THE IMPACT OF THE INTERNET OF THINGS ON ESTABLISHED BUSINESS MODELS - A multiple case study of Swedish insurance companies

Abstract

The insurance industry has long been suffering from profitability and growth issues due to the increasing commoditization of insurance solutions, which has forced insurers to engage in destructive “premium wars”. Digitalization and technology advancements are only set to increase these pressures even further by shifting market boundaries and increasing the level of “digital sophistication” expected by customers. Ultimately, these pressures are forcing insurance companies to rethink the business models they have employed for so long and look beyond “business as usual”. One technology that might allow for insurers to stand out in this commoditized market is the Internet of Things (henceforth: IoT). This paper aims to study the impact of the IoT on the business model of insurance companies. With the help of the business model canvas, this paper provides the reader with an in-depth understanding of how IoT applications affect the different blocks that constitute the business model of insurance companies. Moreover, this paper aims to provide the reader with an understanding of the challenges and risks related to the implementation of the IoT, and how these might be mitigated. In order to do this, a multiple case design was chosen where semi-structured interviews were held with four different Swedish insurance companies currently working with different IoT-centred solutions. Additionally, the paper follows a qualitative research strategy with an abductive approach to theory generation. According to the research, the IoT provides insurers with the opportunity to collect and analyse real-time data on insured objects, allowing them to shift towards more dynamic and accurate risk and pricing models that are based on usage, rather than the static indicators conventionally used. Moreover, by detecting damages in their earlier stages or before they even happen, IoT sensors have the potential to reduce the severity and frequency of claims, which stand for 69 % of insurers’ expenses. Lastly, insurers are able to provide customers with personalized recommendations on how to take care of their insured objects, thus increasing the frequency with which they interact with their customers, which in its turn improves customer loyalty and retention. In order to successfully implement the IoT, insurers will need to address external and organisational resistance, as well as disruption threats from competitors. To address external resistance, insurers must increase customer willingness to share data through such incentives as premium discounts. Moreover, with the insurance industry being recognized for its conservatism, insurers will also need to make use of change management and enterprise-wide training to create a corporate culture more accepting of change and business model innovation. Lastly, the IoT also creates opportunities for new players to disrupt the insurance industry. For this reason, first-movers will have to develop data-driven capabilities that are difficult to replicate in order to create a sustainable competitive advantage.