What if a reckless driver adopted a more responsible approach because the car insurance pricing was based on driving habits? What if the senior from next door had the insurance payments based on kilometres driven, resulting in significant savings? This may be reality sooner than you think.
The Internet of Things will revolutionise the insurance business to the benefit of customers and insurers alike. From an insurance perspective, IoT is based on sensors that collect information on risk items, conveying the data to the insurance company. By analysing the elicited data, the insurer is able to make assumptions that allow for a more accurate evaluation of risks. In some cases the sensors can help prevent accidents, or, at the very least, minimise their impact. The use of IoT encourages customers to adopt patterns of behaviour that are conducive to health and well-being. This may also lead to positive changes in attitudes. In other words, the implementation of smart insurances can benefit the entire society.
Risk-free driving habits bring insurance payments down
I would forecast that the car insurance sector will be among the first to see major changes. Octo Telematics, an Italian partner of SAS Institute, is already offering alternative, sensor data-based insurance models for insurance companies in several countries. For example, the Octo Box, which is installed into a vehicle, can measure mileage, speed, accelerations and deceleration, even lane switches. This allows the insurer to apply pricing based on mileage-based or a wider range of data on driving habits. Drivers adopting a safer, proactive approach may achieve savings on their insurance payments in contrast to their neighbour with less safe and economical driving habits.
In England, a large portion of car insurances are so-called user-based insurances, typically based on mileage. Currently in Finland, car insurance pricing is based on only the features of the car and the owner's accumulated bonus points, or years without accidents. The customer is forced to pay the same amount regardless of the car's actual usage.
The new pricing model can provide a competitive edge to the insurer in a highly competitive business environment. The technical prerequisites for the change are already there. Many modern car models are already equipped with sensors, or the possibility of installing sensors. The insurance company only needs the tools to collect and evaluate data and for risk modelling. Our mission at SAS Institute is to assist in analytics.
Proactive approach reduces water damages
Sensors are making their way into domestic and business environments. I myself installed a simple sensor system in my house a year ago. The system monitors waterflow within the piping, stopping the flow automatically once water has flowed continuously for a predetermined time. For example, if a fault occurs in the laundry or dish washing machine, this safety feature can significantly reduce any damages. Once the insurance company found out about the precaution, my insurance payments were reduced.
It would also be possible to adopt a more systematic approach and transfer the data from the sensors directly to the insurance company's database. In addition to water pipes, households are filled with areas that could be monitored with sensors in order to collect data for evaluating and preventing damages. For example, voltage spikes are known to cause short-circuits in domestic electrical systems, occasionally leading to fire damage. Sensors could help identify faulty household appliances before the problem is too late to address. In the future, sensors could conceivably be used to measure indoor air quality. The technique could contribute to the well-being of the residents by enabling the early detection of any changes in the air quality with potential impact on health.
In terms of property insurance, IoT will allow insurers to transition from reactive damage assessment and compensation to a proactive approach that facilitates damage prevention. I firmly believe that this is the smartest direction to take for residents, owners and insurance companies.
Sensors detect well-being and related risks
Many of us are already using active life trackers, or sliding a sleep analyser sensor underneath the mattress. A recent smart life insurance project piloted by LähiTapiola found that around 80 percent out of 2,000 participants improved their habits with an electronic health inspection, self-coaching programme and active life tracker incorporated into their insurance. In other words, IoT is encouraging proactive approach with risk elimination even in the life insurance business. Our habits contribute at least as much as our genes and environmental factors to the risk of falling ill.
By agreeing to use an active life tracker, the customer provides the insurance company valuable health data for risk assessment. With less pressure on compensation matters, the company is able to offer reduced insurance payments or other benefits. Predictive modelling can help determine the best possible customer experience.
In Finland we are highly capable of implementing new IoT-based techniques due to our familiarity with mobile technologies and the use of smart phones. Smart insurances are only a small step away. The change can be kicked off very quickly. The technical prerequisites are already in place. Now it is up to us to make bold decisions.
Interested in knowing more? Visit our pages with more information on SAS Institute solution models for insurance companies.