What is connected insurance and how does it benefit my organisation?
Many technology sectors turned heads during the pandemic as venture capitalism soared. Venture funding for health tech innovation doubled to $14 billion in 2020. Insurtech funding reached an all-time high of 2.55 billion USD.
Investors are predicting long-term growth rather than a bubble.
If you haven’t heard of it yet, you will soon. Connected insurance has already been integrating itself through the Internet of Things (IoT) and any connected platform that holds data. Soon, it will become the new normal.
So, what exactly is “connected insurance,” and how will this knowledge benefit my organisation? In this guide, you’ll learn the origins of connected insurance, its implementation, and how you can get a head start on the benefits today.
What is connected insurance?
Insurance has never seemed so futuristic, but actually, this has been coming for a long time. Insurance agencies already weigh the risks of accepting clients based on personal information. Connected insurance only takes this a step further.
As technology advances, so do the insurance companies’ data points. It was only a matter of time before insurance carriers used more advanced and instant data to make decisions.
That’s what we call “connected insurance.” As part of the new insurance trends, a connected insurance policy can be offered based on data taken from data-driven platforms. These devices are becoming ever-more integrated into our daily lives.
That’s where innovation in other industries, such as healthcare, gets involved.
Insurance companies will base their decision on data received from IoT devices and other connected platforms. Further, they’ll use IoT technology to monitor clients and issue warnings for risky behaviour.
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The role of telematics & IoT in connected insurance
Wearables watch health indicators in real-time, allow doctors and patients to be more connected than ever. Home security systems allow homeowners to control lights and locks from their mobile phones. Car insurance companies started by offering incentives for drivers to install monitors in their cars. Now they receive data from software already installed in cars.
On a commercial level, telematics systems allow companies to track their fleet of vehicles. These computer systems track fuel usage, tyre pressure and more to create real-time reports.
Insurance agencies can use data from IoT devices to understand your level of risk and offer a policy customised for you.
When it comes to offering insurance coverage to a small business, you could offer a policy that tracks accounting data. With that data, the policy changes to make sure a business will always be covered. Real-time monitoring like this means less work for your client and the confidence that the policy will be ready for anything.
Types of connected insurance
Insurance carriers have approached connected insurance in two different ways. These policy approaches are “dynamic insurance policy” and “on-demand insurance policy.”
A dynamic model updates in the background to acclimatise to the new levels of risk exposure as they present making it ideal for usage-based insurance.
An on-demand model for connected insurance is a bit more hands-on for the client. You can buy or update insurance cover at any time through your mobile phone or digital service provider. Your policy changes will be made based on real-time data.
Who offers connected insurance?
Quickbooks is a popular bookkeeping service for small business owners. CGU Insurance can source data from Quickbooks to track changes in the financial state of those businesses. They then apply appropriate changes to the insurance policy.
Has a policyholder bought a new asset or hired a new employee? Quickbooks small business insurance platform notices that change and adjusts coverage.
When it comes to connected auto insurance, Tesla is leading the pack. Tesla uses knowledge of their vehicle’s software and safety and monitors driving habits. State National Insurance Company partners with Tesla to provide customised coverage for Tesla drivers using that data.
What are the benefits of data-driven connected insurance?
Insurers can offer better products by developing policies based on data-driven insights. They can also introduce new types of customer engagement. This builds loyalty and reduces the number of claims.
In return, the consumer gets policies that address their unique situation. The policies adapt without requiring an understanding of the policy’s complexities. Overall, consumers pay for what they need and are more confident in their protection.
What are the risks of connected insurance?
Insurers and consumers can stand to reap the benefits of connected insurance if they understand the risks and take measures to overcome them. Many of these issues come with dependence on technology.
For insurers, the risks are:
- Technology shifting the liable party
- Inaccurate data
- Policies unable to update quickly enough
- Ethics of making decisions that bias against certain risks
For consumers, the risks are:
- Risk of being uninsurable or unable to afford policies
- Need for government intervention in case of being uninsurable
- Understanding that the private sector will always be for-profit
- Private sector insurance taking percentages to supplement more expensive risks
Insurers and consumers will need to understand the risks of evolving technology and adapt. For example, insurers can avoid some risks by implementing more flexible technology.
Challenges of implementing connected insurance
Insurers may struggle to deal with a dynamic changing policy if their current system is not set up for it. Their products may not be currently built for frequent changes. They may also not have partnerships with digital partners that allow them to source data.
Despite 97% of insurers stating they had big data initiatives on their agendas, many may not have the technical capabilities to integrate policies with digital partners.
To install a connected insurance solution, insurers will need to apply new types of underwriting to take new data points into account. They’ll also have to use historical data to assist in building the underwriting model.
It’s true, it might be a lengthy process for you to undertake, mostly due to legacy tech that will require upgrading. Partnerships in the past may not have paid off as hoped because of these difficulties.
The solution is to commit to having flexible, readily-configured technology that can quickly integrate with the necessary digital platforms. Insurers will have to ensure the data is high-quality and commit to a fast-paced style of work. In turn, insurers can flourish with connected insurance.
How to create successful connected insurance ecosystem partnerships
Insurers and digital partners will need to understand their customer base and offer them exactly what they need. It’s important to create a suitable pricing model that will not overcharge.
This infrastructure will also need to be flexible and offer many combinations of policies. Providers will also have to offer policies at a sufficient speed. Offering quote-and-buy services on mobile phones and provider platforms is a great start.
Ultimately, insurers will need to focus on service rather than product, always being one step ahead of the risks and preventing claims to keep prices down.
Get involved in connected insurance
Insurers and digital providers are catching on that connected insurance is the next big thing. Partnerships are forming left and right to provide customers with unique products without the hassle.
Download the virtual roundtable recording Insurtech trends: The future of connected insurance to be a part of the conversation on the unexplored potential of insurance.