How Insurance will use Internet of Things technologies

In October I’m giving a keynote speech at an insurance event and I’ve been asked to speak about new technologies and trends. Separately, one of the readers of this site, Doug, recently emailed me asking whether I had “any insight into the insurance sector, and company’s use of Internet of Things technologies?

Here are some thoughts which I’ve been thinking about for a while.

In its truest form, Internet of Things, or IoT for short, applies to an electronic device which has Internet connectivity capability – i.e. it can send data to, or receive data from services on the Internet.

IoT definition
Google’s definition of IoT (with a lower ‘t’)

One could argue that a plastic credit or debit card is an IoT device. A card holder can register their card with a loyalty platform such as Quidco, and each time they use the card in a Quidco partner shop, they receive cashback.

At present, your smartphone is your personal a gateway to multiple devices connecting to the Internet.

The question is, would my exercise on holiday have increased or decreased my travel insurance premium?!
The question is whether my exercise on holiday have increased or decreased my travel insurance premium?!

For example I track my runs and cycles using Strava. My shoes and bicycle aren’t internet-enabled, however the exercise activities I track with my phone are uploaded to Strava. My heart rate monitor can’t connect to the Internet directly, but its data is sent to my phone via Bluetooth and uploaded with my exercises to Strava. My smartphone acts as the device to send electronic data to Internet services.

We are at the beginning of IoT. I often give the analogy of Cloud computing where at first, companies would move a virtual server to a cloud environment and call it ‘Cloud’. But Cloud can be so much more than a virtual machine container. Using Cloud services, existing apps can be deployed much cheaper, with more resilience, without needing to worry about the core infrastructure. In fact, that’s the point – Cloud deployment should be extrapolated away from the infrastructure and use services instead.

IoT is similar – yes we can send data from our smartphones and wearables to central services, but in the near future, IoT will produce entirely new models. We’ll see new business models, charging models and brand new usability.

We’ll start seeing consumption based billing. Many of the items that we’ve bought before will become hired – similar to video and audio media has become (we don’t buy DVDs any longer – we ‘rent’ them from Sky or Google Play).

We will see new start ups appearing with brand new, previously unimaginable commercial models for IoT devices.

IoT and insurance is interesting. Insurance companies have traditionally been slow to respond to new technologies, but they’ve quickly adopted IoT. If you know any new drivers under 25 years old, the chances are they have a Black box, or telematics policy where they are required to keep a device in the car . Their parents, and the insurance company, can check their driving style (often shown as acceleration and braking styles) at any time.

For car insurance, we’ll see new policies that charge a certain rate when the car is in different states – such as in a garage; parked on a street; and being driven in different styles. Currently, car insurance policies are calculated based upon the driver(s), and the value of the vehicle. Soon we’ll see a more dynamic pricing model based on the states above.

In the future you might choose a transport method to suit a health insurance policy
In the future you might choose a certain transport method to suit a health insurance policy

Other types of insurance will also start using IoT devices. Imagine a health insurance policy that takes the data from several apps on my phone – such as my Strava exercise activities, the amount of times my gym pass was activated, the fast food ordering apps on my phone and so on. And then combine it will my sleep sensors, such as the slightly suggestively named Beddit*. If I stop exercising, eat lots of junk food and start sleeping fewer hours, it could affect my policy pricing.

We will need to find a balance with IoT. In some countries which are more concerned with privacy than commercialism, IoT will hit a brick wall early on, yet the UK and parts of the US are quite open with privacy and technology, and make them ideal environments for IoT to flourish.

I can imagine a case in the not so distant future where some Internet-connected shoes (perhaps you think it’s science fiction? Nike+ was released in 2006!) report feedback to an insurance company that a policy holder was running at 8 mph at the time of claim, when the policy holder claimed to be sitting down when an accident occurred.

What I’m highlighting is that customers will like IoT insurance devices which help reduce premiums, but there’ll be more of a negative backlash as we find it harder to make insurance claims that prove our stories were incorrect.

* Many of the examples in this post are illustrative. I don’t use my phone to tell me how I slept last night – I am pretty good at gauging this without a device thank you.

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