The Internet of Things (IoT) is changing the nature of riskassessment in real time. As more and more devices begintransmitting information about their locations, movements andpatterns of use, a wealth of data is accumulating about theenvironmental and human factors that contribute to the likelihoodof a loss event taking place. It's an embarrassment of riches froman actuarial standpoint, but the data is proliferating so rapidly,and from so many sources, that one could be forgiven for feelingoverwhelmed by the challenge of putting it all to good use.

Perhaps that is why, according to a 2016 EY survey of C-level executivesacross multiple industries, only 36% of respondents from theinsurance industry claimed that their companies could use insightsfrom new data sources to boost customer value. Of the sevenindustries EY surveyed, the insurance sector ranked dead last onthis question. How can that be? Surely the ability to use realinformation rather than calculated probability to determinepremiums, prevent fraud and settle claims faster must be anadvantage.

Related: Scaling hurdles on the path to insurance digitaltransformation

Using data to manage risks

So why doesn't the insurance industry see this as anopportunity? One of the biggest reasons is the sheer variety ofdata sources. IoT data comes to the world of insurance in myriadforms – from driving habits revealed by onboard diagnostic systemsto utility consumption patterns gathered by “smart” thermostats andmeters. All of it is potentially valuable, but it comes indisparate formats and from different providers.

Making sense of it and extracting real value requires a solutionthat can standardize and rationalize the data, leading EY toconclude that “legacy system limitations and the variety and volumeof new data requires an overall ecosystem approach” rather than anattempt to make sense of it all with one devilishly overcomplicatedsystem.

Related: Choosing the right Producer ManagementSystem

For the successful insurer of tomorrow, this will demand theability to distill that high-volume, raw data into meaningfulnuggets, such as scores, factors and indicators. Core systems thencan integrate and use that data from an ever-broadening variety ofsources in a centralized system capable of translating it all intoproduct development, underwriting and claims value.

Legacy systems with outdated models based on historical data andrisk probability simply can't keep up – the world of “the newinsurance” will be supported by flexible, modern platforms that cantake data from as many sources as necessary, in as many formats asare required, and allow carriers to put the valuable informationthey extrapolate from the bigger picture into action.

The carriers that don't see this as an opportunity to plan forthe future now won't just find themselves drowning in data —they'll be washed away completely.

Jeff Wargin is vice president product management – policyand platform at Duck Creek Technologies. Contact him at [email protected].