For those who have been living and breathing the hype of IoT technology in the insurance industry over the last decade, there have been plenty of success stories — but also disappointments and frustration. Every single insurer across Europe (and beyond) that I have engaged with has been ‘experimenting’ on IoT projects, typically for their motor business through the use of Telematics technology. Most of these insurers have a defined ‘Digital Transformation’ strategy and programme in place, underpinned by the desire to become a customer centric and data-driven business. IoT technology has been consistently positioned as the enabler and catalyst for such digital transformation in every single insurance event that I have attended (and missed) over the last 18 months, as well as in much of the face-to-face interaction and buzz within the Insurtech community.
An overwhelmingly positive business case for Connected Insurance
Connected Insurance is an evolution of the insurance business model, primarily enabled by IoT technologies. It allows for the direct connection between all aspects of the insurance ecosystem – customers, insurers, and players from other industries.
An example is connected car insurance where technology-driven car insurance leverages IoT whereby insurance premiums are dependent on driver behaviour. Undoubtedly, insurers with telematics programmes have benefitted by signing the ‘safer drivers’ to their motor books.
Benefits range from:
- Increased profitability of their motor business by several percentage points via better ‘selfselection’ criteria
- Improved driving behaviour – through the knowledge your driving is being recorded/analysed, but also via more constructive feedback that many of the today’s telematics programmes are offering.
- Reduced fraud – a sub-industry of fraudulent whiplash claims in the UK cost billions to insurers (and eventually to policyholders). IoT data can provide an accurate crash reconstruction view to claims handlers. By adding artificial intelligence (AI) to the IoT data (AIoT), the insurer can get an estimate of the repair cost, controlling another source of fraud – overcharging for repairs by garages.
- Reduced operating costs – IoT data can enable an automated First Notification of Loss (FNOL) and consequently the digitalisation of the entire claim process. We have been working with a major UK insurer on their ‘Claim Transformation’, more than halving the average settlement time for total loss (down from 28 days to just 12 days). This reduction not only delivers savings and an improved customer experience, but also staff satisfaction! Claims handlers love it: 94% embraced the tool.
- Improved customer experience – the use of IoT technology provides more opportunities for the insurer to interact with the policyholder. Gaining real-time insight with IoT data can deliver a more personalised experience. A telematics programme helps to create longevity; retaining consumers’ regular use beyond the novelty of the first few weeks of using the telematics app and leads them neatly into the reward and redemption journey where loyalty is built. More importantly, 52% of the poorest drivers significantly improve their driving score when offered rewards.
A great example of improved customer experience is the Bupa Boost, a health and wellbeing tool designed to inspire employees to set and achieve health goals, which challenges users to monitor and improve nutrition, fitness, while encouraging competition against co-workers. It scores a 4.1 rating (out of five) on Google Play, but what is most impressive is users are checking in an average of 4.4 times a day!
Nevertheless, the harsh reality is that the adaption, and therefore the impact, of IoT on the Insurance market, at least in EMEA, is rather light touch. Let’s take the example of the UK market, which is by far the most competitive and sophisticated one; the largest telematics book represents only 4.3% of the overall motor book of the Insurer ‘X’ (not published data). Young drivers in the UK have been signing-up for Usage Based Insurance programmes, just so they can afford very expensive annual premiums (£2,813 in the case of Manchester) which in many cases exceed the purchase price of the car. However, Usage Based Insurance programmes are still failing to be positioned as a mainstream proposition, outside the distressed young drivers’ segment.
The only European market that enjoys higher penetration of IoT is Italy with 22% (according to the IoT Insurance Observatory) and this is due to country specific conditions – a higher level of fraud and thefts, particular in South Italy, and local legislation recommending the use of telematics for all motor insurers. This followed lobbying by telematics companies (the largest ones have an Italian origin).
However, even in Italy, motor insurers are not harvesting or making the most of their IoT investment.
Although every single business case I have seen built with insurers for the launch of IoT services has been positive, why won’t insurers move from pilots to scalable Connected Insurance programmes?
The two most common arguments / push backs for launching IoT programmes used by Insurers are:
- Costs – Cost of devices, installation, connectivity, logistics etc can amount to a significant sum for the insurer. However, the quality of the data from smartphone devices (Smartphone as a Sensor) has improved over the last couple of years, resulting in a better ROI for a connected insurance programme. In addition, smartphones can deliver a more predictive driving behaviour score than data coming from dedicated devices (blackboxes, OBD2 etc), as they provide information about the use of the mobile phone while driving. According to the National Highway Traffic Safety Administration (NHTSA), driving a vehicle while texting is six times more dangerous than intoxicated driving.
- Privacy – Privacy has been a consistent concern (both for insurers and consumers) when it comes to Connected Insurance programmes. However, 60% of European consumers would be willing to share car data in order to get the insurance products in which they expressed interest, according to a research by otonomo. The lowest rate (49%) is in Germany, where consumers are generally more cautious about data sharing.
In my opinion, insurers have not been embracing IoT technology at scale because:
- Insurers are risk averse! A good example is the Nordics market. Nordics (enterprises and consumers) are typically early adaptors of new technologies. In addition, they have a strong social commitment to fairness, safety and climate change. A Usage Based Insurance policy delivers on all the above: Your premium is based on how you drive and not on your age and profession and promotes a better driving behaviour which reduces accidents and emissions! However, there are only a few commercial launches of UBI programmes by local insurers . One possible explanation is a higher level of profitability and low level of churn that Nordics motor insurers are enjoying versus other European markets, doesn’t provide the urgency to change the status quo.
- Legacy IT systems and silos! Even the most technologically advanced insurers, with large telematics motor books, have not fully integrated their IoT data into their operational processes. Delivering truly dynamic pricing based on driving behaviour is proving to be overly ambitious, if not utopian for most European Insurers. Ageing, legacy IT systems don’t allow for the enhancement traditional risk models, with a real-time stream of customer data.
Moreover, organisational silos do not embrace the operationalisation of IoT data by the core insurance functions (Actuarial, Claims, Marketing etc…). IoT programmes are often managed by the strategy/innovation or digital teams, with all the above sitting in the periphery.
The pandemic forced many consumers to change their behaviour and carry out more transactions online, and research by SAS showed that 80% felt the customer experience improved and, overall, they are now more willing to share their personal data.
I believe that IoT in Insurance will scale in the way that was forecast several years ago. Becoming a digital organisation (as well as a digital consumer) is not optional anymore in a post-Covid era. Insurers are changing their business models, modernising their systems, and embracing IoT data beyond motor insurance (Connected Health, Connected Home, Connected Commercial Lines).
Sr. Business Development Manager, IoT at SAS
About SAS in IoT
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