The "Internet of Things" (IoT) is the process of connecting everyday devices to the internet, including items like refrigerators, watches, automobiles, thermostats, security systems, cargo, machinery, and more. This connectivity enables these items to communicate with each other, requiring sensors and software for effective communication. This interconnectivity of objects forms the basis of IoT, allowing for a wide range of applications.
Future of IoT market
The future of IoT in the global market, especially in the realm of general insurance, is profound. IoT is revolutionizing insurance practices, leading to innovative products and underwriting methods. It has the potential to significantly transform the insurance landscape, as indicated by the projected expansion of the IoT insurance market. According to Market Research Future, the IoT insurance market is estimated to grow from USD 70.93 billion to USD 2452.45 billion by 2030, with a remarkable compound annual growth rate of 55.72% during the forecast period of 2023-2030.
Reactive to proactive business model
From a traditionally reactive business model, insurance is transitioning to a proactive approach with the integration of IoT. Historically, insurers compensated for losses after the covered event occurred. However, IoT introduces a shift where insurers can now detect and act upon loss events in real-time, reducing the extent of damage or loss. This shift benefits both insurers and insured individuals, creating an ecosystem that continuously monitors and provides notifications of potential threats.
Connected insights empower insurance process
IoT's impact on various processes and products within general insurance is vast. It empowers core functions like underwriting and claims processing:
Fig: Empower underwriting using IoT
Underwriting:
Real-time data collected through IoT devices, such as driving behaviour, property temperature, and motion sensors, aids underwriters in accurately evaluating risks during policy renewals. This information allows for personalized underwriting decisions and precise premium calculations based on risk mitigation measures taken by the insured. For instance, IoT facilitates innovative products like pay-as-you-drive insurance, where premiums are based on actual car usage monitored through telematics.
Claims:
IoT devices streamline the claims process by providing immediate notifications of incidents, such as car accidents. This automation enhances customer experience by minimizing the need for manual claim notifications. Furthermore, IoT data assists insurers in detecting fraud, assessing damage extent for accurate claim settlements, and responding swiftly to prevent further losses—for example, by alerting rescue teams during a house fire.
Fig 2: Empower claims using IoT
General insurance products and IoT
IoT's influence extends to various general insurance products across retail and commercial lines:
Fig 3: IoT enabled eco system for loss prevention
Car/Commercial Vehicle insurance:
Real time data enables personalized premium
Immediate notification in case of claim and theft enables faster claim processing
Helps in fraud detection
Residential/Commercial Property:
Sensors monitor temperature, water leaks, smoke, etc.
Alerts homeowners/residents to potential hazards.
Data helps insurers assess risk accurately and personalize coverage.
Early detection minimizes losses and reduces payouts.
Parametric Insurance (e.g., Crop, Weather):
Payouts triggered by specific events and predefined thresholds (e.g., drought).
Real-time data from IoT sensors (soil moisture, rainfall) verifies event occurrence.
Automatic claim settlements without verification delays.
Marine Hull:
Sensors track vessel position, speed, fuel usage, and environmental conditions.
Continuous monitoring aids in risk assessment and customized premiums.
Proactive maintenance based on real-time data prevents incidents and losses.
Cargo:
Connected containers with GPS/sensors track location, temperature, and shocks.
Real-time data helps identify theft/damage risks and allows for intervention.
Faster claim processing with accurate loss verification from sensor data.
Agriculture:
Drones and IoT sensors monitor crop health, growth, pests, and nutrients.
Data helps insurers assess risk and offer farmers risk-mitigation advice.
Remote monitoring improves loss prevention and allows for faster claim settlements.
IoT enabled eco system
An IoT enabled eco system may help insurance to move from indemnification to loss prevention/reduction, thus benefiting insurer, insured and the community as a whole. Imagine an eco system enabled by insurer by home insurance as in the picture below:
Fig 4: IoT enabled eco system for loss prevention
Insurers aiming for higher-value offerings must enhance their infrastructure, creating an eco-system for seamless operations. This shift empowers insurers to move from providing financial protection to actively preventing and reducing losses through IoT-based insurance coverage. For carriers to sell IoT-based insurance, partnerships with sensor manufacturers are crucial, alongside robust software and infrastructure. Integration of diverse IoT data into the insurer's analytical system is key. A dedicated portal displays this data in a user-friendly format, accessible to underwriters, claim handlers, and policyholders. Automatic claim notices triggered by IoT events are showcased here, including alerts like property water leaks or glass breakages, alongside indicators such as temperature and smoke levels.
Upon surpassing predetermined thresholds, digital alerts are sent to policyholders. Simultaneously, a dedicated loss prevention center, crucial in transitioning insurers, monitors these alerts, serving as an emergency care facility. Staff collaborates with repairers and service providers, promptly dispatching alerts for immediate response during emergencies, preventive maintenance, and loss-control measures.
Consider a scenario: Upon receiving a water leak notification, a proactive service provider takes immediate action to mitigate property damage without waiting for insurer instructions. Such interactions enable insurers to move beyond pure financial protection, particularly in home insurance, toward proactive loss prevention and reduction.
Establishing this ecosystem demands collaboration among sensor manufacturers, IT providers for software, repairers, service providers, and emergency responders. This proactive model signifies a shift in the insurance industry toward a preventive approach across various insurance products.
This eco system benefits not only the insured and insurer, but also the economy by preventing the destruction of wealth due to unforeseen events.
Let us unearth ‘Loss prevention association of India’ with its full potential using IoT ecosystem.
Author: Radhakrishnan Mahalingam FIII, CPCU Founder & Mentor, Insurance domain training center
Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of IIA and IIA does not assume any responsibility or liability for the same.