Gartner forecasts the number of connected things will exceed 20.4 billion across consumer and business applications by 2020. According to Cisco, IoT devices will generate over 5 quintillion bytes of data every day about human behaviors and health, home safety and security, vehicle usage, physical asset utilization, and more. The explosive growth of IoT devices, and the vast benefit afforded by IoT to insurance necessitates a connected insurance strategy. Almost every one of these connections could be attached to an insurance policy.

The claims management function has relied on subjective policyholder reporting and after-the-fact analysis, regardless of business line. IoT allows insurers to detect loss events in near real-time through dedicated event detection sensors (e.g. connected smoke detectors and telematics-based crash detection) or through behavior monitoring sensors and advanced analytics (e.g. heart attack detection through a wearable sensor). This use of IoT sensors for claims management, connected to an insurance IoT platform, enables insurers to mitigate losses, combat fraud, decrease claim settlement time, and improve policyholder satisfaction.

Auto insurance

The use of auto insurance telematics data beyond risk assessment is a new concept in the US market. In Europe, insurers have been using telematics data to improve claims outcomes for decades. Insurers in the US have recently started leveraging their investment in telematics technologies to improve claims. Claims outcomes have possibly the greatest impact on retention and referrals over any other factor. A report from J.D. Power shows that “satisfaction with the claims experience impacts customer retention and referrals.” 83% of those who had the best claims experience reported they “definitely will” renew their policies. 84% would recommend their insurer. For those that had the worst claims experience, only 10% would renew with or recommend their insurer.

From a purely financial perspective, the impact of telematics on claims is well-documented:

  • 10% reduction in total claims costs*
  • 60% or greater reduction in time to settle claims*
  • 20% reduction in claims frequency
  • 80% reduction in fraud
  • 30% reduction in lawsuits*
  • 30% reduction in whiplash claims paid*

Octo’s partners have reported double-digit improvements in combined ratio with mature programs leveraging telematics to improve claims. Similarly, insurers such as Zurich, Ageas, and Co-operative insurance have reported using telematics data to reduce claims costs by 30-60%.

Homeowner’s insurance

Water damage avoidance

Over one-third of homeowners’ insurance claims are related to water damage. Non-weather-related water damage (such as a burst pipe), makes up almost 20% of total claims. Estimates put the average water-damage claim at almost $9000.

Thanks to water flow sensors, this type of damage is now easily monitored and prevented. Smart water flow monitors can detect leaks in a home’s plumbing, alert the homeowner, and in many cases shut off water flow to affected pipes. Non-emergency alerts, such as a faucet being left on can also be triggered by some sensors. This type of targeted feedback can be critical for behavior-based risk reduction. IoT moisture sensors can also be valuable for detecting and alerting homeowners to both weather-related and non-weather-related flooding. One study by the ACE Group predicts that more than 90% of water damage claims could be avoided through the use of automated leak detection and mitigation systems.

Neos is an innovative connected home insurance company in the UK that offers IoT sensors as part of its insurance offering. They are successfully using leak sensors for water-related claims mitigation, along with other IoT sensors to combat all major home-related risks.

Fire risk mitigation

Fire-related claims are the most expensive homeowners’ insurance claims, responsible for nearly one-quarter of total claims costs. Three of every five home fire-related deaths resulted from fires in homes with no smoke alarms (38%) or no working smoke alarms (21%). Dead batteries caused one-quarter of smoke alarm failures.

Smoke detectors are required by most, if not all, insurance carriers. Smart smoke and carbon monoxide detectors have been developed to address the two greatest challenges with traditional alarms: off-premises notification and alarm status verification. Through a mobile app, smart smoke detectors can notify homeowners of an event no matter where they are. This is critical for claim mitigation as the homeowner (or their insurer) can notify emergency services immediately upon notification and potentially reduce the severity of property loss. If the insurer is

integrated directly with the sensor or service provider, they can also get insight into the status of fire alarms on an insureds’ property. For example, Liberty Mutual’s smart home insurance product offers a discount on home, condo, or renters’ insurance and a free Nest Protect smart fire alarm if insureds share their Nest data with the insurer. For those who opt-in, Nest shares only the devices battery level, status, and Wi-Fi connection strength with the insurer for verification purposes.

More than half of U.S. households with broadband internet find the idea of an IoT device that alerts them to smoke and fire highly appealing. BI Intelligence estimates a home equipped with a connected smoke detector that automatically alerts the fire department could potentially cut an insurance payout by an average of $35,000 USD. Similarly, most consumers would be willing to share smoke or carbon monoxide detector information with an insurance carrier for the right incentives.

Roost Telematics has partnered with leading North American insurers to successfully launch home telematics programs focused on fire and water damage claims mitigation. Roost has reported that their sensors and automated reporting lead to 5-15% reduction in claims for their insurance partners.

Burglary avoidance and mitigation

According to Safeguard the World, the chances of a home burglary rise by 300% when a home has no security system. The average cost of a property-theft related claim is around $2250. Most insurers already incentivize the installation of a security system through insurance discounts. Like fire alarms, insurers have little insight into security-related behaviors except for one-time confirmation of enrollment in a security program.

IoT-enabled devices allow for the remote monitoring of the home and remote activation of home alarm systems, locks, indoor/outdoor lighting, smoke alarms, and even doorbells. In the event of a theft, fire, or flood, in-home video monitoring can be used as a catalog of property damaged or destroyed to help accelerate the claims process and combat fraud.

One example of a connected home insurance program is American Family’s partnership with Ring. American Family offers a $30 discount on Ring’s video doorbell products. If the homeowner installs the doorbell, they become eligible for AFI’s Proactive Home Discount. In the event of a burglary, Ring will reimburse the homeowner’s policy premium.

Life and health insurance

Smart devices provide a unique ability to both detect a health event before it happens through leading indicators and to detect and mitigate the severity of an event. For example, a smart wearable device can monitor blood glucose measurements, notify the wearer if glucose levels drop, and provide doctors with trend data to help them understand how well their patient is managing their diabetes. Insurers can tie this type of monitoring to policyholder incentives and provide real-time feedback to improve chronic disease management outcomes. A similar smart wearable device that detects heart rate and temperature could be used to identify a heart attack, alert the insurer, and provide a mechanism for providing emergency services to the policyholder. Wearable devices, with the right sensing capabilities, have been proposed to detect cancer, stress, diabetic emergencies, hypertension, asthma attacks, and many other chronic disease-related emergencies.

Across health-monitoring smart devices, insurers have the ability through real-time health monitoring to avoid claims, reduce the severity of claims, and improve policyholder satisfaction.

IoT is well positioned to help combat fraud in health insurance. Data on location and health statistics can give insights into what happened before, leading up to, and after an event causing a medical claim. Insurers can use this data to detect pain levels and combat drug-seeking behaviors, detect behaviors inconsistent with disability claims, and to shift liability from a health insurance claim to (or from) a workers’ compensation claim.

Read our new white paper, Get Ready to Win in an Era of Insurance IoT, to understand the full benefit of insurance IoT across lines of business.