The insurance industry is about to get a lot more interesting. Much has been written in recent years about the increasing integration of the Internet, technology, and data into all parts of life and everyday objects.^1,2,3 And beyond the literature, looking at what’s already in the market, it’s quickly becoming apparent that this will profoundly change the way we live. From FitBit activity trackers and Nest learning thermostats, to even smart fridges that provide real-time grocery lists and smart mirrors that offer customized skincare routines, we’re already beginning to get an early glimpse of what’s to come.

So, what does this all have to do with insurance? Over time, this growing digital interconnection – commonly referred to as the Internet of Things (IoT) – will have a knock-on effect, enabling a wide range of value-adding benefits and services across many industries as it continues to evolve. Insurance will ultimately be a part of these benefiting industries and will increasingly become more broadly integrated into our day-to-day lives – in what could by extension be referred to as the “Insurance” of Things (or INSoT).

An INSoT world will bring about the next generation of protection. It will be a world in which sensors, real-time big data, and advanced analytics blend with policy-holder profiles to produce a more profound and holistic understanding of customers, their environments, and risks in need of coverage. This deeper level of understanding and interconnectivity will in turn support the broader delivery of protection and risk mitigation, whether in new forms of insurance products, loss prevention, or recovery support.

Integrated Insurance Products

On the product side, our device-oriented and data-sharing society will enable insurers seamlessly to provide consumers with ongoing opportunities for protection. Product offerings will be personalized and relevant, and many will be built to also help influence behaviour positively and improve lives.

Take Usage Based Insurance (UBI) for instance. Though UBI has been around for over a decade,⁴ advances in technology are expected to significantly increase market penetration, moving UBI from a small niche to the commonplace and making “pay-as-you-drive” much more prevalent over the next decade.⁵ Mobile apps and factory-installed telematics in cars will help layer live driving behaviour data into driving histories and provide more customized rates tailored to an individual’s own driving habits. Leading auto insurers like Progressive, Allstate, and State Farm already have programs in place and many others are following suit.⁶ UBI is also expected to increase accessibility by allowing previously uninsurable or difficult to insure drivers to get coverage through new monitored coverage programs. Such programs will help teach these drivers better driving behaviours and in turn give them the opportunity to earn better premiums.

In life and health, wearables will make possible ongoing risk profiling and “pay-as-you-live” pricing. Life insurance policies, for instance, will not only provide protection and peace of mind, but also help you live longer. Leveraging gamification principles and technology, policies will be designed with dynamic premiums that vary based on factors like eating habits (gleaned and tracked through food content recognition apps), as well as activity levels and vital signs, captured and tracked through connected health devices. Early forms of this are currently available, with carriers such as John Hancock and Zurich having programs that offer discounts for meeting fitness targets and adopting other health benefiting activities.^7,8

And as digitally derived efficiencies in distribution, underwriting, and administration reduce costs and improve integration with other industries, we’ll also see a significant growth in on-demand small-ticket insurance offerings. From locking in low gas prices at the pump to getting incremental life coverage at the airport minutes before take-off, highly personalized and context-relevant solutions will be woven into everyday life.

Integrated Loss Prevention

But data in an INSoT context won’t only be leveraged to better understand customer needs and offer personalized products. Just as importantly, it will be put to use to drive early loss detection and risk prevention, and ultimately to reduce the frequency and severity of accidents and claims. Connected cars, homes, health devices, and the ability to connect virtually anything else will allow for real-time monitoring, feedback, and mitigating measures.

This is where the lines defining roles and responsibilities around prevention will get increasingly blurred across industries. It’s where partnerships between very different types of organizations will become a lot more prevalent. And it’s also where insurance companies will need to evolve the most – from being reactive payers of claims to proactive and collaborative providers of loss prevention support.

Beyond influencing prevention through product and pricing constructs, insurance companies will work directly and indirectly with manufacturers, tech firms, utility companies, public sector entities, and a variety of other organizations to gradually form an intricate network of risk mitigating functionalities. Together, they’ll implement ongoing monitoring systems, anticipate and identify potential problems, and then proactively address them before customers are even alerted of any issues. A good example of an initial start on this type of ecosystem within the property insurance space is a recent partnership between Willis Towers Watson, a global risk management, insurance brokerage, and advisory company, and Roost, a smart home technology company. Together, the two companies plan to create a home telematics consortium with other organizations to help the industry make the most of IoT. The consortium will focus on aggregating and analysing household data in order to determine how effective home telematics devices are in reducing water and fire related damage.⁹

What kind of innovations might we ultimately see as a result of new loss prevention ecosystems? We could see things like weather report feeds and home foundation humidity instruments working together to keep an eye on an approaching thunderstorm. They could, for instance, regulate a connected basement sump pump should water levels rise too quickly and notify homeowners, plumbers, and an adjudicator to minimize and document damage if something fails.

We could also see commercial transportation fleets further leverage telematics and sensors to better monitor vehicle mechanical components and geolocations to enhance maintenance servicing. For example, sensors could identify engine troubles and trigger maintenance stops, which could be automatically scheduled and remotely coordinated while vehicles are on the road, in order to prevent breakdowns and potential traffic accidents. Though the full integration required to make this happen isn’t yet available, companies like Cisco and Sierra Systems are already providing notable fleet solutions¹⁰ that help transportation companies track vehicles, monitor items like tyre pressure, as well as map and reconfigure routes.

Integrated Recovery Support

A data-driven insurance industry will also give rise to enhanced claims service levels and more proactive incident management. The aim will be to help relieve customers of much of the effort associated with claims submission through the use of automation and simpler processes.

As smart objects, smart contracts, and blockchain technology take hold over the coming five to ten years, we could see things like claims submissions, diagnosis, reporting, and service provider coordination become fully automated. This would result in speedier processing, payments, and recovery, not to mention increased transparency and customer satisfaction.

As an example, the same sensors that will facilitate UBI and incentivize safer driving will also be leveraged to notify third parties should an accident occur. They’ll detect the incident, send for help (e.g. an ambulance, the police, a tow truck), and then convey the right information to the right people (e.g. who’s in the vehicle, medical histories, emergency contacts, etc.). Drones could then be used to begin claims adjusting by assessing the scene and taking pictures to document damage (something that’s already being piloted by some insurers). Should an injury be involved, a medical claim would automatically be submitted, loss of income coverage initiated, and appointments with rehabilitation specialists scheduled.

What’s Next?

While we’ve only scratched the surface on the impact IoT will eventually have on the insurance industry, it’s clear there’s a lot of change to come. And though technology will eventually enable this pervasive and seamless integration of insurance into our daily lives and though we’ve already begun to see some of the changes take place, it will take time for it to materialize fully. It will require widespread, real-time big data integration across a broad spectrum of diverse but interrelated products and services. What’s more, historically slow to change regulations and privacy controls in some regions will ultimately need to be adjusted to accommodate a substantially different approach to and level of information exchange. Fortunately (or unfortunately for the unprepared), we’re not talking about decades, but rather over the next five to ten years. And in some cases, we may even come to see some regions speed up adoption by mandating elements of INSoT, such as UBI, as they prove to lead to higher levels of safety.

The course of these changes will also alter industry dynamics. In addition to insurers establishing operating partnerships across other traditionally unrelated industries like manufacturing and retail and expanding into newly developed parts of the market, such as geolocation software development and sensor analytics, they’ll also be confronted by new competitors – likely data-proficient entrants and common household names like Google, Amazon, or Facebook. To cope, some insurers will seek to specialize and narrow their focus as the scope of insurance broadens. Others will leverage scale, grow with the expanding value chain, and seek to develop missing capabilities in order to properly compete. For some these capabilities will be developed in-house. For others they’ll involve unique acquisitions and mergers between insurers and, most likely, tech companies.

Whatever the approach and exact path to bringing INSoT to reality, we’re certain eventually to see an industry that is completely reimagined and forever transformed.