The Internet of Things (IoT) is disrupting many industries, but few as much as the insurance market.
From wireless sensors that detect water leaks to in-car sensors, IoT has provided insurers with plenty of opportunities to make better decisions, reduce costs, and build deeper connections with their customers.
But while the opportunities in IoT are clearly immense, many insurers have been slow to incorporate IoT programs into their policy management systems, leaving them vulnerable to growing competition within the insurance market – especially by the arrival of new technology-savvy players.
Just look at what happened to Blockbuster in the early-00’s.
In 2004, the company had nearly 60,000 employees and over 9,000 stores worldwide. But by 2007, when Netflix introduced its online streaming service, it had all but lost the rental war. They failed to adapt to both technology and consumer needs.
The exact same principle applies to the insurance market, which, like movie rentals in 2007, is also undergoing massive digital transformation.
In order to succeed today, insurers need to be more innovative than ever before. In fact, in September last year, A.M. Best ranked insurers’ ability to innovate as one of the most critical factors for the success of their business.
IoT connected devices have already caused major disruption within the insurance market, and this is only going to increase with time. So the question is, how can insurers best prepare for the innovations that IoT is delivering?
The rise of IoT programs
IoT programs are designed to help insurance companies incorporate IoT/smart home devices into their policies – and they can be as simple or as complex as you choose to make them.
For example, an insurer could simply offer their policyholders a discount on smart home products that help property owners prevent water damage, fire, and theft.
Or they could implement more integrated IoT programs, such as ones that have a co-branded experience, lower deductible options, or rewards for reducing risk.
In 2018, Notion and Hippo Insurance formed a partnership that marked the first time a U.S.-based insurance provider created a policy that fully integrated an IoT device and the data collected.
Through this smart home program, Hippo customers (in qualifying states) receive a complimentarySmart Home Sensor Kit when they sign up for the Hippo Insurance policy. And when customers install the sensors, they receive a discount on their home insurance policy.
More recently, Notion partnered with Nationwide Insurance to create an IoT program that allows Nationwide customers to purchase Notion’s Wi-Fi enabled smart home monitoring system at a special discount.
By purchasing Notion’s monitoring system, Nationwide customers are able to track real-time instances of water leaks or sounding CO2 alarms through their mobile devices and enjoy savings on their homeowners’ insurance policy.
Not only are these kinds of programs a great way to improve customer experience, but they can also help insurers cut costs by driving claim reduction.
In fact, according to a recent McKinsey report, automation through smart home devices can cut the cost of the claims process by as much as 30%. And in many cases, those savings can be passed on to customers.
Plus, with the data collected through smart home programs, insurers can better understand their customers in ways they couldn’t before and quantify risk where it previously wasn’t possible. This can help insurers create better data-driven decisions around customization, strategy, and can even help cut costs.
All in all, smart home programs are an excellent way to help drive claim reduction, increase customer engagement (everything from acquisition to retention), and generate new revenue streams.
And considering that by 2025, half of U.S. homes are expected to be connected through IoT devices for monitoring and system control, the opportunities have never been greater.
As we move towards an IoT-oriented future, it’s up to insurers to adapt and accept the opportunities these new technologies offer or risk losing it all.