With the rapid adoption of the IoT also reshaping the insurance landscape and transforming traditional risk assessment processes, it’s an innovative, if not complex, time for firms right.
Looking back to where it began, Matteo Carbone (pictured), founder and director of the IoT Insurance Observatory, points to the roots of IoT-driven insurance innovations in auto telematics, with early experiments starting over 20 years ago.
“The initial focus was on using telematics to offer discounts to safe drivers,” he said, referencing how insurers pioneered the collection of driving behavior data to refine pricing models. Over time, this evolved into a more sophisticated approach, where carriers began applying surcharges to high-risk drivers, leading to “far more accurate risk assessments.”
Case in point is Progressive, a leader in telematics, which used this technology to consistently outperform the US market. Between 2014 and 2023, Progressive’s private passenger liability portfolio has consistently achieved a significantly better loss ratio than the rest of the market. In 2014, Progressive’s loss ratio was five percentage points better than the competitors. This competitive advantage has increased over the years, reaching about 15 percentage points in 2022-2023, highlighting how data-driven insights can significantly enhance profitability.
“In stressed market conditions,” Carbone explained, “Progressive still managed to outperform the market.”
But, when asked whether these advancements will extend beyond auto insurance, Carbone is optimistic yet cautious.
“The tools will appear in other business lines, but it takes time,” he noted, underscoring that insurers must build new risk models based on IoT data. Carbone expects that commercial auto will see rapid progress, similar to personal auto, but other lines like property, marine, and equipment insurance are still in the early stages. These sectors are currently using IoT more for risk mitigation than pricing sophistication, and it will take time to develop deeper insights and correlations from the data.
For instance, IoT integration allows insurers to reduce fraud and manage claims more effectively. And in Europe, insurers have seen up to 20% reductions in fraud through the use of telematics and IoT-driven claims analysis. For Carbone, he also touches on the critical role of customer engagement in successful IoT insurance models.
“Engagement is key to promoting safer behaviors,” he said, referencing Discovery’s Vitality program, which successfully changed behaviors by offering incentives. He suggests that insurers can learn from Vitality's approach, where “the storytelling of the product” is more about providing opportunities for policyholders to benefit from sharing data, rather than insurers “chasing” customers for information.
IoT’s potential to enable mass personalization is another area of opportunity. Carbone believes that detailed insights into assets and behaviors allow insurers to tailor policies more accurately. And it’s certainly catching. Between 2021 and 2022, the percentage of consumers offered telematics policies increased from 32% to 40%, and those opting into such programs jumped from 49% to 65%, according to TransUnion.
“This approach,” he said, “is already delivering results in risk prevention and safety programs for properties and fleets, demonstrating how insurers can reduce expected losses while enhancing customer experience.”
In the US market, for example, safety programs have already led to reduced expected losses and fewer disruptions in businesses or personal life. Looking ahead, Carbone believes that the most forward-thinking insurers will adopt IoT holistically across all their processes. This vision involves integrating risk prevention, real-time mitigation, and IoT-driven pricing sophistication across the entire portfolio.
“IoT represents a social good, because you are improving availability and affordability of coverage while maintaining a good profitability of the insurance market,” he said.
