How the Internet of Things is Changing the Face of Insurance

 By Catherine Powell

Image courtesy Pixabay

The Internet of Things, otherwise known as IoT, has made huge inroads into our lives.  All kinds of devices from smart TVs and smart locks to smart appliances have made their way into our homes.  Health-tracking smart watches and bracelets are sported by many people like so much automated jewelry.  Every vehicle that rolls off the assembly line worldwide is chock full of sensors, cameras and GPS trackers that are connected to the cloud.  So prevalent have IoT devices become, that it's predicted by 2025 they will outnumber us six to one.  It should come as no surprise that many of the uses of IoT can go far beyond making our lives more convenient.  They can also be used to change the way in which we access insurance.

Until recently, one of the main ways insurance was tabulated was based on actuarial science, which uses mathematics, probability, and statistics to calculate risk.  Used by the insurance industry for the past four hundred years,  actuarial science relies on the math of the herd to come to conclusions.  For instance, studying the mortality rates of individuals in their fifties can help an insurer assess the likelihood of having to pay out a life insurance policy.  It can also help insurers determine that the likelihood of a fifty-year-old being involved in an auto accident is less likely than that of a twenty-year-old.  While actuarial science helps insurance companies determine risk and establish rates, it isn't tailored to predict individual risk factors.

Technology has started to change all that.  Take telematics, for instance.  Using off-the-shelf technology already present in late model vehicles, insurers are able to customize auto coverage for drivers based on  their actual driving habits as opposed to statistics.  Whether you realize it or not, every vehicle manufactured since 2015 automatically records everything a driver does behind the wheel.  More than merely calculating trip duration and fuel efficiency, embedded sensors record such data as how hard you accelerate and brake, how fast you drive, and how tightly you turn the steering wheel.  As a result, many insurance companies allow drivers to opt-in to have this data collected and wirelessly transmitted to qualify them for discounts based on their actual driving habits.  

This same technology is starting to be used by businesses to manage their fleets of company vehicles, as well as real-time monitoring of other physical assets.  (Anyone who has ever watched a store clerk remove one of those RFID tags from a purchase has seen IoT in action.)  All of these automated activities can be used to reduce the risk of theft and predict other losses better than standard methods.  The use of IoT in the workplace can also be used to assess other risk factors for both businesses and consumers, all of which help best determine the cost of insurance products.  Already there are several IoT protocols available that can be used to improve insurance effectiveness:

#1: Real-Time Monitoring - Where traditional smoke and gas detectors can alert us to a problem, smarthome technology makes it possible to shut off the gas remotely and alert the fire department before a home or business receives extensive damage.

#2: Real-Time Telemetry - Late model vehicles can not only report an accident in real-time, some are equipped to notify the authorities the moment the airbags are deployed and alert the insurance company of an accident automatically.

#3: Pay-As-You-Go Policies - IoT technology has been introduced that factors in the actual use consumers make of their vehicles.  This in turn has spawned a new class of insurance that allows drivers to pay based on the amount of hours or miles a car is driven.

#4: More Efficient Claims Processing - Instead of forcing policyholders to waste time on hold, many insurers are using IoT to streamline claims processing by employing video chat and introducing apps designed to document damage and fill out claims via smartphone.  

#5: Improved Fraud Detection - Like it or not, we all pay for insurance fraud.  But what if there was a way to reduce insurance fraud by using IoT to identify bogus claims?  The industry is currently developing software that's designed to analyze data in order to pinpoint cases of suspected insurance fraud.  

In the future, who knows where this technology will lead?  All I can say is that it's great to see that 21st Century tech is being applied to an industry that's based on science that's been around since the 17th Century.

Catherine Powell is the owner of A Plus All Florida Insurance in Orange Park, Florida. To find out more about saving money on all your insurance needs, check out her website at http://aplusallfloridainsuranceinc.com