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Internet of Things (IoT)

Last Updated 3/06/2019

Issue: The Internet of Things (IoT) is a network or system of internet-connected devices transmitting, collecting and sharing data. IoT applications are present in nearly all industries and aspects of daily life. Among the most mature and fast growing IoT applications involve connected vehicles using telematics, smart home devices (e.g., Amazon Alexa), and wearable devices (e.g. Fitbit). According to McKinsey, there were more than three connected devices per person in the world (25 billion) in 2015, and they estimate that there will be more than six connected devices per person by 2025 (50+ billion).

IoT-connected insurance represents a new paradigm for the insurance business. This new approach is based on the use of sensors to monitor the state of an insured risk transforming rough data in usable and actionable information that can be immediately processed along the insurance value chain. Advances in IoT can improve productivity at top line levels, overall profitability of the business and the risk profile of the portfolio. Also, through IoT, insurers can better connect with consumers adding important touch points in particularly sensitive phases, such as acquisitions and claims. Moreover, IoT advances can be realized for the full range of products and lines of business, from commercial, to life, property and casualty and health.

IoT-connected insurance represents a new paradigm for the insurance business. This new approach is based on the use of sensors to monitor the state of an insured risk transforming rough data in usable and actionable information that can be immediately processed along the insurance value chain. Advances in IoT can improve productivity at top line levels, overall profitability of the business and the risk profile of the portfolio. Also, through IoT, insurers can better connect with consumers adding important touch points in particularly sensitive phases, such as acquisitions and claims. Moreover, IoT advances can be realized for the full range of products and lines of business, from commercial, to life, property and casualty and health.

Background: The use of IoT sensor data creates many opportunities. IoT technology--with the proliferation of data from sensors and smart devices--present opportunities for insurers to reduce and mitigate losses, improve underwriting and enhance the personalization of products and services.

New data types allow for increased precision in assessing risk and pricing policies. Underwriters could, in theory, recommend real-time pricing and policy term adjustments through continuous monitoring and assessment. The integration of IoT can also help in loss mitigation and prevention through behavior modification and active alerts. For example, drivers using telematics learn how to be better and safer drivers and sensors placed in cars and homes can provide warning signals when recognizing unusual actions or patterns which could potentially lead to accidents or damages. In fact, sensors used during Superstorm Sandy in 2012 allowed insurers the ability to track the impact of the storm. Policyholders were then contacted immediately, describing the imminent risks.

IoT can also give insurers greater insights into consumer behavior creating greater levels of granularity in risk modeling. Since IoT greatly expands the universe of accessible data, it provides opportunities for more personalized service offerings to consumers. For example, wearable technology provides increased and connected data streams to help determine consumer needs and life changes. Medical wearables are starting to be introduced, providing real-time access to health records and quicker diagnosis and treatment of various conditions. These devices are also being integrated into life and health insurance policies as insureds that exhibit healthy behaviors are rewarded through discounts and low premiums. In addition, through auto telematics, insurers can now provide value-added services, such as driver feedback, theft prevention and road assistance.

With the wide implementation of IoT from individual households to corporate offices, a 2019 McKinsey study points out that IoT could further be useful for digital networking. With these devices and technologies, insurers can partner with companies to provide more personalized products and services across multiple industries, creating a collaborative environment in this new ecosystem.

However, the increasing use of IoT does present a number of risks and challenges for insurers. As IoT applications are becoming more ubiquitous, more opportunities for cyber criminals and fraudsters open up. With data transferred back and forth from system to system, the risk of interception increases. New IoT products may also lead to new types of applications and claims fraud. As a result, IoT may require an expansion in data security and fraud protection. Additionally, data privacy is a key concern. The European Union’s recent General Data Privacy Regulation (GDPR) may impose enhanced data protection obligations on insurers who process or store data.

Status: The NAIC Innovation and Technology (EX) Task Force is tasked to provide a forum for the discussion of innovation and technology developments in the insurance sector, such as the IoT. The NAIC Center for Insurance Policy and Research (CIPR) provides resources and hosts programs to inform the public on the benefits and risks associated with these developments. One such event is the upcoming 2019 NAIC Insurance Summit where CIPR will be hosting the Innovation track which will focus on various topics of innovation and technology including artificial intelligence, Blockchain technology, and cybersecurity.

 

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Additional Resources

Growing the Internet of Things
July 2018, Forbes

The IoT Transformation 
June 2018, Business Insider

Big Data and AI Are Making Life Insurance Better For Everyone
June 2018, Inside Big Data

Swipe Right for On-Demand Insurance
March 2018, CIPR Newsletter

How IoT Will Transform the Insurance Industry
January 2018, Medium

The Growing Impact of Wearable Technology
November 2017, CIPR Newsletter

Contacts

Media queries should be directed to the NAIC Communications Division at 816-783-8909 or news@naic.org.

Shanique ("Nikki") Hall
CIPR Assistant Director
Phone: 212-386-1930

NAIC Center for Insurance Policy and Research (CIPR)

CIPR Homepage

 

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