As one of the world’s oldest industries, insurance is often seen as a traditional or even old-fashioned industry. But insurance is one of the many industries that is being redefined by IoT. But insurers need a shift in mindset if they want to advance into the modern era and stay relevant to their customers. Historically, insurance companies have focused on making their core as good as possible to mitigate risk. Insurance at its core is risk-averse. But the landscape is changing and IoT in insurance is becoming more widespread.
More insurance technology startups that are using IoT are popping up and being invested in by large companies. Last year, insurance technology companies raised $2.2 billion and saw 202 deals — a record-breaking number. This shows that there is an increasing interest in new technologies in the insurance sector. And with the money behind these new technologies, they are gaining momentum.
IoT and new opportunities for insurers
New technologies like IoT provide a huge opportunity for insurers to improve their products and the way they interact with their customers. Many insurance companies have already started experimenting with how they can implement IoT with their business. Car insurance companies are starting to use telematics, the integrated use of communications and IT, to track how much and how well you drive. This allows insurers to reward their customers for good driving behavior and to charge less if they drive less. For example, Metromile offers a usage-based, pay-by-the-mile car insurance in the U.S.
Life insurance companies have experimented with incorporating health tracking devices to integrate wellness benefits with their customers’ insurance plans. In fact, it is predicted that the connected health market will be worth $61 billion by 2020. John Hancock was the first insurance company to offer policyholder discounts of up to 15% for wearing internet-connected Fitbit wristbands and rewards for various healthy activities. This smart life insurance is an example of how companies are starting to make insurance more immediate and relevant in the daily lives of their customers.
Another example of IoT in insurance are those who are experimenting with data from connected buildings to offer reduced premiums by monitoring utilities to understand water leakage, fire or occupancy trends. Many of the building’s systems are designed to be purely reactive, like the smoke detector that raises an alarm when it detects smoke. But with this data, insurers are finding that they can start to do predictive maintenance by detecting potential problems before they occur, reducing claims. Aviva is integrating Leakbot, a smart connected water leak detector, to offer a solution to the issue of water damage through its ability to detect leaks in a home, spotting them before they have a chance to become big problems.
In the not so distant future, IoT-connected products will become the norm across all segments of the insurance industry, as providers look to attract and retain digitally savvy audiences. Insurers are starting to take notice, with three-quarters of them seeing financial technology innovations as a challenge for their industry. To adapt to the shifting landscape, insurers need to create connected products rapidly.
As the examples above show, the internet of things is new and shiny and creates opportunities that are vast and valuable. But it is important to emphasize the word “new” here. There is no shortage of impressive, potentially groundbreaking ideas out there, but the technologies are still very novel and therefore the systems are not well-defined, requirements are loose and changing, and ideas are hard to prove.
It is challenging for insurers to understand the value of the data and for their customers to even know what they want. That’s why so many insurance companies are frozen with fear at the idea of taking such a risk without knowing the payoff. Therefore, it is important to constantly experiment and get something into the market quickly without spending a lot of time and money.
Rapid experimentation to the rescue
Insurance companies need to approach IoT applications with a willingness to fail often in order to figure out how to succeed sooner, in order to adopt a development process that allows for this rapid, low-cost experimentation. The lightbulb wasn’t invented with a single eureka moment. Instead, Thomas Edison experimented with thousands of different ideas. In his eyes, he thought, “I have not failed; I’ve just found 10,000 ways that won’t work.”
Budget also plays an important factor in the new mindset for insurers around risk. Insurance companies need to fund these projects in different ways and need to make an investment with an understanding that the business value may well be zero and that they may lose money at first. However, if insurers can test these ideas rapidly and at low cost, the risk is alleviated.
To foster this low-cost, high-value experimentation, companies need the right set of tools and processes. Some best practices for fostering rapid experimentation in your organization include:
- Designate time and resources for this type of experimentation to prove to your organization that this new approach can work, and then scale it widely as a new mindset.
- Form cross-functional teams that include the business and IT. Bring together a person with a big idea and someone with the technical skills to bring it to life.
- Use visual, model-driven development to create a common language and allow for faster experimentation and greater collaboration.
- Create a feedback loop to continuously capture feedback from users that you can take back into the process for continuous innovation.
- Test a minimum viable product early in the process to ensure the ability to change direction with minimal risk based on what you learn.
It is imperative to get these ideas out there quickly in order to validate or invalidate them. Avoid the “it must be perfect” mindset. Instead, build and deploy a minimum viable product and continue to iterate with feedback from customers to create the best experiences.
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