerging all the time, disrupting the insurance market and providing customers with the personalized policies they’re looking for. Legacy insurers can stay in the game if they are willing to adapt and avoid  the siloed industry model.

Moving beyond technology

The mistake that a lot of companies are making, and will continue to make, is thinking of sensors and IoT devices as the enablers-all for the digital transformation. But in reality, they are just the supporting technologies for the bigger transformation at hand. Real transformation is about how we use the IoT to change today’s way of thinking, know what our customers’ expect, and adopt current technology to reimagine entire business models. Insurers can’t just connect sensors and instantly provide usage-based insurance. First, besides providing ever-important premium reductions, they need to figure out how to generate additional benefits and customer services. Then they need to figure out how to monetize these services.

All of this can be done by increasing sensor data usage. The more sensor data created, the more opportunities insurers will have to provide additional services and benefits (besides pure premium calculation) for the customer. Naturally, the services will vary based on the property that’s insured. For a connected car, services might include parking or roadside assistance. For a connected home, the service could be automated responses to sensor-detected issues. For example, a water leak would automatically dispatch a plumber to the house.

Adapting to expectations and behavior

Customers have become accustomed to “omnibusinesses.” They no longer look to separate retailers for clothing, groceries, and home goods – they turn to a single website or store.  Insurance lines of business (LoBs) are blurring, and while some insurers focus on discrete products now (e.g., just auto or just health), the future is full-service. Customers want to be insured by the same company across all LOBs: automobile, home, and health. So as your company looks to develop new customer services, it’s important to keep in mind how those services can translate across LoBs. For example, parking services for an automobile customer are similar to vacation security services for a home customer.

Insurance that covers multiple LoBs and uses sensor data also provides the opportunity to offer customers “loyalty points.” Points for improving driving behavior or exercising more regularly can earn customers loyalty points that are added to a primary account. And just like a miles program, these points could convert to cash, gifts, or premium reductions.

So for insurers the vision is clear – more sensor data provides more opportunities to offer better services and policies to customers.

Discover how SAP can help your company on its IoT journey today.

Learn how to bring new technologies and services together to power digital transformation by downloading “The Future Services Sector: Connected Services for Continuous Delivery.”