The Internet of things (IoT) will significantly change the way that insurers do business. Change is a foregone conclusion; rather, the salient questions are how fast and to what extent will this change occur. Key topics that merit attention include the following:

• Value to policyholders in the form of reduced premiums and costs of risk
• Value to insurers in the form of reduced loss costs as well as costs of risk
• Costs associated with creating, maintaining, and using the IoT

The IoT portends change across all areas of the insurance value chain. For example, we need to consider how it will impact the fundamental areas and operational processes of insurance listed below:

• Product design
• Insurance premium setting
• Insurance underwriting
• Policyholder services
• Insurance policy claims

Ultimately, because insurance premiums are reduced in proportion to decreases in losses, this raises the question whether the below are foregone conclusions:

• Could this mean that the insurance industry might possibly adopt a strategy to pare down the scale of its business?
• If insurance premiums are drastically reduced, will insurers be able to accept a reduced role in the overall economy?
• As we forge ahead in the time of the IoT can insurers focus on loss reduction and discover alternate sources of income?

To deftly navigate this era of the IoT, Celent advocates that insurers adopt a framework that is driven by harnessing technology.

Celent views the IoT as being made up of three fundamental components:

1. “Things” or devices with networked sensors
2. Data stores
3. Analytical engines

In tandem with this, Celent sees the IoT generating value in the three ways below:

1. Data and information indicating in-company and external states
2. Conclusions derived through analytics
3. Feedback and control processes

Celent suggests the following reports to learn more about the IoT, the Internet of Everything (IoE), and digital strategy.

Life Insurance Underwriting (R)evolution in the Age of the Internet of Things

Are Insurers Ready for the Internet of Things?

The Internet of Things and Life & Health Insurance

The Internet of Things and Property/Casualty Insurance