How Insurers Can Benefit From Smart Technology

The rapidly growing number of machines and devices that are equipped with smart technology, such as cars, buildings and roads, is starting to make its impact felt by insurers, especially in the property-casualty sector. Smart devices are designed to avoid accidents, work more efficiently and perform other functions that were previously dependent upon human judgment.
These improvements in design can help reduce the number of accidents and other mishaps that otherwise might occur without the aid of this technology. From an insurance technology – insurtech – perspective, smart technology may ultimately help to lower premiums across 
the board for car and other types of insurance as the number of accidents goes down. 

A New Frontier

The "internet of things" is quickly making inroads into the auto industry, as car manufacturers are now starting to produce vehicles that can sense when they are drifting out of their lane, stop automatically and prevent speeding. Other new technologies can provide safety and maintenance warnings as well as geo-fencing to keep track of elderly and adolescent drivers. Needless to say, this will be a shot in the arm to auto insurers as the number of accidents and collisions, and therefore claims, goes down.
Other new technologies include a device that can be installed in a car or on a smartphone in order to monitor the performance of the driver and provide a more interactive relationship with the insurance company that allows it to see the everyday driving trends of its customers, instead of just talking with them at the time of a purchase, renewal or claim. Insurers can then set their premium for a given driver based on their personal performance. But at some point, many cars may be able to drive themselves and this could lead to a substantial reduction in the number of car insurance policies that are needed. Of course, product liability insurance for these vehicles would become a major industry as the liability for any accident or malfunction would shift to the manufacturer or software programmer and away from the driver or rider.

The internet of things also extends considerably past the auto business. Soon, there will be smart homes and businesses, smart buildings and we already have smart devices. This technology will allow owners and managers as well as third parties, such as insurance companies, to remotely view and direct their property at any time. The internet of things will ultimately allow insurers to ensure that the property that they are insuring is used correctly and safely instead of simply paying a claim when a loss occurs. And the smart chips in the devices and machines can also detect and prevent potential problems or breakdowns from occurring, which can reduce claims and repair bills. But the insurance industry needs to act now in order to get in on this trend, as other technology companies may beat them to the punch and effectively steal their business away from them.

Life insurance companies can also benefit from the internet of things through the use of wearable or portable devices that monitor the health of the insured and that can provide them with rewards for living a healthy lifestyle, such as a lower premium.

The Bottom Line

Although the digital revolution has not hit the insurance industry as hard as it has impacted the investment management sector, smart technology promises to bring major change to the way that insurers monitor and protect their customers. Insurtech is among the list of fintech innovations that are starting to sweep across the industry. There is a growing demand by insurers overall for cutting-edge technology that allows clients to access and monitor their policies and instantly adjust their coverage if necessary. Insurers need to be prepared to make constant changes to their technology and business models in order to effectively capitalize on these trends.