Internet-connected sensors are increasingly making theirpresence felt in the business world. Because of their ability tocontinuously transmit data about users — in the home, at theworkplace and on the go — the technology can potentially transformwhole sectors of the economy. Sensor data is thus of keen interestto companies, not least those in the insurance space.

That interest helps to explain the growing number of studies onthe topic. In its “World Insurance Report: 2016,” Capgeminiexplored the market implications of these new smart technologies — popularly knownas the “Internet of Things” or IoT — particularly in relation totheir youngest users: millennials.

Now comes a new study from Ernst & Young (EY) that alsoexamines, albeit in greater depth, the potential and pitfalls ofthese “market disrupters” for insurers.

Data for multiple disciplines

Sensor data, as defined by EY, includes data streams from a hostof devices. Among them: personal technology like wrist watches andapparel; vehicles sensors that can track distance traveled,neighboring objects or braking activity; location-based sensorslike smart thermostats, alarms and cameras; as well as geographicalinformation systems, such as drones and satellites that can providegeophysical or topographical data.

Of particular relevance to life insurers, advisors and theirclients is the first category — high-tech wearables like theFitbit, Apple Watch and similar wristbands that can monitor one’sheart-rate, calories burned, steps walked and other physicalactivity. Notably active in this space is John Hancock, a unit ofCanadian life insurer Manulife Financial.

As we reported inthis area last April, John Hancock partnered with TheVitality Group, a provider of incentive-based wellness programs, tooffer policyholders the opportunity to save on their annualpremiums, earn rewards and discounts by taking steps to improvetheir health. As part of the program, policyholders receivepersonalized health goals and can log their activities using onlineand automated tools — including a free Fitbit.

A second example cited by EY is sensor data used in Allianz1, anoffering Allianz Life Italy launched in February of 2015. A hitwith Italian customers — more than 100,000 policyholders havesigned on since — the innovative product combines, in a singlepolicy, personalized P&C, life and health insurance coverage.Using a desktop PC or tablet, users can develop a tailor-madeproduct based on “13 building blocks” from the three insurancelines.

For the P&C component, policyholders are given a telematicsdevice that remotely monitors driving activity. That would allowAllianz to adjust premiums over the life of the policy (based on,say, a vehicle’s frequency of use and the owner’s safety record).Such tech-enabled dynamic pricing could yield increased sales andother dividends for insurers.

Allianz and John Hancock aside, how seriously are the industry’scarriers taking new-fangled solutions based on sensor data? Andwhat will it take to tap the potential windfall of informationavailable through Internet-connected devices?

To judge by the findings of the EY study, the industryrecognizes the need for IoT solutions. A survey of seniorexecutives at 1,782 organizations globally, including nearly 400insurers, the report conveys a sense of urgency within companyC-suites because the stakes — and the potential gains — are sogreat.

As they acquire unfiltered access to sensor data aboutcustomers, insurers will be able to be tailor products, featuresand pricing to customer preferences — and do so on a mass scale.That will translate to an improved ability to upsell and cross-sellproducts through agents or advisors and direct-to-consumerchannels.

Intelligent, Internet-connected devices, the report notes, couldalso transform the insurance sales process by availing financialprofessionals of data to promote “healthier, moresecure and safer living” to clients. By, for example, bundling alife insurance policy with a fitness or dieting regime and wearabledevice for monitoring health-related activity to reduce futurepremiums, the producer can add value to the customer engagement andincrease client loyalty.

That value-add is not lost on C-level executives polled by EY.More than one-third of those (34 percent) surveyed say that(assuming customers agree to share data about themselves) wearabletechnology would be “most important for competitiveness” in theirindustry.

As to leveraging such data, insurance industry executivesunfortunately lag behind colleagues in other sectors surveyed by EY(auto, telecom, and retail, among others). Relative to their peers,for example, fewer insurers are using predictive analytics softwareto better understand customers' life stages, preferences, valuesand wants.

The result is that insurers are at the bottom of the heap ofseven industries surveyed when asked whether they are able to:

• define strategies that optimize the long-term value of theirproduct or customer portfolio (44 percent of insurance execs polledversus 56 to 64 percent for execs in six other sectors);

• co-create and collaborate with customers for mutual benefit (39percent vs. 51 to 62 percent, respectively); and

• use insights from other new data sources to deliver more valueto customers (36 percent vs. 46 to 54 percent).

According to the report, sensor data can help insurers tacklethe top two business priorities of more than 3 in 10 industryexecs: boost revenue and profits. The data may also be a godsend tothe nearly two-thirds (or 66 percent) of industry execs who feelmounting “market pressure” to innovate.

But innovation will require big investments. That means, as theCapgemini report also indicated, there will need to be a revampingof outdated legacy information technology systems so they can usesensor data. They'll also have to hire data scientists to interpretthe information gathered.

The carriers will additionally have to optimize pricing andincentives: Customers will only share sensor-based data aboutthemselves if product pricing and financial incentives aresufficiently high. And, as EY notes, insurers must become“holistic” about how they procure and manage sensor data, anapproach that may require supplementing internally sourced datawith external data from outside partners.

Eye on the crystal ball

But are they up to the task? Sensor-based data, the EY reportnotes, can fundamentally alter the insurance industry, giving newlife to a sector that has long suffered from slow growth, lowinterest rates and rising regulatory demands. Meeting the challengemay require of industry execs as much of a shift in corporateculture as it will a technology makeover.

Carrier execs must, in sum, start thinking and acting like theagile, innovative mavens of the tech world they so often look tofor inspiration.