• IoT (Internet of Things) in insurance can potentially redefine the role of the sector from one that compensates for the loss of the policyholder to one that prevents potential losses.
The insurance industry has traditionally been viewed as a group of businesses that financially compensate individuals and organizations for losses incurred by them. The biggest challenges faced by insurance organizations are insurance valuation and claim validation, before deciding to pay customers. The process is tedious for insurance organizations because of the amount of data that needs to be analyzed. Customers too face long processing times, especially after dealing with a financial loss. Furthermore, there’s always a high probability for fraudulent claims, which necessitates a rigorous validation process. Using IoT in insurance can not only eliminate such issues but transforms the insurance business overall.
IoT in insurance : the reactive way
Validating an insurance claim requires reasonably accurate data to support compliance with a policy agreement. Therefore, IoT sensors can be used to track key parameters on an insured person or object. If the object of insurance is a person, they can be given wearable devices that track basic health parameters over time. In the event of an insurance claim, the recorded data can help prove allegiance to clauses in the insurance policy. In case of auto insurance, a car that is insured is fitted with sensors and on-board diagnostics(OBD) systems to monitor the performance of the car. The system also helps determine driving habits, such as the average speed, use of brakes, and proximity while passing other vehicles. These parameters will help the insurer to assess the premium that the driver will have to pay, with lower premiums for safe drivers. In the event of an accident, this data can be relayed immediately to the insurer and to the emergency services for a timely response. The insurers can immediately validate the case and pay the insured amount to the customer. This tech-centric approach is highly reliable for legitimizing claims and eliminating the possibility of fraud.
IoT in insurance : the proactive way
By using design thinking, balancing technology, and data-centric approaches and by integrating predictive and prescriptive capabilities of IoT analytics, the insurance industry can redefine its role to become a business that prevents losses, instead of one that pays for them. This approach involves increased data collection to use predictive analytics, in addition to the descriptive use of data.
In the auto insurance example, the data on the vehicle’s real-time position and performance, traffic and weather data, the driver’s behavioral data, will all be processed through machine learning algorithms. This will lead to the prevention of accidents through valuable feedback to the driver on his driving and vehicle maintenance.
With the combined use of IoT and AI, insurance companies will be able to insure their customers against risk and uncertainty. However, massive disruption, such as using IoT to price insurance premiums, must be circumspect, based on the results of the initial changes.