By: Anil Vazirani, Chief Business Officer at LTI for Insurance and Healthcare domain

Pricing risks effectively, and making money from it, has been your bread and butter for centuries. Be it life, health or property and casualty (P&C), insurers of your ilk have continued to leverage your deep understanding of risk management to underwrite financial protection for customers.

However, the winds of change ar​e beginning to blow across the $4.7 trillion industry, which is grappling with rising costs of capital, onerous regulations, and declining yields​ generated on invested assets. The individual risks are starting to get standardized and commoditized, while t​he expanding ‘sharing economy’ is posing a potential challenge to conventional insurance models built around one-to-one ownership structure.

Moreover, the volume of data that can be harnessed to price risks continues to grow exponentially. Fueling this unprecedented surge in risk data is the massive sensor proliferation across smartphones, wearables such as smart watches and fitness bracelets, and ‘smart’ home devices, including digital thermostats.

So, how can you then compete–and, indeed, thrive–in this whole new-connected world, driven by the Internet of Things (IoT)? The answer lies in aggregating and analyzing the huge volume ​of personal, behavioral and contextual data delivered by IoT. This can help you innovate around product development and personalization, and proactively manage clients’ risks, for differentiated and superior underwriting, translating into higher revenues and profitability.

The emerging ‘smart’ world
With near field communications (NFC), wearables, sensors and smartphones becoming an integral part of consumers’ lives, a highly connected, self-managed ecosystem of interdependent physical devices is taking shape. While Wi-Fi and wireless communications enable real-time data transmission from these devices, aggregation platforms are facilitating centralized management of sensor-based devices, which communicate with each other.

Let’s look at the following three examples highlighting IoT’s growing relevance for the insurance industry, across its core life, health and P&C segments:

Smart homes: Home appliances, home security devices and home infrastructure are increasingly being embedded with sensors, ​which transmit data round the clock to vendors’ centralized IT systems, as well as to consumers’ apps.

​​Smart vehicles:​ Automotive manufacturers are launching new cars, including non-luxury lines, with built-in 4G Internet connectivity, and advanced safety and telematics features. In fact, 30% of vehicles in mature markets are likely to offer vehicle-to-vehicle (V2V) and vehicle-to-infrastructure (V2I) communication by 2025, according to Gartner​​. And, 25% of all vehicles are projected to be autonomous by 2030​​​.
Connected health: Connected devices such as wearables and ingestible sensors are starting to transform health care by allowing remote patient monitoring and communication. While patients can now track their health parameters to make informed decisions, providers are able to personalize treatment, as well as monitor devices, patients and personnel based on real-time information.

The new face of insurance
How can you then leverage this network of connected devices and software applications to redefine customer experience? Firstly, smart devices open up more touch points for smooth transactions and effective client interaction. But more importantly, they can help you transform your business model by introducing new risk variables that facilitate greater personalization and differentiation of products. ​

By gleaning actionable insights from the data gathered from smart devices, you can achieve the following:

Ensure greater risk transparency: Traditionally, you got to understand customers’ usage patterns and losses from their risk profile that got reflected during the underwriting process in each renewal cycle. However, in a connected world, instead of proxy risk indicators such as credit scores, year of construction of homes or age of roof, you today have access to real-time risk information. This can allow you to create dynamic risk profiles.

Introduce differentiated products: Insurance policies have been typically priced based on projections made using historical information and statistical models. Change the game. You can now offer customized products and coverage, at attractive price points, in line with dynamic risk profiles. A case in point being Progressive’s launch of a usage-based insurance (UBI) program–called Snapshot–in 2008, wherein the company offered up to 30% discount, based on when and how well customers drive.

On the smart home front, Allstate has partnered with Rogers Smart Home Monitoring, which specializes in offering universal IoT frameworks. Under this alliance, the insurer provides discounts to clients opting for Rogers’ IoT products. Likewise, in healthcare, Vitality Health has introduced an app that enables its customers to monitor and share lifestyle data with the insurer. The firm then analyzes the data to offer gifts and incentives to policy holders who make healthy lifestyle choices.

Meanwhile, in the agriculture sector, Monsanto-owned Climate Corporation has been underwriting weather insurance for farmers. The firm monitors weather conditions via remote sensing systems, radar and satellites, and automatically makes payments without any claim adjusters to insured farmers if a covered event occurs.

Offer new/allied services: You can use data aggregated from the connected world to diversify revenue streams through rollout of new services such as emergency road side assistance, vehicle recovery, and vehicle maintenance alerts. For example, Allstate has begun providing driver assistance to customers in the event of emergencies or breakdown. Some other companies are experimenting with the idea of using gamification software to improve customers’ driving skills.

Prevent and mitigate losses through targeted initiatives: With access to real-time information, you can gauge hazardous conditions, and focus more on loss prevention. For instance, sensors embedded into plumbing systems can help minimize damages by shutting off the main water supply on detecting freezes or leakages. Similarly, you can warn drivers in case of rash driving, based on data collected from telematics devices installed in cars.

Enhance claim adjudication: By using data from smart homes and cars, you can gain relevant insights into the cause of loss, in turn driving effective claims investigations. Also use data captured from telematics instruments to reduce losses by promptly detecting fraudulent claims. Likewise, by proactively monitoring patients’ health, you can prevent inflated claims payouts.

Improved customer segmentation and marketing: By combining data collected from smart devices with demographic information and consumers’ spending or personal habits, you can create 360-degree customer profiles. Accordingly, you can target the desired client segments with attractive offers, thus improving customer acquisition and retention, ultimately generating higher returns on your marketing investment (ROMI).

Conclusion

You have a unique opportunity to leverage the IoT-enabled connected, smart world for making risk underwriting precise and continuous. This, in turn, will help you offer personalized services across channels, influence customer behavior, boost retention, improve adjustment expense ratios, and lift overall profitability.​​

​Watch how LTI is uniquely positioned to be a value-partner in adoption and implementation of the connected Insurance solutions.​​​​