Auto insurers like Progressive, Allstate, and State Farm are using the Internet of Things (IoT) to monitor drivers’ habits, including changes in speed, how often they drive, and the time of day they drive. For insurance firms, the expectation is that this will lead to lower costs through a better ability to assess clients’ risk levels. For consumers, this means better premium rates — assuming they drive well.
The most prevalent way of monitoring driving habits is by using On Board Diagnostic (OBD-II) dongles, or plugs, that send analytics about the driver’s driving habits back to the insurance company. The dongles are plugged into the car’s port under the steering wheel. We estimate that there are 155 million cars currently on the road in North America that are compatible with OBD-II dongles, and this number will grow as cars from prior to 1996 are pulled off the road and replaced by new models.
In a new report from BI Intelligence, we examine the impact of the IoT on the insurance industry. We analyse current US insurance markets — including the auto, health, life, and property insurance markets — and look at ways insurers are integrating IoT devices.
Here are some key points from the report:
- Auto insurers are the leading adopters of usage-based insurance (UBI) models. By 2020, over 50 million US drivers will have tried UBI insurance, according to our estimates.
Auto insurers are offering clients the opportunity to potentially lower their premiums by allowing the insurance company to monitor their driving habits.
- The IoT is also helping other insurers reduce risk and mitigate costs.
- Home insurance companies are incentivizing customers to install connected devices that warn of potential danger to properties.
- IoT-based analytics can be used to predict future events, such as major weather patterns. This can help insurers better price policies and prepare customers for upcoming incidents, which should help reduce damages.
- Property insurance companies are increasingly using drones to assess damages after an incident has occurred. Consulting firm Cognisant estimates that drones will make insurance adjusters’ work flow 40%-50% more efficient.
In full, the report:
- Forecasts how much auto insurance companies will save from advancements in car safety technology.
- Identifies potential barriers that could keep consumers from adopting UBI insurance policies.
- Examines how various insurance companies are already utilising the IoT.
- Analyses how startup insurance companies are optimising the use of IoT devices.
- Discusses how consumers will benefit from insurance companies utilising the IoT.
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