Insurance 2.0 is the evolution of the traditional insuranceindustry responding to the technological advancements of the Internet of Things (IoT), which are connectingour lives and reducing risk.

The IoT is already playing a significant role in managing riskand reducing and predicting claims — defining insurance 2.0.Connected homes can now use sensors to warn owners of the risk ofpotential fires or flooding. Driverless cars, which might not beable to eliminate car accidents by themselves, will change thebalance of risk management and mitigation.

Doctors can now access data from wearable devices, preventing a serious problemby monitoring patients' activity in real-time and notifying them toadjust their behavior before it has an adverse effect.

Insurance 2.0 is a game changer — and insurers will need todecide quickly which way they turn at the crossroads. The IoT isnot an IT implementation — it is a change of business model. Muchdepends on the level of adoption of technology, but if some of themore astute organizations within the industry change their businessmodels soon, then the rest of the industry could change as quicklyas the next 12 months.

There is no doubt that a world where car accidents are a thingof the past, medical conditions are diagnosed and prevented beforethey occur, and household accidents like flooding or fire areprevented before they happen, would improve life considerably. Thetruth is that technology and innovation are also allowing usto move closer and closer to preventing, if not eliminating, riskcompletely.

Reducing risk

This means living in a world where risk itself is reduced. Theincreased prevalence of connected devices, combined withtechnological advancements, show very little sign of abating, andso the insurance industry finds itself at a crossroads. Does itturn left and continue down the path of traditional-style riskmitigation that will most likely lead to reduced gross writtenpremiums (GWP) and loss of brand identity? Or does it turn rightonto the data-driven superhighway and embrace a new way ofoperating? The point is that there is only one optionavailable.

The new normal of insurance will look very different fromtoday's model, and a significant change of mind-set will berequired if insurers are to truly benefit from the more proactiveapproach of Insurance 2.0. Where they might once have only had oneinteraction with a customer every year — perhaps at premium renewal— this model must change so that insurers becomerelationship-focused every second of the day.

As an industry that has been built on mitigating risks of allshapes and sizes through a traditional system of premiums andclaims, these advancements make the future less certain. A recentCapgemini report suggests that the value of claims relating torisk is set to suffer a potential loss in value of 20 to 40percent, which could have profound implications for insurancedemand and premium income.

Insurers must find ways to access the data provided by customersfrom technology, including smart phones, wearables, industrialmonitors and IoT-connected devices to add greater value. Insurerswill differentiate themselves by the value of the relationship theyadd to their customers, as well as the flexibility of theirpremiums. Those able to leverage data to provide the best servicewill be the most successful.

A new model

In this new data-driven IoT model, insurers and policyholderswill collaborate to create a partnership focused on improvingoverall quality of life. For example, an insurer will be able tomonitor water activity in an industrial property, and provideadvice on any chronic performance issues via immediate alerts.

This model adds considerable value for customers and alsoprovides important opportunities for insurers to identify good andbad risks, minimize claims payouts and upsell relevant products andservices — creating a win-win situation for both parties.

Tom King ([email protected]) is the senior director and industryprincipal of insurance at Pegasystems. He has more than 25 years ofexperience in the insurance industry. Keith Gage ([email protected]) is a vice president inCapgemini's Financial Services Global Business Unit and leads aportfolio of insurance accounts within Capgemini's InsuranceSector. He has more than 20 years of experience in theindustry.