Nicholas Chen 

Nicholas Chen

Specializes in insurance management consulting, strategy, digital, innovation, and mergers and acquisitions.

Towers Watson, Hong Kong

Some Initial Thoughts

The thought of billions of devices connected to the Internet is scary, especially for insurance companies with old legacy systems and data privacy concerns. However, digital technologies are getting more advanced, and the IoT is here. Furthermore, insurers will face more competition from noninsurance companies, especially companies with strong digital ecosystems. Rakuten, a Japanese e-commerce company, sells life insurance leveraging its customer data and digital platform. Air Asia also utilizes its strong digital platform to cross-sell insurance products through Tune Insurance. And Google acquired, a U.K. motor insurance aggregator, in 2011, and launched its own motor insurance aggregator with 127 providers shortly after.

It’s important for companies to think about what areas to focus on first, and not get overwhelmed by numerous devices and sensors.

Finally, as the number of devices connected to the Internet continues to grow exponentially, your organization’s ability to analyze the volume of unstructured data will need to increase, and developing a robust, big data analytics strategy will become even more critical.

Insurers are now presented with a wonderful opportunity to use digital technologies and the IoT to create business opportunities and rethink existing products.

Two major disruptors, the digital revolution and the Internet of Things (IoT), offer exciting possibilities for companies that are bold and ready to leverage digital technologies to develop new products and services. Indeed, the evolution of digital technologies has already disrupted many industries that were unprepared or simply did not see how new technologies and changing consumer behavior would impact their once-dominant business models. Some recent notable examples are the music, book and photographic film industries.

For insurers, the digital revolution (Figure 1) and the IoT provide transformational opportunities:

  • New insurance products, services, distribution channels and loss control
  • Reduced claim cost and frequency
  • Increased customer engagement
  • Improved business intelligence to make better underwriting decisions from IoT-generated data

Increasing smartphone penetration coupled with ubiquitous Internet connectivity have enabled consumers to do more on their handheld devices and, as a result, are increasing customer acceptance and adoption of mobile offerings. Additionally, smartphones are becoming increasingly powerful and now have the functionality to support usage-based insurance (UBI), as well as more sophisticated marketing, self-service and distribution/sales execution.

Figure 1. Transformational digital opportunities and benefits for insurers

Figure 1. Transformational digital opportunities and benefits for insurers

Click to enlarge

What Is the IoT?

The IoT is not a futuristic innovation. It’s here, and it has the potential to transform the P&C, life and health insurance industries. The IoT includes any physical object with a unique identifier that can transmit data to other objects using technologies such as Wi-Fi, radio frequency identification, quick response codes, bar codes, sensors and Bluetooth. These physical objects can be medical devices, clothing, thermostats, wearable devices, home appliances, cars or other transmitters. Gartner, an Internet technology research and consulting firm, predicts there will be 26 billion units installed by 2020.

Technology companies are acquiring smart home device companies to build connected home products. Some recent notable deals are Google’s acquisition of Nest Labs, a smart thermostat, and Samsung’s recent acquisition of SmartThings, which allows people to synchronize connected devices to a smartphone app. Apple unveiled HomeKit, its own iOS-based protocol to connect devices in the home, such as thermostats, doors, lights, cameras and security systems, to Apple’s platform. Appliance companies are starting to build more smart appliances that can not only be controlled with a mobile app, but also turn on and off based on one’s location, and adjust temperature settings based on one’s usage patterns.

Let’s explore just some of the potential benefits to those companies that can develop novel customer propositions that leverage the technologies available.


Some IoT examples in the P&C insurance space are UBI and sensors for loss control. The first UBI program was launched by Progressive over a decade ago and currently generates roughly $2 billion in premiums for the company. There have been several variations including pay-as-you-drive, pay-how-you-drive, pay-as-you-go and distance-based insurance models. The ultimate goal for insurers is to price risk based on a set of individual behavioral ratings. According to our 2014 U.S. Consumer Usage-Based Insurance Survey, the number of consumers who have (or had) a UBI policy in the past 17 months has nearly doubled, from 4.5% in February 2013 to 8.5% in July 2014. Most (89%) of the 1,000 respondents surveyed said they would either buy or consider a UBI policy if there were no risk of their premium increasing.

The Connected Car

During the early days of UBI, the high cost of hardwired devices and transmitting driver data was a concern. Now, new cars, even non-luxury cars, are starting to roll off the assembly line with built-in 4G Internet connectivity with enhanced safety and telematics features. Google established its Open Automotive Alliance with the goal of transforming the car into an Android device. Apple has CarPlay, already available in Ferrari, Honda, Hyundai, Mercedes-Benz and Volvo. BMW recently announced a factory-installed telematics device as part of its connected drive technology, partnering with Allianz U.K. to offer auto insurance.

In the U.S., the Obama administration is taking the first step toward requiring future cars and light trucks to be equipped with technology to send warning signals to avoid collisions. In fact, GM will launch a Cadillac in 2017 that can drive hands-free and foot-free in an autopilot mode called “Super Cruise,” and exchange speed and safety data with other vehicles equipped with this feature. In this mode, the car will automatically stay in its lane, make steering adjustments and trigger braking. And in a joint effort among the Michigan Department of Transportation, General Motors, Ford and the University of Michigan, sensors and cameras will be installed along 120 miles of Metro Detroit freeways to allow cars to communicate with each other.

Remote Monitoring

Home sensors can reduce claim frequency and severity. In 2011, AXA UK warned that in the previous two years, they had seen one in 1,000 people fall victim to burst pipes, with average claims reaching £25,000. Imagine if sensors could notify a homeowner remotely through a mobile app about a burst pipe or even remotely shut off the water supply. Currently, State Farm has a partnership with ADT and IRIS, a home management system, to provide these types of monitoring capabilities: security, water detection, smoke and carbon monoxide, and door and window. Allstate has a partnership with Rogers Smart Home Monitoring offering similar features. Both insurers offer discounts for customers who opt for these features.

The Climate Corporation, acquired by Monsanto in 2013, underwrites weather insurance for farmers. The Monsanto unit recommends a customized insurance plan based on production and target profit, and then monitors weather through remote-sensing systems, satellites, weather stations and radar. If a covered weather event occurs, a payment is made automatically without any claim adjusters.

Telemedicine, Digital Pills and More

Technological innovations will advance health care. According to a recent global survey conducted by Intel:

  • More than 80% of respondents would be willing to share their health data anonymously to reduce health care costs and improve treatment.
  • 72% are receptive to connecting remotely with their doctors.
  • 50% trust a diagnosis delivered via videoconference from their doctors.

Digital pills used with wearable devices, sensor patches, smartphones and cloud computing will allow doctors to better manage and treat chronic conditions. A patient’s vital signs and reaction to a drug could theoretically be captured within seconds. Proteus has a low-cost, ingestible digital pill approved by the U.S. Food and Drug Administration to remind users when to take their medications. When patients swallow a Proteus pill, it turns on and provides information about what the patient is swallowing and the body’s reaction to the medication, with the potential of turning every medication into a digital object connected to an online platform.

Live at Home Longer

As Baby Boomers age, the ability to unobtrusively monitor their health and allow them to live independently in their own homes longer provides peace of mind for caregivers and doctors. There are numerous companies with products that can monitor a person’s daily activities and formulate patterns by utilizing sensors installed throughout the home. In fact, the data made available through these sensors give medical professionals a view of a patient’s daily activity and behaviors that was previously not possible.

Lively, a start-up, can remotely monitor an elderly person’s daily activity, medication time intervals, eating habits and sleep patterns, and spot unusual activity using a combination of wireless sensors on objects such as pill containers, refrigerators and doors to give caregivers and family members a view on an online dashboard in real time.

Is Lifestyle-Based Insurance Next?

Wearable technology, ingestible sensors and many other health technologies have profound benefits for consumers, insurers and doctors. If you look at the development stages of UBI for auto insurance over the past decade, you can see the potential for lifestyle-based insurance in the future (Figure 2).

Figure 2. UBI could be expanded to other insurance lines

Figure 2. UBI could be expanded to other insurance lines

Click to enlarge

Are You Ready?

So the ultimate question is straightforward, but not necessarily simple: Are you ready? To help you find out, we offer five preliminary questions to consider:

  • How can digital technology benefit your organization, customers and employees?
  • What can realistically be achieved?
  • What capabilities do you need, and how can you best acquire them (partnerships, buy or build)?
  • What investment is needed, and in what time frame?
  • Have you developed a robust, big data analytics strategy? A careful analysis of where your company fits in this evolution could open up business opportunities, and create a new relevance for existing products and a renewed corporate mission.

For comments or questions, call or email
Nicholas Chen at +852 2593 4574,