IoT in insurance
Risk Management within Insurance can be defined as “the practice of identifying and analysing loss exposures and taking steps to minimize the financial impact of the risks they impose” according to the International Risk Management Institute (IRMI, 2019). This is an imperative action put in place by various insurance organisations to reduce their exposure to risk and has been practiced in traditional forms for many years. However, the introduction of disruptive technology in the insurance industry, like IoT, is making it increasingly easier for those in the Insurance Industry to mitigate risks and identify potential issues before they become real problems with real financial implications.
But what is IoT? And how does this technology work within Insurance?
Internet of Things, or IoT, is defined as “a system of interrelated computing devices, mechanical and digital machines, objects, animals or people that are provided with unique identifiers (UIDs) and the ability to transfer data over a network without requiring human-to-human or human-to-computer interaction” (Rouse, 2019). This technology is revolutionising the insurance industry in its ability to reduce risk and prevent fraud, as it enables policy holders to take action during a process before any damage occurs, from an insurance perspective. Although IoT devices and systems were not originally developed for the insurance industry, the industry is taking increasing advantage of its software application abilities for process control and gathering of real time data. What this means for the policy holder is that they can, for example, monitor their geysers and both they and the technology can take action before bursting by switching off the geyser or emptying the drip tray using just their mobile device.
For the insurers, underwriters and brokers, IoT disruption has enabled them to reduce the number of claims through the actions taken by policy holders in response to the warnings generated by the IoT devices, and reduce time in which claims are dealt with. It also enhances employee productivity resulting in increased revenue, which is what those in the insurance industry are looking for at the end of the day.
The combination of IoT and the data gathered from the various insured devices equips underwriters to accurately determine the policy holders’ overall risk, having a direct impact on the policy holders’ premiums.
There is no question that IoT is generating increased value for insurers, policy holders, and all those in the insurance industry, by saving everyone time, money and frustration. The convenience and alert created by simple disruptive devices installed onto our everyday objects has truly revolutionised the way we interact with our belongings and ensure we take measures towards being risk adverse.
Article by: Alexa Seligmann, New Product Development Manager at One Loyalty Rewards
IRMI, 2019. Risk Management. https://www.irmi.com/term/insurance-definitions/risk-management
Margaret Rouse, February 2019. Internet of Things. https://internetofthingsagenda.techtarget.com/definition/Internet-of-Things-IoT