So, what's the possible downside risk of IoT for insurers and their customers? The industry faces a number of challenges in realizing the potential benefits of such invasive technology, including:

Making sense of the new data: If insurers aren't careful, they could drown in all the additional telematic information they collect. Their numbers-crunchers will be called on to draw clear correlations and make some hard choices about exactly what insurers need to know to do business more proficiently.
Profiting off the new data: In usage-based insurance, early adopters are offering discounts just for allowing the collection of telematic data. At some point, carriers will have to decide who has earned such discounts with superior driving experience, while others may face higher charges if they don't meet quality benchmarks.
How to deal with telematic holdouts: What about those who don't jump on the IoT bandwagon? Will insurers end up surcharging anyone who declines to allow their cars, homes, or businesses to be monitored?
Regulatory resistance: When insurers finally do start raising rates for those who don't meet quality benchmarks or who refuse to be monitored, will regulators object? Also, will they insist on "looking under the hood" to assess the validity of IoT-based insurer underwriting and pricing decisions?
Privacy and security: The more people are connected via the Web, the higher the risk of a cyber-breach. What kind of liability and reputational risk might insurers face if hackers compromise a policyholder's car, home, or business via the telematic devices installed to monitor them? What new security measures must be put in place to raise the bar and prevent intrusions?

These concerns must all be addressed, but none are likely to be deal-breakers. The IoT genie is out of the bottle. Real-time monitoring is probably here to stay. The only question is how insurers can make the most effective use of this promising new technology, to their own benefit as well as that of their customers.

Special Reports /

Internet of Things has upside potential, downside risks for insurers

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