This latest piece is by Patrick Cason, General Manager at Sigfox France and it looks at the unlocked value across the Internet of Things.
Insurance is a business based on statistics and probability, both of which can be gleaned from data. In the past, gathering data and working out probability was largely a laborious manual task – but today, technology is dramatically changing things.
The proliferation of connected devices (the internet of things – IoT) collects huge volumes of data – known as ‘big data’ – while the advance of artificial intelligence is able to rapidly analyze statistics and deduce probability. Premiums charged by insurance companies are based on the likelihood (probability) of adverse effects occurring – which can be better and more speedily understood through the rapid adoption of IoT technology.
Those companies making use of the arrival of technology are known as insurtechs; and they are revolutionizing the insurance industry with their ability to respond, accurately and rapidly, to changing scenarios.
Usage-based and parametric insurance
Usage-based insurance is already benefiting from the IoT to help insurtechs offer more accurate and individualized policies based on customers’ behavior and use of the insured object. In the motor industry, Discovery Insure’s innovative Vitality Drive Sensor – winner of the MTN Business award for best commercial IoT solution – is a perfect example of such use-based insurance. With an integrated, low-power, non-intrusive wireless device attached to the windscreen, connected to a mobile phone app and able to transmit core driving metrics, Vitality Drive tracks driving behavior and allows Discovery Insure to offer incentives and rewards for better driving.
Unsurprisingly, the system has detected a strong correlation between better driving habits and fewer accidents with less severe insurance claims. By encouraging better driving by aligning insurance premiums with the lower probability of accident claims, this type of use-based insurance helps both insurer and customer, and improves road safety in general.
Parametric insurance is described by the Center for Insurance Policy and Research as “a type of insurance contract that insures a policyholder against the occurrence of a specific event by paying a set amount based on the magnitude of the event, as opposed to the magnitude of losses in a traditional indemnity policy.” In other words, a parametric insurance policy insures against an event, rather than against loss or damage of assets. This helps to bypass – or at least greatly simplify – the process of calculating potential losses, and making policy adjustments after a claim; meaning that parametric insurance claims are processed and compensated much faster than indemnity claims.
The advent and growth of parametric insurance has close links to the IoT, with more sophisticated devices and better connectivity allowing providers to both calculate and compensate more effectively. This is especially true in the case of natural disasters, which have long been notoriously tricky for insurers.
Wakam (former La Parisienne Assurances), another insurtech, makes full use of the IoT to improve customization and automation through Sigfox devices. Both tailoring parametric policies to their customers’ needs and automating the claims process benefit from the capabilities of these smart devices. Wakam has gone further, and has developed and introduced a private blockchain platform to process and manage parametric claims. The combination of IoT and blockchain technology allows parametric policies to be generated and managed intelligently, based on global, interconnected event data, rather than isolated public or private events.
Avoid damage claims with IoT
Today’s insurance industry isn’t just about processing damage claims. It’s about helping clients avoid them altogether. Insurers can use the power of data to create a more secure, more connected world. The next generation of IoT-based smart security solutions overcomes the shortfalls of earlier technology to provide connectivity at a very cost-efficient price.
The potential of modern IoT is almost limitless: protect homes and businesses with security alarms that aren’t susceptible to GSM jamming; recover stolen vehicles with powerful, reliable tracking systems; and react quickly to emergencies in the home or business with connected smoke detectors and real-time water leak detection. The overlap with insurance is obvious – IoT data provides a smarter set of tools for the modern insurance landscape.
Take Discovery Insure, a company that has detected a huge problem with stolen vehicles in South Africa. In 2019, 48,306 vehicles were stolen, averaging 132 vehicles per day. Only one in five stolen vehicles are recovered, and 30% of those are damaged. When owners notice their car missing, it’s usually too late.
Even if the car is found, insurers may refuse to compensate the victim if there is no physical evidence of a break-in. The recovery process is usually lengthy and gives thieves enough time to dismantle stolen cars or ship them to the other side of the world.
But IoT offers a solution. With a resilient network like Sigfox, Discovery Insure can offer to track the stolen vehicles, even when they are hidden in enclosed and/or underground locations.
The future of IoT in insurance
From 2019 to 2024, the IoT insurance market is expected to grow by 60%. The number of use cases for IoT devices within insurance will grow along with it, with more electronic devices entering the consumer and business marketplaces year on year. Traditional insurers are looking to the future and working on digitizing their offerings to move forward faster and with greater agility.
Insurtech’s global market revenue is expected to reach 10.14 billion US dollars in 2025, almost doubling the value it had in 2019. According to the Global Insurtech Market report published in 2020, the Coronavirus pandemic has contributed to accelerate the digital transformation of industry, a driving force in the commercial introduction of IoT. Thanks to this IoT, insurance companies are being given more opportunities to revolutionize and grow than ever – but taking advantage of them will need forward-thinking and adaptability.