Dharmesh Mistry discusses how the Internet of Things (IoT) could impact insurance. With over 25 years supporting financial services organisations with technology expertise,
Dharmesh currently specialises in channels technology and digital strategy as Product
Director of UXP at Temenos.
Danger or opportunity?
I believe the Internet of Things and interconnectivity represent both for insurers. Basically it’s dangerous to ignore the opportunity it brings because it will force change if insurers are ready or not. There is a window of opportunity and while insurers gain insight and build
momentum they should be using this to understand what it means and how they can avoid becoming obsolete.
By the time it starts to fully impact on insurers they should have done their homework and put a framework in place to fully appreciate the benefits of IoT. The Forrester Digital survey of 2014 looks at digital disruption across all industries and highlights that the
insurance industry is likely to face the most digital disruption with 86% of insurers expecting challenges to arise as consumers and competitors embrace change.
I think it is obvious that certain things will happen in the next decade and there will be some insurance products that completely disappear. For example, with driverless cars, car insurance will have to evolve or potentially fade away all together? If consumers don’t own a vehicle why would they insure one? This could also have large repercussions for other
industries such as car maintenance and repair services, the logistics industry and transport services. With this in mind I think it’s vital for insurers to prioritise their objectives and it’s important not to expect an immediate return on today’s outlay.
Shifting business models and embracing the new information age should be seen as an investment in the future. The information age has provided insurers with much better quality information, available in real time in large volumes and as a result insurers are now able to price better and custom-build products to meet more specific requirements. It is fantastic that we have access to all of this knowledge but how are insurers going to manage this
volume and complexity of data?
There are organisations doing some amazing things with data, for example they are looking at understanding human emotion from device usage, creating algorithms that track how you use your device and this is not biometrics, this is keyboard usage, use of language and the time of usage etc. This is just an insight into the art of the possible and the opportunities of IoT for insurance.
If you are a large insurer then it’s possible to create your own testing environments and see what you can discover from data collected. Smaller insurers without resource need to monitor the marketplace and keep an eye on innovations, then maybe look at investing in an idea that peaks interest.
The key thing to remember about IoT is that we are coming out of the people business and going into mass automation. This is really what the information age is all about. We had the industrial revolution where people were removed from factories and mass production and now we are going to phase people out of business process. This is change driven by the IoT and if we want to fully engage customers and create long-term loyal customers, we will have to do this through clever data usage.
Shift in power
The historical philosophy of ‘marketing to the segment of one’ has never been more
prevalent. Mass automation can use this data powerfully to create personalised desirable products. In terms of customer intimacy, this is the ultimate insurance nirvana. Information is key and understanding your customers better and providing a tailored, specific and timely service will be a differentiator going forward. This colossal amount of data has however caused a shift in power. The IoT has caused a swing in control to the consumer.
Previously insurance has suffered from a ‘push’ mind-set but the information age has empowered consumers and they are now making decisions and driving innovation. They are deciding what they want and how to access it but are still influenced by what is seen as ‘good advice’ and this advice also has to be timely and relevant. This is where the importance of information is highlighted again.
It does sound like the IoT is the best thing to have happened in a long time but it does also raise concerns for insurers regarding data privacy. Consumers are leaving digital fingerprints everywhere and with location-based services it isn’t hard for anyone to confirm a location which makes it more difficult to falsify information. Consumers have no idea how much private information is freely available and if there was a television game show around data privacy and how much data is available, consumers would be shocked at how much they give away without realising it. These types of advances into data privacy will always cause uneasiness but over time we will overcome this. If the incentive is right then consumers will always offer personal information quite freely.
With all of this to consider I think insurers should prioritise exploring new technology. New technologies that can help directly reduce cost and inconvenience for customers. Customers should know that insurers are looking at technology that benefits them and makes their life easier. It’s about building on and improving relationships between customers and insurers.
Secondly, it is obvious that change is coming and insurers need to make sure they are not the last dinosaur. I believe there is an opportunity for insurers to consider looking outside the industry for expert insight and innovation. Take children for example, at the moment
there are children as young as five or six year’s old learning the art of coding. In the future, I believe coding will become part of the national curriculum and it will be an essential life skill for children to function in the big wide world. The encouraging thing about this is that
children don’t think like insurers, their fresh minds have not been stifled by process and their creativity is limitless. I am not saying that insurers should employ children but what I am saying is that insurers should look outside the industry for creative minds and insight in order to take full advantage of this opportunity and reinvent themselves.
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