Solution Partner Views
IoT Disruption and Opportunity in the U.S. Insurance Industry
How well do insurers really know their customers` habits and behaviors? A carrier may know that a customer has a 10-year-old furnace and uses natural gas to heat the house, but be completely in the dark about the customer`s patterns for raising and lowering the heat, the efficiency of the furnace or the likelihood of it malfunctioning.
To get a better understanding of the specific barriers, threats and opportunities that the Internet of Things (IoT) will have for the insurance industry, NTT DATA surveyed more than 1,000 U.S. consumers and 100-plus U.S. insurance carriers, examining both consumer and carrier readiness for Smart Home technology.
Market Drivers for Insurers to Invest in IoT
NTT DATA`s survey asked insurers to rate on a scale of 1-10 the most important drivers for investing in IoT. The top five are as follows:
- 87 percent - Improve the relationship with customers
- 83 percent - Create additional value-added services
- 83 percent - Attract potential customers
- 81 percent - Improve ability to personalize offerings
- 80 percent - Improve brand
Carriers understand that, taken together, these drivers—improved customer relationships, value-added services, attractiveness to new customers and more personalized offerings—will lead to an improved brand image.
Trade-offs with the Consumer Decision to Engage
There are several factors that will influence a consumer`s decision to go down the smart home road with their insurance carrier. And, as with most relationships, there are compromises and concessions to be made.
Among the upside for consumers is improving safety and convenience and avoiding liability. In return, homeowners are looking for carriers to provide them with cost-savings and access to the value-added services.
On the downside, consumers are worried about the privacy and security of data. When it comes to sharing data from smart-home devices, 80 percent of U.S. consumers are concerned about security of information and 73 percent are concerned about privacy. They also have reservations about the perceived cost and complexity of installing smart-home devices leading to a desire to seek a more advisory relationship with their carrier.
Distinct Groups of Customers Impact Carrier Strategies
The study found homeowners insurance customers are segmented into two groups, identified as “seekers” and “keepers.”
Seekers are the most important customer segment for insurers to pay attention to as they pose both an opportunity and a risk. What makes seekers a particularly promising segment is their willingness to invest in smart-home technology. However, they are less loyal and would consider leaving their carrier to save money. In fact, more than half (53 percent) of seekers would trust a non-traditional provider—such as Google or Apple—for insurance coverage.
Keepers, on the other hand, are generally content customers. They like the structure of their homeowners` policies the way they are, feel protected by their current policy, and believe their carrier does a good job of tailoring their policy to their needs. While not likely to be susceptible to an expanded profile of IoT-driven products and services, keepers are worth retaining for their loyalty and easy-to-meet service standards.
Despite their differences, seekers and keepers do see eye-to-eye on a key set of issues: data sharing and privacy. All consumers who were surveyed were wary about sharing data from their smart-home devices because of security and privacy concerns. In fact, it is their largest concern about engaging in smart home programs with carriers.
Perception Gap Between Carriers and Seekers
Carriers are looking to increase the value they provide to meet customer expectations, and most carriers believe they are doing a good job, but there is a perception gap between carriers and seekers that must be addressed.
The research asked consumers a set of questions about how they would react to an offer from an insurance company to use data from smart-home devices to help protect their home, offer lower prices for their homeowners` insurance policy, and provide new services, such as calling a plumber on their behalf when insurers are alerted to a water leakage. The same set of questions were posed to carriers asking them how they believed their policyholders would respond. The responses demonstrate a significant perception gap—one that must be bridged in order for seekers to be satisfied and carriers to be successful.
The most noteworthy discrepancies center on the central mission of the insurance industry—to provide safety, security and peace of mind. More than double the percentage of carriers (72 percent) than seekers (30 percent) believe customers feel protected by their homeowners` policies. And, 77 percent of carriers compared with just 26 percent of Seekers think insurance companies really care about improving customers` safety and security.
But this isn`t the only area of disconnect. Carriers must carefully assess how they view their distribution channel relative to the two distinct consumer segments and focus on how they can add value to consumers directly and jointly with their producers.
Carriers Are Ramping Up IoT Initiatives
Insurance carriers are enthusiastic about the adoption of Smart Home technology and are moving aggressively to incorporate IoT into their operating models. Three quarters of the insurance carrier executives we surveyed said their companies are ramping up IoT initiatives and believe it will have an important influence on their products and services.
Ranking of insurance carriers` IoT initiatives are as follows:
- Customer service
- Partnerships and alliances
Uncertainty Creates Challenges and an Opportunity for Disruption
Smart-home technology holds incredible promise, but its success relies on an IoT ecosystem that involves many different stakeholders, including technology companies, appliance manufacturers, sensor and control device manufacturers, utility companies, telecommunication firms, security companies, insurance carriers and others.
A critical component to the ecosystem coordination will be how companies access and use data from Smart Home devices. NTT DATA`s research found a large majority of insurers, 94 percent, believe data from Smart Home devices will become centralized, not fragmented.
Uncertainty around the role insurers will play in the IoT ecosystem and how they will gain access to the data from customers` smart-home devices is a major challenge. In fact, 68 percent of carriers surveyed said the inability to gain access to data from smart homes is making it difficult to finalize IoT programs.
Insurance companies need to develop a partnership strategy to align with the key firms that will own or aggregate the data coming from smart-hgome devices. This will ensure that insurers don`t get shut out.
Carrier Executives See Technology Firms as the Top Players
The recent research revealed potential partners could be disrupters. Seventy-two percent of survey respondents view major technology firms as a segment best positioned for the smart home. Following this segment is home appliance manufacturers at 50 percent, while insurers come in at only 25 percent.
The IoT ecosystem is disrupting the insurance industry, inviting new competitors, potential partners, and changing how products and services can be delivered. Accessing the data that comes from smart-home devices and being ready to leverage it will be key to carrier success. Insurance companies should prioritize the development of partnerships with the Smart Home gateway firms who will control the flow of this data.
Recommendations for Carriers Seizing the IoT Opportunity
There are four actions carriers must take to succeed in seizing the IoT opportunity.
First, resolve the data issues. Addressing consumers` data concerns will require carriers to develop an ethics policy for IoT and provide transparency on data security and privacy, while dealing with the challenges of the required data and analytics infrastructure.
Second, align IoT objectives. Carriers will also need to align their IoT objectives and planning initiatives with consumer goals and desires and gain internal agreement among business and IT stakeholders.
Third, focus on value-added services. A promising strategy for carriers is to initially focus on value-added services (a high priority for consumers) and offer advice and assistance with Smart Home adoption.
Lastly, partner with potential disruptors. Carriers must leverage partnerships to manage the parts of the ecosystem they cannot control, especially data.
Based on the entirety of the survey results, now is the time for U.S. insurance carriers to pursue their place in the IoT ecosystem.