IoT: at a tipping point for insurance
Note: All photos in this article are of actual devices Synapse, part of Capgemini Invent, has designed and engineered

IoT: at a tipping point for insurance

Introduction

The potential of the Internet-of-Things (IoT) in insurance has long been touted; specifically, how it will fundamentally shift the business model from “repair and replace” to “predict and prevent.” Although insurers have been slowly testing use cases over the years, it seems that IoT in insurance has finally reached a tipping point: Technology is no longer the bottleneck, connected devices are pervasive in our personal and professional lives, COVID-19 has resulted in a more conscious consumer when it comes to the insurance products they’re being offered, and carriers that have leaned into IoT are unlocking economic value, and in some instances, reimagining business models. 

However, IoT’s role in insurance reaches beyond monetary benefits. In fact, we believe it’s a key factor to achieving goals such as closing the protection gap, financial inclusion, and reaching sustainability imperatives.

The time is now for IoT in insurance

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You are likely aware of the many drivers pointing towards an IoT revolution: devices are becoming smarter, more powerful, and cheaper to produce. Coupled with advancements in artificial intelligence, machine learning, and analytics, IoT is impacting all industries. In insurance alone, the Global IoT Market was estimated to be ~$13.3 billion USD in 2021 and is expected to reach ~$150.7 billion USD by 2026, growing at a compounded annual growth rate (CAGR) of 62.5%. (Capgemini World InsurTech Report 2021). The number of wearables alone between 2014-2024 is estimated to grow at 40% CAGR, with 630 million units expected in 2024. (Tech Wearables Market Continues to Grow).

This presents an incredible opportunity for carriers to leverage IoT to not only improve current operations across the insurance value chain, but to also develop new products and services that redefine how they may engage customers and increase top-line growth. There are many examples of this in the market already. For instance:

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As we take a closer look at how IoT is being leveraged in insurance, considering both the use cases above and a broader list we've curated, clear themes have emerged:

  • It’s still early innings – IoT in insurance remains in Horizon 1 with most use cases being monolithic, not yet crossing lines of business and industries
  • Not all industry settings are created equal – certain settings present more potential than others for IoT use cases in insurance
  • 1 + 1 = 3 – Combining IoT devices and other readily available technology (e.g. satellite imagery) for use creates more value and possibilities than singular devices  
  • Principles matter – Carriers with guiding principles to facilitate “build, buy, partner” decisioning have faster speed to market, realize value quicker, and have less challenges navigating an increasingly complex ecosystem
  • Archetypes are taking form – Across the carriers in the Fortune 500, nearly all are exploring IoT use cases, albeit with varying levels of investment and conviction

Emerging archetypes

Through our work engaging with carriers, we’ve noticed they tend to fall within four archetypes in their IoT journey: 

1.  Enthusiastic Entrants: How and where do I start? I have some ideas in place but how can I accelerate?

2.  Motivated to Grow: How do I scale successful use cases to other lines of business? Where are the synergies?

3. Executing in TheoryWhy am I not gaining traction for my investment? How do I get more out of this?

4.  Executing in Harmony: How do I maintain momentum? Where should I be looking next to unlock value?

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There are only a few carriers that we would categorize as “Executing in Harmony” – they’ve managed to create a sustainable IoT business model and are benefiting from first mover advantage. The players in this category share a common set of characteristics: 

  • IoT accountability – assigning ownership of the IoT agenda at the enterprise-level facilitates alignment and synergies across lines of business. By contrast, decentralizing ownership creates siloed IoT agendas which often requires reverse engineering efforts in the future.
  • Business transformation – IoT is not a technology project. Rather, it’s a business transformation initiative with significant operating model implications. Consistently, those “Executing in Harmony” approach it through this lens.
  • Business-outcome obsessed – all use cases start with the outcomes they want to achieve, and the human behaviors needed to enable them. This avoids the “hammer looking for a nail” scenario and often leads to identifying new products and services.
  • Platform approach – architecting a “future-proof” technology solution that’s capable of orchestrating across an evolving landscape of partners and capabilities.

Wrap up

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It’s still early for IoT in insurance, but mature enough that value is being realized for early adopters; and there is no shortage of use case possibilities given the advancements in technology. But the true value of IoT has less to do with the device(s), and more to do with the innovation possibilities it unlocks; especially as you start to explore use cases across lines of business and even multi-industry ecosystems. One thing is for certain, the ground is shifting beneath us across multiple dimensions: consumer expectations, sustained economic pressures, insurances’ role in the society and ESG, to name a few. And, as technology continues to mature at an unprecedented pace, adding tools to your proverbial insurance toolbox, IoT could hold the most potential to reimagine the future of insurance.

Where should we focus next?

  1. Creating a profitable IoT business model: what does good look like?
  2. From “Enthusiastic Entrants” to “Executing in Harmony,” what does the journey entail?
  3. IoT opportunity analysis: evaluate current trends and future propositions across LoBs and industry segments (e.g. personal, commercial, specialty) and the insurance value chain.
  4. IoT as a force for communal good: evaluate how IoT serves a greater purpose of financial inclusion and sustainability.

About the Authors

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Evgeny Aleksandrov, CFA

FinTech Founder (ex McKinsey, Goldman Sachs) [We're hiring]

1y

Steve, thanks for sharing!

Anjana Nandi

Google Cloud, GSI Sales and GTM Partnerships at Google

2y

Great article, Steve Dowling.

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