The Dollars and Sensors Impeding IoT and UBI Adoption

usage-based-insuranceMost people agree that the Internet of Things (IoT) is exciting, but we still have huge obstacles to clear. These obstacles include how to manage consumer privacy; cybersecurity; and the proficiency of inter-device communication. However, today, I’m not going to talk about any of those hot issues. Instead, I’m going to talk about another massive barrier: The cost of device and sensor management.

Case in Point: In a blog for Insurance Networking News, Matt Manzella says, “As with most new technologies, the cost of individual sensors is still relatively high, but what makes the cost of the smart home beyond most people’s reach is, to truly have a connected home, one requires a large number and variety of sensors. These may include the following sensors: open/close, motion, cameras, outlets/plugs or switches, water/humidity, temperature, smoke, and may also include things like smart appliances and water shut off valves. A minimal set up could be accomplished for $300-$400, but full coverage in a modest sized home could run $1,000-$3,000.”

Manzella is referring to the cost of sensors for each individual homeowner. But take that a step further. What is the cost of those sensors for each of the companies supplying them?

For those who manufacture connected products, device cost is expected to decline dramatically in the coming years and standardization occurs. However, for service industries that need to be connected without having a manufactured product (think insurance) the cost goes far beyond the physical cost of the sensor. This hardware also has to be procured, inventoried and shipped. And, there’s a wastage cost for sensors that are shipped and lost, or never actually installed by the recipient. At least that was the case for auto insurers that deployed hardware-based UBI rollouts.

In a 2014 Insurance Journal article, written by the Casualty Actuarial Society, Jim Weiss of FCAS shared a hypothetical example in which the UBI dongle cost $100 with a shelf life of three years. In addition, it communicates with the insurer via wireless which costs about $5 a month. He concluded that in this scenario, the insured’s loss ratio would have to drop by 22 percent to justify a permanently installed dongle.

It’s easy to see how hardware can inflate the cost of a usage based insurance rollout and complicate the task of achieving a return on investment. And, that’s just the beginning of the process. At some point, sensors will need to be updated or replaced. To save money, some insurers have considered giving UBI hardware devices to policyholders for only six months at a time, but there are still shipping and inventory issues – not to mention inconvenience to policyholders.

One thing is for sure: Mobile devices are easier to manage than hardware sensors.

Easier management, program scalability, and lower costs are just a few of the reasons that usage based insurance pioneers are making the move to smartphone-based UBI platforms. By delivering usage based insurance via a smartphone app + cloud, insurers can avoid all the hardware hassles. They can deliver usage based insurance instantly by sending the policyholder a link to the insurer-branded downloadable app. And, they can universally update their programs by releasing a new version of the app – without having to manage individual sensors.

Think your company is too small to succeed with usage based insurance? Think again. There are three major developments making UBI more accessible to insurers of all sizes. Also, make sure to download our free report, “10 Reasons to UNPLUG and UNBURDEN your UBI program.” Think you can afford to wait? Studies show that early adopters grow faster. Why not take the lead and let your competitors eat some UBI dust?

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