The Internet of Things (IoT) only seems an abstract construct. The development of the small interconnected microprocessors in the future is still unclear. What is clear already now is that the Internet of Things is challenging insurers.
In the past week, there were three events that should have given IT architects and product managers in insurance companies food for thought.
Microsoft bought an operating system for IoT
There is the acquisition of Express Logic by Microsoft. The software company has built its involvement in the IoT segment step-by-step in recent years. The Windows operating system was optimized for IoT and a proprietary cloud platform will facilitate the networking of IoT devices. Acquisition of Express Logic fits optimally with this strategy. This is not a start-up. The company, previously probably known only to industry insiders, has been working in the area of micro controllers for 20 years. Its real-time operating system has been installed on over 6 million devices in this period.
Over 20 million active telematics policies
A few days later, Berg Insights analysts [1] announced that more than 20 million telematics policies are active in 2018 in North America and Europe. This is a 36-percent increase from the previous year.
Lastly, Tesla founder Elon Musk announced during the presentation of the electric car manufacturer’s quarterly results that Tesla wanted to offer its buyers a customized insurance of its own [2].
So, telematics and IoT are obviously not just growth markets. Tesla’s announcement very clearly shows a risk for insurers that should not be underestimated, because the company will no doubt conclude such a policy directly with car buyers. Traditional insurers are at risk of losing customer access.
Zurich is one of the companies that has recognized signs of the time. Its “Zurich Smart Home” product combines a classic household insurance with IoT components and services [3]. With that, the company does not only distinguish itself as innovative. In a very price-sensitive segment, the insureds can recognize that additional services and hardware bundles have to be more expensive all in all than taking out a simple household insurance policy.
An IoT strategy is needed now
Insurance companies that do not want to be left on the sidelines in the future, watching insurtechs or manufacturers gain access to customers to sell them new products and pricing models, should consider right now how they want to approach IoT and telematics.
There is no shortage of IoT device and solution providers. Resourceful start-ups brood over ideas and new products, and often have experienced experts on board, who establish access to prospects and customers by means of sophisticated communication strategies in social media.
The foundation for the development of innovative rates and contracts for insurers is comprised of IT strategy and process analyses. Telematics rates and billing models based on usage time work only if the data delivered by sensors can be processed. Here, not only the huge volumes play a role, but essentially also the question of whether the existing systems can meaningfully process and analyze them at all. Appropriate computing capacities are needed for this. But the possibility of establishing interfaces is even more important. While capacities can be acquired on the market on short notice, the development of interfaces in an IT structure developed throughout the years is not an easy undertaking. It must go hand-in-hand with an analysis of existing processes, because speed is an absolute must for the Internet of Things.
Speed is now also demanded from companies to be able to use the opportunities offered by networking, IoT, and telematics.
[1] http://www.berginsight.com/ReportPDF/ProductSheet/bi-insurancetelematics4-ps.pdf
[2] https://www.insurancejournal.com/news/national/2019/04/26/524842.htm
[3] https://www.zurich.de/de-de/privatkunden/bauen-und-wohnen/haus-und-wohnung/smart-home-paket