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April 19, 2016

In the second post of this two-part series, I explore a few steps carriers could take to capitalize on the changes introduced by the Internet of Things.[Part 1]

Although insurance, so far, is experimenting in pursuing ways to monetize the Internet of Things (IoT) it is clear that the IoT is already having a real impact on the types of products and services insurance companies are offering in areas such as personal lines, auto insurance, and life insurance.

For example, John Hancocks vitality program uses FitBit to help policyholders adjust their premiums by adopting healthy habits. Gradually, there will be an IoT-enabled shift from traditional protection products to more predictive types of prevention offerings. APIs will play a key role in this ecosystem-based integration and enablement.

Despite these opportunities and the related competitive pressures on differentiation — insurers cant change their entire business model and cultures overnight. However, they can take some steps now, and take advantage of the exciting capabilities related to the IoT. This will ensure
a) theyre not caught off guard by other businesses that are seeking to leverage IoT,
b) minimize the risk of disruption, and
c) improve their chances of being able to capitalize on the IoT going forward.

Create an IoT friendly environment
First, as an insurer, you must start thinking in terms of building and leveraging an ecosystem of partners (some of whom will be firms providing IoT-based products and services) to provide and enable the end-to-end customer journey. You could start by identifying partners you can collaborate with and develop offerings that will expand that ecosystem. For example, American Family (AmFam) Insurance teamed up with home automation company Nest to test how smart homes might influence or bring about a change in their business.

Move from protection to prevention
Second, it would be a good practice to explore ways to innovate your business model that is, moving from purely protecting your policyholders to preventing risks from occurring. You can set up a rapid prototyping process factory, where you can quickly prototype new innovation ideas, including those that leverage the IoT. Try the fail fast mode, where you can test new ideas that can lead to new products, which in turn could even lead to a new business process model that can actually address new demands. New innovations can be piloted with a small internal group or a group of trusted consumers.

Make good use of data
Third, Big Data is going to be a key factor in your journey towards IoT adoption. The success of your IoT journey will hugely depend on how innovatively you not only collect data from various IoT devices, but also how effectively you put this data to use. Insurers have been custodians of large volumes of data for years and the IoT would mean growing volumes of data (signals, video, images, and so on) coming in with great velocity. Hence, you will need to be agile and to innovate. Combine new data with data you already have within the enterprise. Glean new business insights and apply them to create new products and business models that help you create a competitive advantage. Even if you do not start creating new underwriting or actuarial models immediately, you must start acquiring and analyzing data to understand and reimagine new ways of turning information into consumable insights.

There is no question that the IoT will disrupt insurance. It will change the way business is done and how business is handled, particularly in the property and casualty segment. But it also can offer an array of benefits to consumers, corporate customers, and insurers themselves. Insurers will be able to be closer to customers, thus becoming more responsive to their needs. The IoT can boost customer retention and improve customer experience, while enabling operational efficiencies and improving customer profitability. Long term, the promise is worth the disruption!

By tapping into emerging ecosystems, effectively leveraging data, and innovating their business models, insurers can minimize the downside of the disruptive impact of IoT. I believe there are many more unexplored ways to cash-in on the opportunities posed by IoT — whats your take on this?

Arunashish Majumdar (Arun) is an ex TCSer and used to head the Technology Group at TCS Insurance unit in North America. He specialized in transformation initiatives aimed at improving customer experience, business agility, operational efficiency, and technical currency. Arun has handled strategic initiatives to define and deliver enterprise digital strategy, IT portfolio simplification and core systems modernization for several TCS customers. He is winner of the prestigious TATA Innovista award two years in a row, which recognizes innovation across TATA group of companies globally. Arun is a CPCU, a Distinguished Architect (from The Open Group) and holds a Bachelor's degree in Engineering.


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