As the life insurance firms leverage the last bits of arbitrage opportunities created by the risk pool of their policy owners there comes a new technology revolution to aid in creation of blue oceans for them. At the same time it requires heavy investments. So should you engage or wait and watch?
IoT (Internet of Things) the third IT revolution is here. It is currently channeled by a vast pool of start-ups and also has started rooting at an industrial scale. Here I lay a life insurance perspective on the revolution’s manifest and underlying ramifications.
May the Force Be With You
The world is becoming more and more connected with the evolution of communication technologies. And the world just got couple new versions in the time you read that sentence. The massive online communication has led to plethora of channels to learn about the consumers from their choices to their daily lives.
All this has led to availability of huge amount of information (mind it not data) that provides firms with a much accurate picture about consumers resulting in better marketing and product sales. The connected devices will not only enhance the current information feeding frenzy and but also provide new information avenues to support better decision making.
From an insurance perspective, this will lead to clear identification of risk components of the insured and prospects. This will further provide better customer profiling/underwriting/segmentation and product pricing/re-calibration. The connected devices will also provide real time data on “in the moment” threats. The real-time risk assessment will enable dynamic customer policy pricing as is already in place for auto insurance, wherein the driving behavior is reflected on the premium charged. On the other side, the continuous health monitoring will trigger proactive measures to support better health of insured further benefiting the insurance firm by loss reduction.
Altogether, the clear and timely identification of risk components and hazardous conditions will result upon dynamic processes which would tie to the detrimental behavior and appropriate proactive action.
The IoT effect will be seen not only on the communication front but across the entire life insurance value chain i.e. from underwriting, sales, policy management, new product development to claims. The impact IoT has across value chain can be primarily categorized under two fronts i.e. 1) Cost reduction from administration expenses to claim management and 2) New revenue avenues from targeted pricing structure, new segments and markets to expanded product horizons. However, the cost components will yet be needed to be optimized so that the value adds from IoT institution is greater than the costs incurred in establishment.
The Forces on the Other Side
Nascent stage of IoT poses a threat as the privacy, security and compliance are yet to mature for industrial usage. Moreover, from a privacy perspective data management becomes critical as the data masses increase and the associated safe storage becomes challenging. Furthermore, there are huge cost implications for enabling the IoT in life insurance by setting up device networks across all insured and associated stakeholders
Though IoT offers better claim management via proactive measures and risk management via increased accuracy, it yet poses a huge learning curve for the insurance workforce which is hard to sway.
The insurance firms have just come out of shell and started investing in modernization programs and new product development resulting in resource and budget constraints. A murky future for any investment in IoT.
In summary, IoT will have an impact on the life insurance industry. How conclusive will it be is dependent on the investment appetite for that particular firm.