Can a Fixed Cost Property/Casualty Industry Survive the Internet of Things?

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7 March 2016


Celent looks at the potential negative impact on a largely fixed cost property/casualty industry of the Internet of Things reducing losses and then premiums. The report identifies five strategies property/casualty insurers could pursue to mitigate these issues.

For all lines of insurance, persistent declines (or increases) in loss experience will over time lead to lower (or higher) premiums being charged for apparently similar risks. Usually these decreases and increases are relatively small and lead to a new equilibrium for pricing algorithms and premiums.

But what would happen if there was a sustained trend of decreased losses for several lines of insurance over several years? Once established, the initial equilibrium would be replaced by a lower equilibrium, and the process could repeat itself until more stable equilibria are reached.

This report examines the short-term to midterm consequences for insurers, assuming that the Internet of Things (IoT) substantially reduces losses (and premiums) in several lines of insurance.

“Assuming that insurers want to maintain revenue or profitability, or in most cases both, none of the choices facing property/casualty insurers are easy or guaranteed to succeed,” says Donald Light, Director of Celent’s North America Property/Casualty practice and author of the report. “The choices are to stay big through acquisitions, go small, go mostly variable, go totally variable, or Insurance Plus IoT-enabled safe and secure policyholders. The choices are to stay big through acquisitions, go small, go mostly variable, go totally variable, or bundle Insurance plus IoT-enabled safe and secure policyholders.”