Opportunities through the Internet of Things: From Claims Management to Claims Prevention

Jörg Thews Partner, Swiss Insurance Leader, PwC Switzerland 01 Jul 2020

The pace of technological change and increasing customer demands have led to a new wave of competition that many insurance companies find threatening. The increasing use of sensors in combination with Artificial Intelligence (AI) has affected the practices of loss anticipation and compensation, moving them towards more proactive risk detection, intervention and prevention. This environment brings opportunities for the insurance industry to develop new products, open new distribution channels, and extend its role to include prediction, prevention as well as assistance (PwC, 2019).

From car sensors to smart homes or wearables like fitness trackers, IoT has entered customers’ everyday lives and is transforming the physical objects that surround us into an ecosystem of information. This new ecosystem of information will generate expansive economic growth by transforming business models, unleashing innovative products and services. Insurance companies can use the data collected from the business environment to achieve enhanced process optimisation and efficiencies. Moreover, now that more and more businesses are adding sensors to people, places, processes and products to gather and analyse information, it allows insurance companies to improve operations, redefine consumer relationships, and create entirely new revenue streams.

64 % of CEOs believe technology will disrupt how they do business in the next have years.

73 % of global companies invest in IoT and value it as the top priority technology in the next years.

47 % of decision-makers say IoT is becoming the key technology for efficiency increases and cost optimisations.

Fig. 1: IoT is driving the digital transformation. (Source: PwC, 2020)

Challenges for the Insurance Industry

Cyber security and data privacy are currently the main challenges for the implementation of IoT solutions. In fact, there is no global guideline or agreement which regulates who is responsible for a platform’s security. Unlike IT equipment, connected devices were not designed with security concerns in mind which causes additional security risks. HP Fortify on Demand reviewed ten of the most commonly used connected devices and found that 70 percent of them show serious vulnerabilities (PwC, 2017). Addressing these shortcomings will be a hurdle because many devices lack the computing power to handle essential technologies like encryption, web interface, authentication and automated patching.

At the other end of the spectrum, once powerful legacy systems are not updated because they may be at the end of their life cycle. They may also be incapable of interoperation with disparate new systems, software and communication protocols (PwC, 2017).

From a technological point of view, the key to success is optimally handling the complex data collected from countless networked objects and «integrating» them quickly and flexibly using suitable platforms. But technological approaches alone are not enough. In order to successfully leverage IoT, the business model has to change fundamentally. This change requires: 

  • A new value proposition and a new value chain in which the insurance company acts as an integrator for different industries
  • New partners with specific competencies (processes, management of systems and data etc.)
  • New distribution channels tailored to the newly developed products and services
  • Suitable operational and organisational structures to be able to scale

Connected Insurance: Towards a New Insurance Business Model

Connected Insurance, as an evolution of the insurance business model, is primarily enabled by IoT technologies that allow the direct interaction of all actors of this information ecosystem: customers, insurers, technology providers, and players from other industries. Three different digital ecosystems are emerging that are most relevant and attractive for insurers: connected car, smart home and connected health. Although these ecosystems certainly have parallels, insurance companies have to develop an individual strategy for each of these ecosystems to address the differences appropriately. The degree of market maturity differs in each of the ecosystems, and they feature some clear distinctions in terms of market dynamics, relevant players and regulatory environment.

Tackling the Cyber Security and Data Privacy Challenges

The opportunities for Connected Insurance are too compelling to ignore. Insurers see the emerging platform as a catalyst for change, a vehicle to boost competitive advantages, increase operational efficiencies and create new revenue streams. But the lack of IoT standards and guidance represents a significant obstacle. To overcome this obstacle, businesses can follow existing best practices that will help building a strong foundation for IoT cyber security. An IoT cyber security initiative should begin with a careful assessment of all data across the business ecosystem – including the extended IoT platform, third-party partners and communications networks. Organisations will need a solid understanding of the value of data, the number and type of data assets, where data is located and transmitted, who has access to this information and the potential impacts of data breaches.

Beyond data, it will be integral to regularly assess the security capabilities of connected devices. As the IoT platform matures and connected devices proliferate, it is unlikely that businesses will be able to evaluate all connected equipment – but they should identify, inventory and evaluate the security capabilities of critical at-risk equipment. The assessment should be performed at the network, application, data and physical layers, and includes ethical hacking as well as vulnerability testing to understand the weaknesses of connected devices and how hackers might exploit them. Moreover, businesses should carefully assess potential vulnerabilities in entry points between services and devices. Cyber criminals often take advantage of weaknesses in Application Programming Interfaces (APIs) between mobile devices, web interfaces and cloud systems to gain a foothold into IT systems (PwC, 2017).

Conclusion

In order to use IoT’s full potential, insurance companies need to extend their offerings through non-insurance services, cross-industry collaborations and partnerships to develop an enhanced customer engagement model which prevents claims and rewards good behavior. At the same time, insurers have to invest more heavily in data and cyber security.

To successfully leverage IoT business opportunities, insurance companies need a clear and consistent IoT strategy which answers the following key questions:

  • What role do you want the company to play in the IoT sector?
  • Why do you want IoT to be used in the company?
  • What IoT capabilities are required for success and how will they be established?
  • What are the next steps to launch IoT in the company?

In summary, IoT undoubtedly makes losses easier to predict and prevent. Smart home devices, wearables and driverless cars will lead to a shift towards a new type of customer relationship where insurance becomes less reactive and more preventative.

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Jörg Thews

Jörg Thews

Partner, Swiss Insurance Leader, PwC Switzerland

Tel: +41 58 792 26 35