Are IoT & Innovation the New Norm for Insurers?

Connected car solutions are most prevalent and 60% of top European insurers have already created offerings in this area with the UK and Italy leading the field.

~ Written By James Higgins

Triple Impact

The Internet of Things (IoT) is having a triple impact on the insurance industry as customers begin to incorporate smart devices into their daily lives and the insurers themselves begin to build IoT ecosystems to capture data will transform their policies’ value proposition and also seek to deliver IoT-linked insurance services. With the IoT bringing Customer Experience (CX) to the fore, the World Insurance Report 2016 shows that insurers need to bring their thinking more in line with customer expectations as, for example, only 16.3% insurers think driverless cars will increase in popularity whereas 23.1% of their customers are keen to explore this trend and 48.9% of insurers think their customers will be happy to make use of wearables while only 30.1% of customers agree. So what are the IoT technologies that are transforming the insurance industry? How will these innovations affect CX and B2C policies? And what will our test strategies need to look like to ensure quality and protect brand reputation?

A New Era of Innovation

IoT technologies will have the most impact on car, home, manufacturing and health insurance. Car insurers are already using Geospacial applications such as NationWide SmartRide and Progressive Snapshot to collate customer auto data showing the speed, distance turning and braking patterns and general driving behaviour of their customers. Sensors are set to be big business in our homes and in offices, warehouses and factories, detecting and alerting insurers in real time of dangers such as air pollutants and natural disasters like earthquakes. Sensors are also starting to be built into toys and consumer electronics to enable insurers to predict potential product flaws and breakdowns and meet extended warranty promises faster and more effectively. Wearables offer insurers real time insights into areas such as employee health and disability claim compliance. All of this data of course needs to be gathered, stored, processed, analysed and changed into actionable insights and insurers will need to be aware of the skills gap and upskill by hiring and partnering with experts in relevant and more mature industries such as Automobile and Telecoms.

The IoT Insurance Model

All of these changes will hugely impact the way in which insurers interact with their customers as they build a more personalised picture of each individual customer and we head towards a new era of connectivity: “The Internet of Me”.   As the need for risk estimation decreases and customers are encouraged to take risk management into their own hands and modify their behaviour accordingly, insurers will have to find a new way to calculate policies so, in the future, we may see a completely new insurance model based around the concept of prevention rather than risk assessment.

IoT Test Strategy

The Internet of Things and the Internet of Me will require insurers to adopt a new culture of consolidation, convergence and collaboration and an unprecedented heightened focus on the end-to-end customer experience (CX). This in turn requires a complex and comprehensive quality assurance and test strategy with a shift left approach. We are already seeing the financial impact of this as the Financial Services industry now allocate 37% of their total IT budget to QA and testing; an 11% increase from 2014.

In terms of test strategy, in his new book IoTMap – Testing in an IoT Environment, Sogeti’s Tom van de Ven explains that there are 3 fundamental principles for success. Firstly, testing the IoT is all about CX; secondly we need to move away from functional unit and regression testing to non-functional quality attributes focused on interoperability, performance, security, recovery and usability; and thirdly crowd testing and storytelling will become of paramount importance. If we look just at telematics for a moment, our test strategy will need to include Cybersecurity testing, software testing and validation, audio and speaker testing, Bluetooth testing and Mobile application testing with strict measures in place to protect data privacy and security in the test environment. A further consideration is that all of this needs to be brought into line with strict regulations.

The biggest challenge when creating an IoT test strategy for insurers is that we are testing physical things connected to many other devices, comprised of component parts from a variety of vendors with different security measures, in an area that currently has no proper standardisation, for an industry that is highly regulated!

In light of the challenges of IoT testing the new insurance test strategy needs careful planning and Tom van de Ven’s new 5-step approach provides an excellent framework:

  1. Take a layered approach to testing considering first the “Thing’s” sensors, hardware and mechatronics, what it is connected to and how it communicates, then the application data platform layer and finally the interface with the end user.
  2. Determine how to combine the layers and test the IoT solution end-to-end.
  3. Map out the required IoT test environments in terms of extreme conditions and level of connectivity.
  4. Determine the right quality attributes with a focus on non-functional testing – for example with a particular device usability might be more important than functionality.
  5. Implement the building blocks that enable the first 4 steps such as crowd testing and storytelling, automation and cutting edge methods such as AI and entitlement testing.

In a recent interview with CIO online Farmers insurers’ CIO Ron Guerrier acknowledged that the only way to approach IoT in the industry is to work with dedicated partners who already have a deep understanding of the insurance industry’s regulatory requirements and who can offer 80% ready-to-go technology and 20% that can be tailored to the particular needs of the individual insurance company.

Redefining the Industry

All of the findings in these recent reports, surveys and interviews point to one thing: the insurance industry is preparing for a new era of unprecedented innovation, leading the field in the adoption of IoT technology and redefining policies to align with the changing behaviour of business and individual customers to create a customer experience that will reshape the industry forever.

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