For many insurance companies, the Internet of Things (IoT) is still just a 'black box'. This is one of the reasons why many IoT projects have so far not got beyond the conceptual phase.
The Internet of Things (IoT) offers insurers the opportunity to gain an advantage over their competitors. Implementation is easier than many think.
For many insurance companies, the Internet of Things (IoT) is still just a 'black box'. This is one of the reasons why many IoT projects have so far not got beyond the conceptual phase.
The good news: many of the underlying technologies have already become firmly established in other industries over the past decades, therefore insurers do not need to reinvent the wheel. On the contrary: they can draw on a wide range of proven hardware and software.
But how should insurers proceed? It helps to look at the IoT on different levels. The first level is data acquisition with the help of sensors. Numerous applications are already available and can be used here: sensors for acceleration and braking in cars provide information about driving behaviour. Sensors built into or retrofitted in buildings detect water damage caused by broken pipes or an overflowing washing machine, for example. Weather stations, smoke detectors, and equipment for monitoring heating systems or air quality also turn the home into a 'smart home'. In short: sensors that provide data in real time are widespread and ever-present – and not just in the private sphere, by the way, but also in industry. For insurers, this means that in many cases they do not need to develop their own hardware.
Level two is about the refined art of processing the large number of data points acquired in a system and presenting them in a meaningful way. Some insurers commission their technology department as early as this stage to develop appropriate data modelling software. However, it is important to get an overview beforehand of existing solutions and platforms on the market. Examples include Azure IoT from Microsoft, AWS IoT from AWS, or Cumolocity from Software AG. Some of these solutions are more standardised, others more customised. Insurance companies should choose their partners according to their own needs. In addition, products such as Home Connect Plus (Bosch) or Conrad Connect (Conrad Elektronik) can help insurance companies to get started quickly, especially in the smart-home sector. Regardless of which partner you choose, it is important to develop an understanding from the outset of what data needs to be processed internally in order to leverage the potential – in underwriting, for example.
The third and final level is where it gets really exciting for insurance companies – this is where they have the chance to differentiate themselves from the competition. Because now it's about their core business. How can the wealth of data be used to calculate risks? How can existing tools be extended? And what services can be built around IoT data? In the area of commercial insurance, for example, we can imagine providing real-time services (e.g. push notifications) that warn the customer when building sensors detect deviations from the norm. If service providers are then also connected to the system, potential insurance claims can be avoided with the help of predictive maintenance, for example. Thinking about this use case a little further, insurers are in a position to act as orchestrators in certain ecosystems.
The IoT has the potential to become the key asset for insurance companies. Those who can feed their risk-management systems with real-time data will be able to carry out more accurate calculations and thus optimise their pricing. In addition, there is enormous scope for services that have the potential to permanently change the role of the insurer – moving away from being a pure claims adjuster, towards becoming an all-embracing risk manager.
Insurers are advised not to plunge into their IoT projects without any structure. A central point is that they first identify the benefits for their own business model. The issue of data security must also be considered from the outset as part of a security-by-design approach. Finally, issues of organisation also need to be clarified: how do I build the system, how do I integrate it and how do I manage my partners? Anyone who addresses these questions will, with the help of the right partners, quickly find light in the darkness of the supposed black box.
Stefan Mühlenbruch has been with Zühlke since January 2020. Before this, he spent around ten years working for the Talanx Group (HDI Global SE - focus: commercial and industrial insurance). First in sales management, then in various project management roles and finally as head of the department "New Technologies & Digitalization." During this time, he was engaged, among other things, in the launch of a globally used CRM system (Salesforce), the development of a customer portal, the establishment of an online sales channel, and, more generally, the digital transformation of HDI.
