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The advent of inexpensive, wireless sensors installed in everything from buildings to bridges has the potential to fundamentally shift the nature of underwriting and insurance.
Also known as the Internet of Things, ubiquitous, networked sensors can furnish underwriters with a continuous data stream to better assess risk.
The most prominent manifestation of insurers relying on sensor data is telematics, which pairs data from mobile devices installed inside insured vehicles with sophisticated statistical analysis.
Accordingly, auto insurers can deliver products based on actual policyholder behavior, as opposed to assumptions derived from other predictive data points such as driver age or credit scores.
A 2012 report from the insurance practice at Pricewaterhouse-Coopers L.L.P. predicts the use of such sensor data eventually may transform the commercial insurance model, as underwriters become less concerned with assigning a price to risk and leverage sensor data to “focus on providing customized, flexible products and value-added services that involve working with the clients to proactively avoid or reduce losses and manage risks.”
To get a sense of the future of insurance underwriting, a look at its current state is instructive.