IoT experimentation can be a “chicken/egg” problem for insurers. Which comes first: heavy investment to build out a network of sensors for data collection (when you don’t know how that data will be used or how valuable it might be), or developing algorithms that render that data into meaningful insights (for which large amounts of data and the technical capabilities to ingest and analyze it are a prerequisite)? How can an executive make a business case for IoT when the expenses can be substantial and the benefits are unclear?
Compounding that complexity is the pressure many P/C insurers are feeling on the margins; personal lines, in particular, are already squeezed so tightly that there might not be money left for the premium discounts that have become the sine qua non of IoT/UBI/telematics programs.
These pressures are reflected in Novarica’s research on insurers’ IoT engagement: although actual deployment is fairly low (20% of P/C insurers have deployed telematics programs and 10% have deployed IoT programs), interest is high. Insurers know IoT is going to be important, but they don’t know exactly how important or exactly how to approach it yet.
Novarica’s report on Operationalizing IoT in Insurance examines these questions across the perspectives of acquiring data, analyzing data, and acting on data. All three aspects are crucial: IoT success requires access to good quality data, the ability to extract meaningful insights from data, and the institutional willingness to deploy new products or articulate new value propositions to the customer.
Fortunately, it’s not necessary (or desirable) for carriers to implement full-scale big data or machine learning initiatives before engaging IoT data and scores. Insurers can start small by purchasing scored data or sending their own data to be scored by established third parties. In this way, carriers can gain experience designing and marketing IoT-based products before engaging more complex service offerings as product market penetration increases and deeper insights are gained. We’ve also seen insurers recently experimenting with different kinds of value propositions, like bundled services that are supported by IoT capabilities and also help defray the costs.