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Redefining Insurance Models

Smart Homes: The Role of Connectivity in Redefining Insurance Models

For centuries, insurers with an understanding of risk management have underwritten financial protection for consumers, priced risk, and generated revenue from it, be it health, life, or property.

With the rising costs of capital, onerous regulations, and declining yields generated on invested assets notwithstanding, this USD 4.7 Tn industry is facing many technology-induced changes.

The data that can be harnessed to price risks continues to grow exponentially. Moreover, the proliferation of smartphones, wearable techs such as fitness bands, smartwatches, smart home devices, smart vehicles, and connected health devices are fueling the surge in risk data.

The expanding ‘sharing economy’ poses a challenge to conventional insurance models created around one-to-one ownership structure. On the other hand, the individual risks are getting standardized and commoditized more than ever.

So in a highly connected world driven by IoT, companies can compete in aggregating and analyzing a massive volume of personal, behavioral, and contextual data delivered by IoT.

IoT’s Growing Relevance for Insurance

The Internet of Things (IoT) is predicted to support more than one trillion connected devices by 2025. With near field communication (NFC) wearables, sensors, and smartphones becoming integral to consumers’ lives, there is an emergence of a highly connected and self-managed ecosystem of interdependent physical devices.

These devices transmit data through Wi-Fi and wireless communications, and the aggregation platforms facilitate and enable mutual communication through centralized management of sensor-based devices.

The New Face of Insurance in 2030

How to leverage this network of connected devices and software applications to redefine insurance customer experience? Smart devices open up more touchpoints for smooth transactions and effective client interaction. They can also transform your business model by introducing new risk variables facilitating greater product personalization.

Insurance companies can achieve the following by using the actionable insights from all the data.

Differentiated product offerings

Contrary to insurance policies that have been typically priced based on projections made using historical information and statistical models, insurers can consider dynamic risk profiles and offer customized products and coverage at attractive price points.

For example, Allstate partnered with Rogers Smart Home Monitoring, a specialist that offers universal IoT frameworks to provide discounts to clients opting for Rogers’ IoT products to offer discounts for clients.

Faster distribution and payment

When the knowledge of individual behavior and the creation of risk profiles from AI algorithms, it will reduce the time to purchase policies to minutes or seconds. Home and auto insurers have already enabled instant quotes for quite a while. Still, they will continue to refine their ability to issue policy immediately as IoT devices proliferate and pricing algorithms mature.

As AI permeates underwriting and carriers can identify risk in a granular and sophisticated way, we will see a mass market of instant-issue products.

Transparency in risk, underwriting, and pricing

In a traditional world, insurers understand customers’ usage patterns and losses from their risk profile reflected during a renewal cycle’s underwriting process. However, insurers can get real-time risk information in a connected world instead of assessing construction date or credit scores, allowing them to create dynamic risk profiles.

Price will remain central in consumer decision-making, but carriers will innovate to diminish competition on price. Insurers will introduce proprietary platforms to offer consumers differentiated experiences, features, and values.

Pricing will be available to consumers in real-time based on usage and dynamic, data-rich assessment of risk, empowering consumers to learn how their actions influence coverage, insurability, and pricing.

Faster claim settlement and adjudication

In 2030, claims processing will become a primary function for insurers, which will be mostly automated. Advanced algorithms can handle initial claims routing, increasing accuracy and efficiency.

Insurers can gain relevant insights into the cause of loss by using data from smart homes and vehicles, making claims investigations effectively. They can use data from telematics instruments to reduce losses by detecting fraudulent claims.

Automated customer service apps will handle policyholder interactions through voice and text, while human claims management focuses on complex, unusual, and contested claims. Additionally, IoT can proactively protect homes and property by creating a shift in the insurance model.

Implementing a program with connected devices can transform insurers into partners in home management. Besides, it can be a start to more robust integrations and services in the future.

To conclude, insurers have a unique opportunity to leverage the IoT-enabled devices to make risk underwriting continuous and precise. First movers will create innovative products, harness cognitive learning insights from new data sources, streamline processes and lower costs, and exceed customer expectations for individualization and dynamic adaptation.

Draup provides real-time signals that empower sales teams with the insights to close more deals. Insurers can leverage insights to curate their offerings and then finetune their bidding and product proposals.