Insurers need to formalize IoT strategy
Insurers are missing the boat on the Internet of Things, according to a new study by LexisNexis Risk Solutions.
The report, “IoT and the State of the Insurance Industry,” surveyed 480 insurance professionals across the top 100 U.S.-based carriers in property & casualty, life and commercial lines. Respondents worked in marketing, underwriting, product management and claims.
While a majority of carriers are believers in the IoT’s potential impact on insurance, only two in 10 are actively collecting IoT data. Even less, five percent, are leveraging the data to enhance business decisions. About 80% of professionals surveyed also admit their respective companies do not have an established IT strategy around IoT—including automobile telematics, wearables or smart-home sensors.
“Given the looming tsunami of IoT data that is coming, carriers must begin thinking about how they will collect, normalize, analyze and take action on it,” writes John Beal, SVP of analytics and modeling in insurance at LexisNexis. “The study indicates that few carriers are investing in IoT technology and infrastructure. This suggests that many are taking a ‘wait and see' approach and will use existing or in-house systems until the ROI of IoT data can be determined.”
Industry outlooks for IoT data usage by insurers looks brighter in three to five years. More than 60% of carriers expect to have a defined IoT strategy in place in that timeframe, with at least 36% of companies scheduled to have dedicated resources for capturing IoT data.
But with that new data comes additional challenges for insurers. Carriers gathering external third-party data from automakers and smart-device distributors, among others, will likely receive data in a variety of different formats. Data security, both in-house and on the part of the vendor, also becomes more critical, LexisNexis says. As the volume of data increases and the modeling becomes more sophisticated, carriers must additionally ensure data does not lead to automated discrimination when turned over to artificial intelligence.
“It is important to remember that AI, presently, is based upon human learning and therefore, includes human biases,” says Beal. He adds that by partnering with experienced data firms, carriers can address aforementioned challenges, establish big data governance and acquire required analytics capabilities to get the most out of collected information.
Insurers are no strangers to using data to make informed decisions on risk. But the extent to which carriers have capitalized is minor when compared to what IoT will bring. By 2020, there will be up to 50 billion connected devices in the home. Aite Group also estimates that those devices will generate 194,000 exabytes of data per month. As a reference, 250 million DVDs can store one exabyte of data.
The policy should “outline the scope of data they plan to collect, and how they plan to use it,” Beal says. “It is important to begin with an understanding of the business problem the carrier wants to solve, identify the specific types of data that will help solve it and leverage analytics to understand which data is important to keep.”