EY - The internet of things in insurance - Ernst & …

1 The internet of things in insurance Shaping the right strategy, managing the biggest risks The internet of things in insurance : shaping the right strategy, managing the right risks Until recently, the internet of things (IoT) was on The IoT offers truly disruptive and transformative the strategic agenda of only the largest and most potential to the insurance industry. Substantial progressive insurers. The IoT was largely viewed as a mhka\] ]n]f jkl%egn]j Y\nYflY_] ]paklk ^gj . futuristic concept, and many insurers adopted a wait insurers that can shape the right strategy. This paper and see attitude. will outline the key components of such a strategy, including: Such a posture is no longer viable. Early adopters have established a clear and compelling value proposition Processes, functions and areas where the IoT. by demonstrating how data from in-home and could have the biggest business impacts automotive sensors, wearable technology, drones, The biggest and most important risks to manage.

2 GPS, mobile and telematics devices, networked data security chief among them appliances and multiple other sources can help :]kl jkl kl]hk ^gj afkmj]jk k]]caf_ lg . grow new business, improve risk assessment and operationalize and ultimately monetize data proactively engage policyholders in loss prevention. from the IoT. 1. The internet of things in insurance : shaping the right strategy, managing the right risks The IoT: what it is, why it matters in insurance The internet of things is the network or system Location-based sensors, such as those in of interrelated computing devices, sensors, living ^Y[lgja]k$ oYj]`gmk]k gj g^ []k Yf\ af%`ge] . [j]Ylmj]k gj gl`]j gZb][lk l`Yl `Yn] mfaim] a\]fla ]jk sensors, including smart thermostats, security and can communicate with other devices on the technologies, such as alarms and cameras, and network. These objects, or things , are capable of industrial control systems transmitting data.

3 Other geographic information systems (GIS) that For insurers, the most impactful data streams and provide geophysical, topographical, climatological sources from the IoT are likely to include: and hydrological data, as well Yk af^gjeYlagf YZgml mladalq _ja\k Yf\ a_`l hYl`$ . Wearable or personal technology, sometimes and that may include drone and [Ydd]\ l l][`$ g^l]f mk]\ af l`] [gfl]pl g^ . satellite imagery monitoring heart rate, steps walked and other health-related metrics. This technology is rapidly While this data is directly accessible by or streams developing, with prototype patches already to insurers via sensors or mobile devices, third- performing blood work and ECGs and automatically party organizations may also play a role in owning, administering drug doses. aggregating, and distributing to insurers. All of these data types are potentially useful for the full range Sensors on objects, including personal and of products and lines of business, from commercial commercial vehicles and shipping containers, that 0 1 0 10 1 01010.

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6 10101010have traditionally 0101010 010101. ability to directly access customer data via the IoT a new phenomenon for insurers that 01 0 1 0 1 0 1 0 1. relied 0. on 1. brokers. 0 1 0 1 0 1 0 1 0 1 0 1. 0 1 01 0 1 0 1 0101010. 1010101 1 0 1 0 1 0 1 0 1010101 1 0 1 0 1 0 1 0 1010101 10 1 01 0 10 1010. 0 0 0. 101010101 10101010101010101 10101010101010101 101010101010. 10 10 10. 010101010 01010101010101010 01010101010101010 0101010101010. 2. 010101010. 1 010101 010101. 101010101 101010101 101010101. The internet of things in insurance : shaping the right strategy, managing the right risks The impact: today and tomorrow The IoT's impact within insurance is coming fully into focus. At the highest level, better use of IoT and sensor data means insurers have the opportunity to: Establish direct, unmediated customer relationships ZYk]\ gf \aj][l Y[[]kk lg gZb][lan] Yf\ mf dl]j]\ \YlY. Gain more granular and precise understanding of who their customers are and how their needs change over time EY's 2016.

7 Individualize offerings of products, features and Sensor survey: access options lagging insurers must For insurers that have relied on agents and brokers, l`] YZadalq lg \aj][ldq Y[[]kk gZb][lan] Yf\ mf dl]j]\ . embrace new data customer data represents enormous change. In 2016, EY's global insurance practice Historically, much customer data was unavailable, [gf\m[l]\ Y jkl%g^%alk%caf\ kmjn]q . and the information insurers could access was often lg ]phdgj] l`] aehda[Ylagfk g^ k]fkgj%. subjective or inaccurate. Consider the common based technology with C-level and misrepresentation of data around certain behaviors gl`]j k]fagj ]p][mlan]k ^jge afkmjYf[] . kegcaf_$ Yd[g`gd aflYc]$ ]p]j[ak] j]_mdYjdq$ ead]k and other industries. The objective driven per week) on insurance applications. The IoT g^ l`] _dgZYd j]k]Yj[` oYk lg \] f] . _j]Yldq ]phYf\k l`] mfan]jk] g^ Y[[]kkaZd] \YlY$ the ways in which new data and opening up new possibilities in many functions.

8 Emerging technologies might shape business innovation, product and Coupled with advanced analytics capabilities, new data pricing strategies, risk and regulatory streams and sources have set the foundation for entirely management, customer engagement new business models. Usage-based insurance (UBI) . and operational transformation. so-called pay-as-you-live or pay-as-you-drive business models have quickly moved out of pilot phases and L`] kmjn]q j]kmdlk [gf je l`Yl . proved their viability and value around the world. In insurers lag considerably behind their fact, there are an estimated 5 million active UBI policies counterparts in other sectors when in 35 different countries. From this relatively low base, it comes to their ability to optimize EY estimates that UBI policies will reach 15% market long-term value, collaborate with penetration by 2020 in Europe, Asia and the Americas. [mklge]jk ^gj dgf_%l]je Z]f] lk Yf\.

9 Utilize new insights. Insurers lag in using insights from new data sources Percentage of respondents, by sector, reporting that their companies can use insights from new data sources to boost customer value. 54% 50% 47% 47% 47% 46% 36%. Retail Automotive Transportation Electronics :Yfcaf_' fYf[aYd Telecom insurance services 3. The internet of things in insurance : shaping the right strategy, managing the right risks Cross-enterprise and cross-industry impacts: the IoT affects everyone The view from underwriting Commercial continues to advance The convergence of different data types leads directly Af%n]`a[d] k]fkgjk Yf\ ljY[caf_ \]na[]k o]j] jkl . to increased precision in assessing risk, pricing policies afklYdd]\ af ljm[caf_ ]]lk \][Y\]k Y_g Yf\ af\mkljaYd . and estimating necessary reserves. There are clear control systems have long been standard within advantages over current approaches, which rely manufacturing environments.

10 Commercial insurers on backward-looking claims data and historical risk have also matured their modeling capabilities, studies. Through constant monitoring, underwriters especially relative to natural disasters. These can recommend real-time pricing and policy term Y\nYf[]e]flk hYa\ g^^ \mjaf_ l`] ]ph]ja]f[] g^ . eg\a [Ylagfk& L`]q [Yf Ydkg eg\]d l`] aehY[l g^ f]o Superstorm Sandy in 2012, where insurers carefully health and well-being services to manage mortality tracked the impact of the storm and proactively and morbidity risk over time. alerted policyholders of imminent risks. Combining data layering wearable technology data with GIS. Claims klj]Yek$ ^gj ]pYehd]$ Yf\ [gfljYklaf_ j]Yd%lae] . The IoT is likely to drive further evolution in claims, data against historical patterns enables deeper as it orients more toward active loss prevention. For understanding of risk, both in real time and across afklYf[]$ af%`ge] k]fkgjk [Yf egfalgj ^gj j]$ oaf\.