The internet is such an integral part of our daily lives that we struggle to imagine life without it. To date, proliferation has largely been driven by content and speed, but we are now entering a new phase of growth where the everyday ‘things’ around us will be connected to the web. This is the Internet of Things (IoT), and it will fundamentally change the way we interact with our environment.
The Internet’s growth has the potential to be a game changer for many industries. However, in a recent survey by FC Business Intelligence of over 300 insurance companies, views on the IoT were mixed; 30% believe the next 12 months are critical to securing a competitive advantage, but 60% think the IoT is a 5-year program. This is surprising for an industry that has so much to gain from the new developments.
Connectivity is now sweeping into homes and is widely recognized as a multi-trillion-dollar market. In the US, the retail and service industries have successfully deployed IoT and smart home products and services to help grow their business and engage consumers. More significantly, Apple, Amazon, Google and Microsoft have made big consumer bets. It may be an early market in the consumer space, but it has clearly arrived.
Here in Europe, adoption has been slower but major European service providers and utilities have started to make their bets with the entry of companies like Deutsch Telekom and British Gas launching smart home services.
These new entrants to the IoT and smart home space have recognized the opportunity to exploit data from devices to develop and deliver exciting services. Since data is the life blood of successful insurance models, why are so few insurance companies competing in the market?
Given the nature of the IoT, it could be argued that insurance companies should be leading the charge. Accurate real time data from devices in homes and businesses could redefine how insurers calculate risk. Connected devices can also provide low cost, practical ways to mitigate against losses.
An even bigger opportunity for insurance companies could come from using data to deliver new services that improve customer engagement. Instead of having the traditional once a year haggle over the cost of cover, insurers could use the IoT to bundle products and services that deliver more value and create regular interactions with their brand. In short, insurers could move from the traditional role of reacting to loss, to becoming more proactive and help prevent it.
Considering how the industry functions, it’s likely that consumers would see their insurance provider as a logical source for smart home products and services. It would natural for insurers to bundle protection against security, fire and flood using leak detectors and temperature sensors that can automatically shut off the water supply when there is danger of a pipe freezing or a leak is detected. It seems more logical to buy services that essentially focus on delivering peace of mind from an insurance company yet it is telecoms companies that are leading the charge.
So why do 60% of insurance companies think the IoT should be nothing more than a project somewhere in their 5-year plan?
The insurance industry’s slow response to exploiting opportunities in the IoT is probably because it requires major change. They will inevitably be nervous about stepping outside the traditional industry boundaries to deploy products and services that stretch the brand. If that’s too much, they could achieve many of the benefits by forging new partnerships with the companies deploying smart home solutions. Doing nothing is not a good option, and whatever path is chosen, insurance companies should look beyond the actuarial benefits and use the IoT to reinvent the consumer relationship.
If insurers still have reservations, perhaps they should consider the threat posed by the IoT. Smart homes will generate more real time, accurate data about consumer behavior in 6 months than they have amassed in the last 50 years. Maybe they should pop that into the actuarial pipe and try smoking it!
By: Kevin Meagher, Senior Vice President of Business Development for ROC-Connect