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The Internet of Things (IoT) is a revolutionary technology that creates a seamless connection between devices and the Internet. One of the most popular examples of an IoT device is a smartwatch. With IoT technology, devices can connect, in this case, a smartwatch with a smartphone, via the Internet and enable seamless data sharing.
This technology has use cases in multiple industries and has revolutionized various applications in a number of them—particularly the insurance sector. With advanced data extraction and analysis capabilities, IoT enables insurers to get granular and personal with their customers’ policies.
Improved risk analysis, usage-based premiums, and hassle-free claims processing are just some of the benefits that IoT brings to the insurance industry. These improvements are seeing the rate of IoT adoption grow among insurers and explain why this industry is predicted to reach $83.81 billion by 2030. This article explores the growing use of IoT in the insurance industry and how this technology is used to improve the customer experience and the underwriting process.
Role of IoT in InsurTech
Usage-based auto insurance
One of the best use cases that best illustrates the power of IoT in insurance is usage-based automotive coverage. Instead of charging standard premiums based on unmeasured risk factors like car type, the owner’s location, mileage, the driver’s age, and their experience. Insurers use what’s called a telematics device to extract real-time data from users. Using AI algorithms, insurers are able to collect the information and analyze the data to calculate risks and premiums accordingly. This approach proportionately assigns higher premiums to high-risk policyholders while rewarding safe and responsible driving.
Automation of claims processing
With IoT integrated into insurance, companies are able to automate redundant processes. Using automation to process applications and claims forms makes it easier for policyholders to engage with insurers and improves customer satisfaction.
In the previous scenario, a usage-based premium model was discussed. Combined with the automated processing, IoT could be most effectively used in the following scenario: Scenario: How IoT can be used in the insurance industry
Jim would like to sign up for a car insurance policy with Company X. Company X is known for being tech-savvy, and Jim is drawn to the seamless process. He has a hassle-free, quick process of signing up, and within a matter of days, an easy-to-install telematics device is sent to him. Jim’s careful and cautious driving is rewarded by his insurer who sees him as low risk, due to his gentle braking, steady take-off time at traffic lights, safe following distance of other vehicles, and compliance with the rules of the road. Jim is satisfied with the low premiums and feels incentivized to continue observing the rules of the road and responsible driving. When Jim was rear-ended by another driver, his telematics device instantly recorded the accident and prompted Jim to make a claim through the insurer’s app. He was able to take pictures of the scene and upload them instantly, and an agent contacted him within minutes to check if he needed roadside assistance. The claims process was swift and seamless.
In this hypothetical example, it’s clear to see how IoT can be utilized in the insurance industry to:
Improve the process of applying for insurance coverage
Obtain a fair, usage-based premium
Claim from the insurer with ease
The last point specifically is important to note. How an insurer handles claims processing has a direct impact on customer satisfaction and profitability. When cars embedded with telematics devices are in an accident, an alert is immediately triggered to insurers. The telematics device can also collect relevant information about an accident, which prevents fraud and provides a seamless process for policyholders in the claims process.
IoT and AI come together to analyze the data, and plug the information into decision-making algorithms. This allows insurers to resolve claims quickly and efficiently. Suspicious claims can be analyzed against collected data and specialists are contacted to further investigate.
Personalization of insurance policies with health data
The most commonly used IoT smart wearable device is the smartwatch, and its implications for medical insurance are innumerable. Smart wearables like fitness trackers, bracelets, watches, and rings measure and collect the user’s healthcare data. These IoT devices can measure a user’s heart rate, blood pressure, sleeping patterns, and exercise frequency.
Having access to this information allows healthcare insurers to obtain accurate and complete medical information on policyholders. This enables accurate risk calculations and provides fair premiums to customers. Additionally, insurance companies can incentivize healthy living through integrated mobile apps and connectivity with wearable devices.
Insurers are partnering with grocery stores to encourage policyholders to eat healthy and can monitor how often they exercise through smartwatches or other tech. Discounts, cashback, savings, and rewards are offered to encourage customers to lower their risk by improving their health.
Improving interaction with customers
The Internet of Things has become a tool that insurers have been able to leverage to enhance customer experience. With IoT devices, they can create an integrated ecosystem using applications, chatbots, voice assistants, and telematics devices to collect and analyze consumer data. Beyond using this information for premiums and risk assessments, insurers can establish consumer preferences and behavior, which can be used to optimize services and engagements.
Additionally, IoT can be used by insurers to improve engagement with customers. With a better understanding of consumer lifestyles and habits, they can provide personalized recommendations and tips on a wide range of activities, like driving habits and healthy lifestyle choices.
Challenges
Integrating IoT into an insurance ecosystem can be incredibly challenging for a number of reasons. Here are a few of the main barriers to widespread IoT adoption in the industry:
Data privacy and security
One of the first issues insurers will have to get past regulators is that of complying with data laws and regulations. The purpose of using IoT-connected devices is to harvest sensitive user data on health and lifestyle habits. Insurers need access to large data sets of information pertaining to consumer habits, and managing data privacy is of the utmost importance.
With access to sensitive information, insurers using IoT tools and devices are especially attractive to threat actors, as hackers look to sell this information on the dark web. Typically, they look for vulnerabilities in the transmission of data, the data processing systems, or the storage infrastructure.
Data privacy is an important issue that insurers need to be mindful of. Establishing robust security measures is essential to building consumer trust and confidence, and preventing unauthorized access and the potential misuse of private data.
Integration of various IoT devices
Integrating IoT into an insurance environment is a complex task involving a multitude of devices, protocols, and platforms. To create a harmonious exchange, insurers will need to invest in middleware to ensure interoperability between devices and platforms.
Insurance companies may also need to completely overhaul their existing systems to ensure they can successfully integrate with IoT systems. Artificial intelligence also often features as an additional tool, used in conjunction with IoT, to ensure that large amounts of data can be seamlessly analyzed.
Analysis of a vast amount of data
As mentioned above, artificial intelligence and machine learning are integral to the successful adoption of IoT in insurance. AI is critical to scaling the underwriting process. With the huge amounts of data being extracted from users’ connected devices, insurers need to quickly process and assess this data and make informed decisions about risk assessments, premium calculations, and claims payouts.
Analyzing large swathes of data also reveals hidden patterns, trends, and correlations. To really leverage the technology, insurance companies will need to invest in recruiting specialists like data scientists, analysts, and engineers. Overall, this process can be time-consuming, and expensive.
Future of InsurTech
The Insurtech landscape will continue to benefit from implementing advanced technologies like IoT. With a data-driven approach, they’ll continue to leverage connected devices through the Internet of Things to extract valuable information about consumer habits. This improves risk assessment and premium calculation.
With IoT, AI, and machine learning, insurers will be able to leverage data insights to predict events, improve customer experience, and deepen engagement to build loyalty and trust. By understanding policyholders’ lifestyles and behavioral patterns, they can provide personalized recommendations and offers.
Conclusion
The collaboration between IoT and the insurance industry is transforming how insurers assess risk, personalize policies, streamline claims processing, and enhance customer engagement. By leveraging real-time data from connected devices, insurance companies can offer more accurate pricing, improve fraud detection, and encourage safer behavior among policyholders.
However, widespread adoption comes with challenges, including data privacy concerns, cybersecurity risks, and the need for seamless integration across various IoT platforms. Addressing these obstacles requires insurers to invest in advanced security measures, robust data analytics capabilities, and strategic partnerships with technology providers.
Looking ahead, the future of InsurTech will be driven by continued advancements in AI, machine learning, and predictive analytics. As insurers refine their use of IoT-generated data, they will unlock new opportunities to improve customer experiences, develop innovative insurance models, and strengthen risk management strategies. Ultimately, the intersection of IoT and insurance is not just about connectivity—it’s about creating a smarter, more responsive, and customer-centric insurance ecosystem.
