The Always-Connected Consumer
Insurers are operating in an environment where consumer expectations and the technologies available to meet them are evolving rapidly. Advances in digital technology not only provide new methods to connect with consumers but also create new imperatives as always-connected consumers demand greater digital sophistication from the companies they do business with.
These technological changes continue to accelerate. Consumers already expect to research, shop, and transact seamlessly across channels. IoT will further shift consumer expectations by offering consumers a wealth of relevant, real-time information about themselves and their physical assets, requiring P&C insurers to engage customers in context relevant, just-in-time dialogs about their cars, homes, and the like. While in the past, the P&C industry has remained largely unaffected by such changes, current trends will shake the industry as they change the consumer dialogue about risk, and alter the very nature of the risk landscape.
Disrupting Existing Insurance Models—and Unlocking Growth
Innovations will shift market boundaries. The new IoT ecosystem of sensors, applications —and the behaviors they provoke—will entice players from disparate markets such as automotive OEMs, home security companies, cable and mobile providers, and insurers to compete across traditional industry boundaries.
IoT will lead to new value propositions that unlock new sources of revenue. Insurers can use IoT-enriched relationships to connect more holistically to customers and influence their behaviors. IoT data will have value beyond insurance for market segmentation, offering
customer services related to emergency conditions, lifestyle, or other factors. Alwaysconnected lifestyles will also generate new types of risks, such as for information security. The better insurers understand these opportunities and risks, including which ones to cover and how to price them, the more successful they will be in the transformed marketplaces.
IoT can improve the economics of core business models. Economics will improve in several ways, particularly from the use of data analytics to identify and understand risks. Less risky behavior such as safer driving or better roof maintenance will lower preventable losses. For example, speed and miles driven, derived from telematics device, can serve as underwriting factors that improve the loss experience and core business operations, including claims management, servicing, and acquisition. Better, more timely information can make claim payments speedy and efficient, while data analytics can make detection of potential fraud both easier and more successful.
The connected ecosystem creates new opportunities for insurers, and more relevant engagement for consumers with their cars, homes, and selves.
IoT will shrink the traditional insurance market and change the nature of the risk landscape.
IoT will provide new ways to avoid preventable losses—some of which will be carved off by new competitors from outside the industry. As insurers begin to provide prevention solutions, the fundamental economics of the industry will shift, and they will incur greater up-front costs to lower loss payouts in the future. The nature of insurable risk will shift to low-frequency, highseverity events that are harder to predict and price. These effects are already playing out in selected segments, such as high-net-worth customers.
The Impact of IoT: Where Should Insurers Focus? By 2025, IoT will have a significant impact in three areas highly relevant to P&C insurers: the connected car, the connected home, and (to a somewhat lesser extent) the connected self. This connected ecosystem creates new opportunities for insurers, and more frequent, more relevant engagement for consumers with their cars, homes, and selves. The hype will eventually give way to commercially viable and sustainable business models. Google’s pod-shaped autonomous car prototypes provide a glimpse into this future. In a project run by University of Michigan, some 3,000 drivers have fitted wireless Internet connections on their cars to interact with both road infrastructure (such as traffic lights) and other cars on the road, in order to inform them about potential collisions(The Economist, Technology Quarterly, 2014.).
The connected car. The usage-based insurance (UBI) market for connected cars is currently nearing the end of its experimentation phase on the growth curve, with nine of the top 10 insurers offering UBI commercially or in various stages of pilot. Today, growth in telematics insurance is driven by pricing offers, but by 2025 a broader, modular set of value-added services The Internet of Things: Opportunity for Insurers that integrate seamlessly into the lives of customers will draw more customers. By 2025, telematics will grow to 30 percent of the market, and features such as ADAS (advanced driver assisted systems), semi-autonomous or autonomous vehicles, and recovery of stolen vehicles will be in use for nearly half of the cars on the road.
The future of the connected car can play out in several plausible scenarios: OEMs as branded integrators; large tech companies such as Apple’s CarPlay dominating with popular closed platforms; or open platforms and consortia emerging, such as MirrorLink. The connected car is critical to P&C insurers. They must prepare for multiple potential futures, and develop strategic partnerships with these emerging gatekeepers while reinforcing their value proposition to the consumer to sustain customer pull.
The connected home. By contrast, the connected home market is something of a Wild West. An increasing range of potential business models and value propositions are emerging, and by 2025, half of U.S. households will be connected, thanks to IoT-enabled, integrated monitoring and control solutions, many of which will include simple DIY installation. The market has some time before it fully matures, but within the next decade we do expect key players to move from individual product offerings to service platforms or integrated hubs. Just as consumers demanded universal remote controls to replace their collection of remotes, it seems likely that they will want a single hub for their connected home. For example, Quirky’s Wink hub is enjoying support from major players such as GE, Honeywell, and Philips as it strives to unite diverse gadgets into a single ecosystem. Meanwhile, the startup SmartThings and Lowe’s Iris are seeking to serve as central platforms or hubs for DIY solutions and value-added services. Google also cannot be counted out, as its acquisition of Nest illustrates. Over the next decade, the connected home will continue to gain significance as a revenue generator and as an entry point for other products and services. For insurers, the key is getting the trust and value components of future offerings correct, by initiating pilots and working alongside customers.
The connected self. This is a smaller, more nascent market that may be the catalyst for convergence across connected homes and cars. For that reason alone, it should remain a focus area of P&C insurers. For example, future wearable devices could report on the physical or emotional environment of the wearer, potentially leading to independent living solutions for the elderly or physically challenged. New business models could emerge, perhaps with employers buying wearables for their insured employees or companies monetizing the health data by providing relevant referrals. Actively monitoring and identifying targeted opportunities is a prudent step for P&C insurers.