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Former Member

Opportunities for
Insurers from the Internet of Things

By Mazahir Valikarimwala, Vice President, Insurance Business Unit, SAP APJ/MENA


In today’s highly competitive environment, insurers must maximize customer satisfaction while minimizing cost and risk. Increasingly, the
industry is exploring strategies to accomplish these goals using the Internet of Things.


These strategies are based on connecting various types of “smart objects” to the Internet through wireless devices – each of which has a unique IP address. This connection makes it possible to collect and analyze large volumes of data in real or nearly real time. By 2020, there will be 26 billion connected objects, according to estimates by Gartner, Inc. The use of such objects will change every part of the insurance value chain – from product design and pricing to underwriting, service, and claims -- say analysts at Celent and other business-consulting firms.


Through the Internet of Things, insurers can gather data on individual customer behavior and use that information to personalize premiums for health, homeowners, auto, and other policies. By sharing this data with customers, insurers may be able to change customer behavior, reduce risk, and
lower costs. They can also use the information to estimate risk and price their products more accurately.


Pay as You Drive

Take car insurance, for example. Traditionally, customers have paid premiums based on the kind of cars they buy and their past driving histories. But what if two customers with the same car and similar histories drive different distances at different frequencies? Should they pay the same premiums? And what if they’re significantly better or worse drivers now than when their policies were issued?


Questions about the cost of installing devices to monitor driving habits must still be resolved, as well as various privacy concerns. However, technology vendors and insurers are already discussing how they might market such devices (and potentially lower premiums) to younger drivers. A 2014 study
by Deloitte University Press found that 35% of consumers age 21 to 29 were open to the idea of monitoring their driving behavior in exchange for a discounted premium, versus 15% of drivers age 60 or older.


Other Opportunities in Usage-Based Insurance Similar opportunities for usage-based insurance (UBI) may be available for homeowner and health coverage using “pay-as-you-live” technologies that monitor home safety, the amount of exercise you get, or your glucose or cholesterol levels. Ptolemus Consulting Group estimates that there are currently more than 160 established UBI programs or active trials in 34 countries involving more than 5.5 million policies. By 2020, the firm predicts, UBI policies will account for 17% of market share in North America, 14% in Europe, and 4% in Asia.

Google-owned Nest Labs, a producer of smart thermostats and smoke detectors, is rumored to be working on a possible homeowners insurance
initiative using this technology.

  • The Mayo Clinic is currently doing research on using Apple’s iWatch and HealthKit software to collect and analyze data that would help consumers live more healthfully – data that could one day be used by insurers to price health care premiums.
  • SAP and one of the largest German health insurers are discussing a UBI initiative that would use in-memory computing and predictive analytics to help the company identify potential health issues for individual customers and suggest precautions customers could take.