Explosion Of Data From Connected Devices Offers Insurance Industry A Transformative Opportunity

Yes, they would know you are a responsible driver from the data, which means rash drivers could end up with a higher premium. This could end up curbing those who floor the pedal so very often since the cost is a greater teacher than mere road safety campaigns.

Connected devices are here to stay with every other person using a fitness tracker connected to their smartphones or watches to monitor physical activity and heart rate among other things.

One example of product innovation due to this influx of data from connected devices is the development of usage-based insurance (UBI) or telematics insurance. This type of insurance uses data from telematics devices in vehicles to assess the driving behaviour of the policyholder.

The data collected can include speed, acceleration, braking, and location. Since the data can be real-time and granular, insurance companies can offer personalised insurance policies to suit the individual's driving habits. The interlinking of connected devices, often referred to as the Internet of Things (IoT), has the potential to revolutionise insurance with better risk assessment. 

For example, the data from a fitness tracker can be shared with health insurance providers of the users through a dedicated app. The insurers will be able to gain insights into the individual's lifestyle and health habits. Based on this data, insurers can offer personalised wellness programs, incentives for meeting fitness goals, and even tailored insurance plans that reward healthy behaviours.

One Trillion Connected Devices

There will be a boom in the number of connected consumer devices in the near future. Apart from existing devices, including cars, fitness trackers, home assistants, smartphones, and smartwatches, new categories can also come in. Say, clothing, eyewear, home appliances, medical devices, and footwear.

Experts project there could be as many as one trillion connected devices by 2025. The resultant deluge of new data from these devices will enable insurers to gain a deeper understanding of clients, leading to the development of new product categories, more personalised pricing, and increasingly real-time service delivery.

Similarly, for property insurance, connected sensors can monitor environmental factors such as temperature, humidity, and water leakage. The proactive approach to risk management not only helps prevent losses but also allows insurers to offer more tailored coverage based on the actual risk exposure of the property.

Furthermore, the use of connected devices can lead to a shift from reactive to proactive risk mitigation. For instance, insurers can partner with customers to install smart devices that detect and alert the presence of fire, water leaks, or intruders. By preventing or minimising damage, insurers can reduce claims payouts and improve overall loss ratios.

The data from connected devices can fuel advancements in predictive analytics and Artificial Intelligence (AI). Insurers can leverage this data to develop more accurate models for predicting and pricing risk, leading to enhanced underwriting precision and improved profitability.

Enhancing Customer Experience

Customer experience can also be enhanced with data from connected devices. Firstly, it allows for more personalised and tailored insurance products. For example, as mentioned earlier, UBI or telematics insurance can provide customers with policies that are specifically based on individual behaviours and needs, potentially leading to more accurate pricing and coverage.

Secondly, the data from connected devices can facilitate faster and more efficient claims processing. For instance, in the case of connected home devices, such as smart sensors or security systems, insurers can receive real-time information about potential incidents, allowing for proactive assistance and quicker claim resolution. 

Moreover, the data can be used to provide customers with proactive risk management and loss prevention services. For example, insurers can offer personalised safety recommendations based on data collected from connected devices, ultimately helping customers mitigate risks and prevent potential losses.

Overall, the influx of data from connected devices enables insurers to offer a more personalised, proactive, and efficient service to customers, ultimately improving overall customer experience in the insurance industry.

Insurers can also offer value-added services such as personalised risk insights, proactive maintenance alerts, and streamlined claims processes, thereby strengthening customer engagement and loyalty.

Data Safety And Privacy 

There will be several key concerns that need to be addressed. One significant concern is related to data privacy and security. As more sensitive personal and behavioural data is collected from connected devices, there is an increased risk of data breaches, unauthorised access, or misuse of data. Insurers must ensure that robust security measures are in place to protect the privacy and confidentiality of data collected.

Another concern is the potential for customer distrust or resistance to sharing personal data. Customers may be apprehensive about sharing extensive data from their connected devices, especially if they are uncertain about how the data will be used and whether it will lead to fair and transparent outcomes in terms of pricing and coverage.

Additionally, there is a concern about the accuracy and interpretation of the data collected from connected devices. Insurers must ensure the data is reliable and relevant for making sound underwriting and pricing decisions. Moreover, there is a risk of unintended biases in the data analysis, which could lead to unfair treatment of certain customer segments.

Furthermore, there are regulatory and compliance concerns related to the collection, storage, and usage of data from connected devices. Insurers need to navigate complex and evolving regulations to ensure they are operating within legal and ethical boundaries when leveraging this data.

Addressing these concerns requires a comprehensive approach that prioritises data security, transparency, customer education, and regulatory compliance. Insurers must be transparent about how the data is used, ensure data accuracy and fairness, and prioritise the protection of customer privacy to build and maintain trust in the use of connected device data in the insurance industry.

The explosion of data from connected devices presents a transformative opportunity for the insurance industry. By harnessing the power of IoT data, insurers can improve risk assessment, innovate new products, enhance underwriting accuracy, mitigate losses, and elevate the customer experience.

In summary, insurers must approach these complexities with diligence and ethical considerations to fully harness the potential of this data-driven evolution.

(The author is a New Delhi-based economist. Views expressed are personal.)