How IoT devices are crafting personalized insurance policies

Over the past decade, the internet of things (IoT) has been a transformative force across just about every major field. But in the insurance industry, things are really coming to a head.

IoT is a broad blanket term that now refers to just about any connected technologies that can capture data, process information, and communicate with other computers and devices.

In the world of insurance, this means everything from telematics to artificial intelligence systems to wearable technologies and more — all of which have surged in prominence over the past few years.

The providers who succeed in the coming years will be those that can utilize these technologies to improve their business models, expand their offerings and increase customer satisfaction.

Similarly, though, IoT technology comes with plenty of challenges, and it's equally important for insurance leaders to understand these potential issues if they plan to successfully navigate this ever-changing landscape.

Below, we'll break down some of the biggest benefits IoT can bring to the insurance field, plus some of the key questions it raises.

Benefits to watch

Telematics

Telematics has long been a part of the auto insurance industry, but it's clear that the convenience of newer, sleeker systems is causing a shift in customer attitudes.

A recent survey shows that 67% of drivers are willing to trade their personal data for better rates, which is exactly the kind of promise on which telematics can deliver. Now, with tracking, usage and safety systems so easily integrated into smartphone apps, drivers no longer have to plug a strange, arduous device into their cars in order to get rewarded for safe driving.

Home telematics are also growing in popularity, with countless companies offering devices that help both insurers — and their policyholders — check for leaks, temperature changes and other risk factors. Some companies, like Chubb, even produce their own line of tracking devices that help homeowners prevent damages and bring down their policy costs.

Wearables

Just as telematics can sense and report risk factors for homes and vehicles, wearable tech can monitor a person's personal biometrics.

This has obvious benefits for health insurance — where providers can help a person track their risk for heart disease, diabetes and a number of other conditions. It is also gaining traction in the life insurance field, where companies like John Hancock have partnered with Apple to help customers live better and bring down their rates.

Policyholders can order an Apple Watch for just $25 and use a bespoke app to score points for working out or getting a certain number of steps in each day. Those points, in turn, translate into monthly premium discounts.

Considering that 1 in 3 adults now wears a health and fitness tracker, it's clear that more providers will embrace opportunities like this in the years to come.

Drones

It may sound a bit like science fiction, but some home insurance companies are now using drones to monitor policyholders' homes, checking for potentially high-risk problems like roofing issues and hanging trees.

Companies are using drones for the post-claims process, too. Allstate, for example, has used drones to expedite its reporting — giving repair estimates to customers in as little as four-and-a-half days.

Challenges to understand

As with all connected technologies, data security is a major risk. Headline-generating breaches continue to spark customer concerns. With the UnitedHealth cyberattack — in which the data of 100 million people was exposed — fresh on people's minds, these concerns are sure to be front and center for the foreseeable future.

First and foremost, people want to know their data is safe. But, just as crucially in today's age of big tech and social media giants, people also want to know their data won't be shared without their consent. Ensuring the utmost safety and privacy is a critical part of any business plan that utilizes IoT technology.

It's also unclear how regulators will deal with these concerns. As of now, the U.S. has no comprehensive policy around IoT cybersecurity, and the E.U. is just starting to bring its own rules into action.

This is where the "Wild West" nature of new technologies can ultimately become a disaster. Providers looking to utilize IoT tech must make it their business to stay aware of the latest laws that could affect how they operate.

The future of IoT

Estimates show that there are now around 19 billion IoT devices operating worldwide, and the number is expected to surge in the coming years.

Plus, while data privacy and security do pose a challenge, it appears most consumers are willing to play ball. A 2023 survey by Capco shows that nearly 90% of policyholders are willing to give away their data if it helps lower their rate. It marks a 17% increase from the same survey two years prior — a jarring stat that shows just how accepted IoT technology is becoming.

And that's the bottom line: In the years to come, most consumers will embrace IoT solutions if they come with clear, tangible benefits. Providers that can create those solutions — and then communicate them clearly — will be able to thrive.