Why the internet of things could put some insurance companies out of business
The impact the internet of things (IoT) will have on the insurance industry is explored in a fascinating article in TechCrunch called “How IoT will change our relationship with insurance”, and looks at the way that our car, fridge, garage door, thermostat, and just about anything else you can think of, will provide information that tech-savvy insurers will be able to use to offer more attractive and competitive packages to their customers.
In fact, private health insurers already work on a similar basis, using test results, medical reports, and other medical information.
But of course health insurers cannot legally use this data to offer better prices based on gender, age, or the costs incurred by the client over time. As more and more of us start wearing devices to measure key health indicators such as heart rate, exercise, or the amount of hours we sleep, some insurers, particularly those that have added “wellbeing” to health, are looking at the possibility of working with their customers using a data base of such information to offer new or more attractive services, but face the same problem: the customer must trust that this data will not be used as an excuse to increase premiums. This is a complex issue, given the asymmetric nature of the relationship between insured and insurer, but that will inevitably create winners and losers in the insurance sector, where customer trust is the true competitive advantage.
I have taken out a number of different insurance policies over the years: health, motor, home, life, accident and injury… and if one things is clear to me it is that some companies were there to make life easier for me, while others went out of their way to avoid having to pay up. In some cases it may be that the fault lies with overly zealous employees, but I can tell you that I won’t be using their services any time soon, however exciting their offer. As said, it’s a question of trust.
There are insurance companies out there that should be reported for fraud and deliberately misleading people. It would actually be quite easy to identify them, simply by putting together a ranking: those that “mysteriously” and consistently end up paying out less in the different categories are obviously going to be those that do their best to introduce loopholes and clauses to get out of paying. I have even considered setting up a website that would invite people to detail their experiences with insurance companies, describing what happened, the policy that supposedly covered them, and the outcome, negative or positive. Such a site would be of great use to us all, something along the lines of TripAdvisor or others in the tourism sector.
In a world increasingly filled with sensors thanks to the IoT, we find ourselves in the same situation again: insurers will have to prove to their customers that the information obtained from these sensors will be used in their favor, and not against them. One thing is preventing fraud, another is trying to avoid paying out on the basis of information the client provides in good faith when signing the contract. In the IoT scenario, insurers that are unable to win their customers’ trust and are seen as trying to avoid payouts, will find that none of their customers will use sensors, believing that the information will be used against them. Other companies will use the information from sensors but continue to be seen as allies of their customers, ready to help in times of difficulty.
An IoT world is going to be one awash with information, and as we know, knowledge is power. When it comes to convincing customers to use their services, we are going to need to know that that knowledge is empowering us, and that it will strengthen our case, and that the insurer will respect the contract accordingly. Companies that look for short-term gains will lose their customers’ trust, and in an interconnected world, that could make life very difficult for them.
(En español, aquí)