A new report from Geneva Association, an industry think tank, says the Internet of Things (IoT) is the way forward for insurers.

IoT is a term that refers to the billions of physical devices such as cars and tablets that are connected to the Internet, collecting and sharing data.

Immense growth in the use of sensors and smart devices in almost all areas of life and the gradual rollout of 5G technologies are fuelling the generation of an increasing amount of data, much of it in real time.

“IoT and IoT data will be game changers in all industries and will increasingly affect our everyday lives,” the report says.

“IoT technology, data capabilities, real-time remote processes, incident steering and proactive customer interactions for prevention will become the new normal.

“This paradigm change to ‘preventing bad things from happening’ cannot be ignored and the insurance industry must embrace it.”

For insurers, the data generated is a source of valuable insights, according to the report. The data can help the industry improve its risk prediction and prevention capabilities. It can also expand the scope of insurance coverage.

Where risk prevention is concerned, IoT can be an asset in real-time risk mitigation solutions and promotion of less risky behaviours.

For example Axa XL in Europe uses real-time mitigation of property risk in its “Digital Risk Engineer” service, where alerts are dispatched to business owners after a critical situation is detected.

Another example involves Munich Re. The German reinsurance giant has partnered a technology company to provide diagnostic services in equipment maintenance. An IoT device is retrofitted to machines to predict failure based on a subscription model per machine.

The performance of the services is guaranteed by insurance coverage, which includes a contractual liability protection for the service provider and warranty protection for the customer.

“IoT-based prevention services also allow insurers to expand coverage and protect against previously uninsurable risks,” the report said.

“Where corporates have found it difficult to secure insurance coverage at an affordable premium, or indeed at all, insurance based on real-time risk mitigation provides coverage solutions at affordable rates.”

Geneva Association MD Jad Ariss says the report shows the tangible impact IoT risk prevention has in improving lives.

“It is still early days for the Internet of Things in insurance,” he said. “But scratch beneath the surface and there is a lot of work already underway that puts the industry in a strong position to harness potential for a new generation of risk prevention services.

“There is much to be learned from these early innovations.”

The report is based on interviews with over 60 insurers, technology companies, start-ups, global organisations and leading academics across all insurance business lines and geographies.

Click here to access the report.