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Internet of Things Under the Radar, But Coming to Insurance

Inertia in the insurance industry is stalling innovation, but changes to the consumer market might force its hand.

An under-the-radar topic that was discussed at this past week's ACORD/LOMA Insurance Systems Forum was the potential impact of the Internet of Things on the insurance business.

Kaenan Hertz, executive director in the financial services customer practice at EY, says that with insurance already transitioning to a more digital business, insurers need to pay attention to trends that are emerging at ever-faster paces.

"You look at Facebook buying Moves. Monsanto buying [crop insurance data company started by former Google execs] Climate Corp. Google buying Nest. The connected home and connected health front. At the end of the day does a company like Fitbit have an advantage, or does Google have an advantage, because they know your home and your habits?"

That "advantage" is in leveraging data to establish risk profiles. And while those companies might not be insurance carriers yet, many have reasons to enter the business at some point. Google's self-driving cars, for example, will require a new kind of insurance. Why not provide it themselves?

Recently, the e-commerce site Overstock.com opened an insurance agency on its site. CEO Patrick Byrne told I&T that the company believes it can improve the insurance buying experience by incorporating its wealth of data into the process. Internet companies incorporating networked devices into the insurance buying process could claim a similar advantage.

And the devices could impact the financial structure of the insurance industry in a big way as well. If the Internet of Things delivers on its promise to reduce risk, that changes the very nature of insurance, says Celent analyst Donald Light. He says that adoption of the Internet of Things starts with deploying the devices that collect the data, then analyzing that data. But it's the third part -- which Light calls a "feedback and control loop" -- which could have financial implications.

"As the feedback and control loops takes advantage of the new insights losses will decrease -- and when that happens, premiums will follow," he says. "The dynamic changes: If you haven't opted in so far to telematics because you're a lousy driver, they'll give you an opportunity to improve. There's a definite chance that the majority of drivers are going to get better."

It's Light's famous forecast of "the end of auto insurance" on a macro scale, he explains.

"For the other lines of business, some are closer than others. Take homeowners -- there are new kinds of sensors finding water where its not supposed to be," he says "There are going to be early mover advantages. You see the new data, and suddenly your rates are out of whack -- and it's a price competitive market in the US."

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio

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Nathan Golia
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Nathan Golia,
User Rank: Author
5/14/2014 | 7:30:19 PM
re: Internet of Things Under the Radar, But Coming to Insurance
Thanks Stephen. That very well might be what happens. It might help answer the question of who owns what data as well, which could be abig sticking point toward regulators allowing insurers to use some of this data.
KBurger
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KBurger,
User Rank: Author
5/12/2014 | 9:01:16 PM
re: Internet of Things Under the Radar, But Coming to Insurance
That's a good way of thinking about these developments, Stephen. I agree that insurers should be thinking (worrying) more about the unknown disrupters as opposed to the known competitors (even if untraditional). Over the years we have seen many players enter the market convinced they had the tech know-how and market savvy to do things better then established players, whether carriers or technology vendors. Some have success but more often than not these entrants have underestimated the complexity of the insurance business and give up. But emerging players that can combine advanced tech capabilities with market knowledge potentially are very well positioned.
sapplebaum606
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sapplebaum606,
User Rank: Apprentice
5/12/2014 | 5:47:17 PM
re: Internet of Things Under the Radar, But Coming to Insurance
There is no question that the Internet of Things will soon begin to disrupt the insurance business. Insurance is, at its core, is about information management and the spectre of having hundreds of thousands of accurate, current data points instead of the presently limited and dated information specific to an insurance risk - updated perpetually in real-time - should be at once exciting and terrifying to insurance executives responsible for the future health and direction of their companies.

However, I am not nearly as convinced that the "Facebooks", "Googles" and "AliBabas" of the world will displace today's P&C insurers. Rather, I envision a new breed of sophisticated data brokers/business intelligence vendors emerging

who will collect analyze, repackage and channel relevant, synthesized, actionable information to insurers fashioned from the torrents of "big data' that will be flowing to them from connected devices and sensors.

Investors, entrepreneurs, information technology providers, carriers, brokers and agents who actively participate in the evolution of this new data ecosystem will be the ultimate beneficiaries of the Internet of Things - as will their customers.
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