The advent of the Internet of Things (IoT) has the potential to transform the insurance industry. As connected cars, fitness trackers, and smart home devices make their way to the mainstream, they're providing insurers with access to troves of data on their customers that can help more accurately price policies. In addition, by encouraging use of these devices, insurers stand to see lower claims and related costs.
Connectivity in the car has created an opportunity for insurers to monitor driving habits in real time, enabling them to provide usage-based insurance (UBI). This means tracking how fast a person drives, how often they get behind the wheel, and in some cases, even whether they put on their seat belt. Insurers can then use that data to offer personalized insurance policies. Currently, we estimate that 27 million Americans have tried UBI — that's about 13% of all US drivers.
Meanwhile, health and life insurance companies are exploring the use of connected fitness trackers to collect targeted health data on their customers. The most common way insurers are leveraging these devices is by offering rewards to customers who wear fitness trackers that sync with the insurer’s app and then meet certain goals. However, a few companies, like John Hancock and French insurer AXA, are using fitness tracker data to actually adjust premiums — a trend we expect to see more of in the years ahead.
IoT solutions can also benefit home insurers in two primary ways: by helping to protect the assets they insure, and by enabling more efficient assessment of damages to conserve resources. By monitoring assets in the home, IoT devices can lead to fewer negative incidents. For example, a connected smoke detector can alert a homeowner if a fire has started, so that it can be put out before any major damage is done. At the same time, home insurers can now leverage drone technology to better assess damages.
In addition, the proliferation of IoT devices is leading to new business opportunities for insurance companies, as these solutions can be very expensive, and the equipment itself needs to be insured. Two of the best examples of IoT devices demanding insurance are consumer drones and smart home products, both of which promise to open up entirely new markets [...]