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IoT could drive new insurance models

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For insurers, the Internet of Things(IOT) can provide value in the form of new insurance models and products based on deeper insight into the customer’s needs, writes William Mzimba, chief executive South and sub-Saharan Africa at Accenture.
The rapid increase in smartphone adoption as well as broadband internet connectivity is fuelling the popularity of smart home devices amongst early adopters, which in turn is converting the Hollywood vision of the smart home, made popular by the likes of The Jetsons and Back to the Future, into reality at least for some.
Mass adoption is on the horizon as companies like Microsoft, Samsung, Intel, and Cisco form organisations such as the Open Connectivity Foundation, while others like Google create “certified ecosystems”, enabling this vast range of devices to communicate with each other and work together.
According to market research firm Gartner, 85% of connected home solutions will be linked to a certified ecosystem by 2020, because of the frustrations associated with using different devices, platforms and controllers for controlling a myriad of IOT-enabled gadgets in the connected home.
Certified ecosystems are composed of different devices that are all able to communicate with each other and be controlled from a single device or platform such as Apple’s HomeKit, which enables users to control all of their HomeKit certified devices like smart lights, air-conditioning system, door locks and connected smart appliances like smart stove from their iPhone, Mac computer or iPad.

Making the home smarter is big business
According to Accenture’s Connected Homes paper, this year, the global connected home market is expected to reach $235-billion, with the largest revenue-generating segments including home security ($110-billion), smart utilities ($33-billion) and home entertainment ($68-billion).
While this market is already large, it is in its early stages of growth. For example, the market for smart locks that use smartphones as a key, enabling electronic monitoring of who goes in or out of a house as well as electronic “forwarding” of access is just $261-million today. However, this market segment is expected to grow to $3,6-billion by 2019.
Moreover, connectivity is popping up everywhere, from smart refrigerators that can monitor food consumption to smart carpets that can provide notification of unauthorised entry.
For insurers, the Internet of Things (IoT) can provide value in the form of new insurance models and products based on deeper insight into the customer’s needs – and a higher level of customer satisfaction derived from dynamic risk monitoring and improved claims handling. The IoT also creates opportunities for insurers to lower costs and improve operational efficiency.
The property and casualty insurance business has already explored the benefits of connectivity in the auto insurance sector, using wireless devices in vehicles to monitor driver behaviours including distance travelled, time spent driving, acceleration, braking and turns. However, opportunities in the connected homes haven’t been explored.
To convert connected homes opportunity into profitable growth, property and casualty insurers should invest carefully in concepts and partnerships that provide real value for customers while offering real potential gains for themselves. Establishing the right approach will require both rigorous research and careful self-analysis on the insurer’s part.

Taking the next steps
Insurers contemplating a move into the connected home market – or an expansion of current initiative – have to think on multiple approaches at once. They need to define, for instance, how customers currently engage with their products and services, track how innovators in the connected home market are enhancing the customer experience, and analyse the regulatory implications of collecting and using vast quantities of data from new sources.
The path to success usually involves some key steps:
* Envision and Define. The insurer should start with a vision of where it wants to be in the connected home value chain. Does it want to focus upon providing discounts in return for information? Or does it see more value in providing actual devices and services to the customer? The key to this step is in determining what problem the carrier wants to solve, be it market differentiation, building the brand or reducing operating expenses. By starting with the end in mind, the insurer can identify the appropriate path forward. It may, for example, conduct an in-depth assessment of loss performance to see which types of losses may be avoidable with new technology.
* Establish. Whether in partnership with others or through home-grown innovation labs, the insurer should experiment with concepts and technologies – including analytics and modelling as well as the actual in-home devices themselves – to test the value proposition of the chosen approach. Using the information gained during the Envision and Define phase, insurers can identify the technologies and/or devices that are most relevant to their stated objective. This may require extensive research into the data produced by each device.
* Partner. An initial ecosystem of partners will be needed to deliver the chosen approach. The technical reliability of devices is a major concern, but so is the network of incentives that makes the partnership work. In particular, insurers should assess the connected home ecosystem and determine where they are best positioned in light of their selected strategy. Pilot. The insurer needs to test the mechanisms for adding value, whether through the triggering of discounts, the reduction of losses through active monitoring and alerts, or the expansion of existing customer relationships. Rapidly executed pilot programs can help assess the impact of the new program on marketing and distribution, product manufacturing, underwriting, policy and contract management, and claims management.
* Refine and Extend. As new pilots and projects are developed, the insurers can extend pilot lessons into new projects while incorporating new technologies as they emerge.