Where are we in the development of the Internet of Things for the insurance industry?
The Internet of Things (IoT) has great potential to change the insurance industry. The IoT is networked sensors creating a lot of analyzable data with implications for pricing, underwriting, claims and loss control.
In most IoT areas it is early days, but there are some exceptions. A lot of insurers have telematics pilot projects for both private and commercial auto. In homeowners, there is a lot of R&D focusing on loss prevention and loss control. Commercial property has less activity, but that will pick up. There are also a number of innovative IoT crop insurance initiatives.
What impact is this going to have going forward?
There is going to be a substantial impact over the next five to 10 years. For all auto lines, telematics will be a major factor in pricing and underwriting. Commercial property coverage and pricing will reflect IoT-based security and environmental data. Business interruption, machinery coverage, hull and cargo will all see insurers using data from sensors already in place just waiting to be networked and analyzed.
What about over the longer term?
One of the most interesting questions in the long run is what happens if insurers’ use of the IoT significantly decreases losses. Over time, premium is always driven by risks and actual losses.
If you agree with that premise, it means the insurance industry as a whole—and brokers are an important part of that—have two choices: You can shrink and live in a smaller industry with fewer players, or you can develop new kinds of services and revenue streams associated with those services. That’s where loss prevention, loss control, loss engineering and behavior modification play a role.
What should brokers be thinking about?
Right now brokers need to keep track of what your carriers are doing and where their initiatives might or will affect the kinds of insurance you are writing. Secondly, brokers have to be able to explain what is coming to the prospects and policyholders.