IoT in Insurance: Top 7 Use Cases for Smarter Underwriting

The evolution of technologies like AI and ML are transforming the insurance industry at a rapid pace. In this article, we look into IoT in insurance, yet another revolutionary technology that redefines the insurance industry from the ground up.

IoT in the insurance industry brings the future closer. A few years ago, car insurance was based on general statistics, but now telematics devices track real driving behavior, allowing safe drivers to pay less.

Home insurance used to rely on past claims, but now smart sensors detect water leaks or fires early, preventing significant damage. Health insurers once assessed risk only through medical history, but now wearable devices provide real-time health insights, leading to personalized policies. Claims that used to take weeks—like car accidents or home damage—can now be processed instantly using IoT data from connected devices, reducing fraud and speeding up payouts.

In this article, we thoroughly examine the interconnection of the Internet of Things and insurance with real-life use cases from the major insurance companies. We also look at many ways you can deal with challenges when transforming your insurance company with the help of IoT.

IoT is driving a $655 billion insurance market shift

The growth of IoT for insurance is impressive by any industry standards. Just take a look at these stats:

• In 2022, the global IoT insurance market was valued at $31.5 billion. By 2032, it is expected to reach $686.9 billion, growing at a CAGR of 36.4% from 2023 to 2032 (Source ).
• IoT adoption in insurance is rising primarily due to increased consumer use of connected devices such as telematics in vehicles, health wearables, and smart home systems. Additionally, advancements in connectivity (e.g., 5G) and data analytics enable insurers to collect and analyze real-time data at scale. Businesses invest in IoT as it revolutionizes their operational process. The rise of insurance automation with IoT is happening in auto insurance because of a growing number of electric vehicles.
• North America leads the IoT insurance market due to the strong presence of major insurance companies and high adoption rates of IoT technology in the U.S. and Canada (Source ).
• Life and health insurance dominated the IoT insurance market in 2022, driven by the widespread use of wearable devices. The second important segment of the IoT in the insurance sector is the so-called property and casualty insurance.

Key benefits of using IoT in insurance

Let's explore what is actually behind the hundreds of billions of dollars in IoT and insurance market shifts. Here are the six ways IoT benefits the insurance market:

Risk reduction through real-time monitoring

Risk assessment is improved by the insurance IoT solutions. IoT devices, such as telematics in vehicles and smart home sensors, help insurers detect risks early and prevent losses by gathering detailed information about the case.

Example: Auto insurers use IoT-based telematics to track driver behavior. In another example related to home insurance, IoT in insurtech can identify water leaks in the house before any damage occurs.

Personalized policies based on user behavior

IoT enables usage-based insurance (UBI) models where policyholders are charged based on real-time data rather than general assumptions.

Example: Pay-as-you-drive auto insurance adjusts premiums based on driving habits, rewarding careful drivers with lower rates.

More accurate risk assessment

Traditional underwriting relies on historical and demographical data, whereas IoT provides real-time risk profiles for individuals and businesses.

Example: Wearable health devices track activity and vital signs, allowing insurers to offer dynamic life and health insurance rates based on actual health conditions rather than static demographic factors.

Process automation & faster claims settlement

IoT automates claims processing, fraud detection , and payout approvals, making it possible to solve easy claims within minutes without waiting weeks for approval.

Example: Connected car sensors automatically detect collisions and transmit real-time accident data to insurers, allowing instant claim validation and faster payouts without requiring lengthy investigations.

Enhanced fraud detection & prevention

IoT helps insurers identify suspicious patterns and anomalies, which is especially common when protecting against fraud in car accidents.

Example: Connected vehicle sensors can verify accident details, preventing staged crashes and exaggerated injury claims.

Improved customer experience & engagement

IoT enhances customer interaction through proactive alerts and risk mitigation tips. The users can feel like they personally participate in mitigating their risks, like in cases where life insurance premiums are offered to customers who move more with the help of wearables. If customers do not want to participate, their experience is still improved by the convenience of IoT-based insurance: quick responses and lack of bureaucratic hurdles.

Example: Usage-based auto insurance (UBI) with IoT-powered telematics provides customers with personalized driving feedback, allowing them to improve their habits and earn lower premiums, creating a more engaging and rewarding insurance experience.

Top 7 use cases of using IoT in insurance

No, let's look into the exact use cases of IoT in insurance, with illustrations from actual insurance companies implementing these changes today.

1. Usage-based auto insurance (UBI)

IoT-powered telematics devices track driving behavior, allowing insurers to offer personalized premiums based on actual driving habits rather than broad demographic factors.

• Vehicles are equipped with telematics devices or connected through a mobile app to track real-time data such as speed, acceleration, braking patterns, and mileage.
• Insurers use this data to assess risk levels and adjust premiums accordingly. Safe drivers are rewarded with discounts, while high-risk behaviors lead to higher rates. Policies like this encourage safe driving habits.

Example: Progressive's "Snapshot" program monitors driving habits and rewards low-risk drivers with lower insurance rates. This reduces accident-related claims. The company uses a plug-in device to collect driving data.

2. Telematics for commercial auto insurance

It's not just the personal vehicles that use smart insurance technology. Fleet operators use IoT-based telematics to reduce operational risks, lower insurance costs, and improve the efficiency of the drivers.

• Fleet vehicles have GPS tracking, accelerometers, and real-time monitoring sensors.
• Data on driver performance, vehicle health, fuel efficiency, and geolocation is transmitted to insurance providers.
• Insurance companies use this data to offer discounted premiums for well-maintained fleets with safe driving records.

Example: Geotab provides commercial fleet telematics that helps logistics companies monitor driver safety, reduce fuel costs, and lower insurance premiums.

3. Automation of claims processing

IoT streamlines claim verification, fraud detection, and payout approvals.

• Smart sensors (e.g., in cars or homes) automatically detect accidents, damage, or security breaches and immediately let the insurer know that the accident occurred.
• The insurer receives real-time reports from IoT devices, expediting claim processing.
• In some cases, IoT drones can take pictures to assess damages better and take photos and videos in the aftermath of the accident.
• AI-powered automation validates claims and processes payouts within minutes instead of weeks. Unless something really complicated is involved, there is no need for human intervention. The software only forwards the claim to the human insurer if it is too complex to resolve automatically. This eliminates one traditional type of fraud: not reporting the accident on time.

Example: Lemonade's AI-driven claims system, combined with IoT data, can process and approve simple claims in as little as 3 seconds. According to the company, about 30% of claims are handled without human intervention.

4. Personalization of health insurance policies with IoT wearables

IoMT is one sector where personalization is booming. Wearable health devices allow insurers to tailor policies based on heart rate and lifestyle habits. This is widely used in IoT in healthcare .

• Customers share health data from smartwatches and fitness trackers with insurers.
• Insurers analyze this data to assess health risks and lifestyle choices.
• Healthy behavior and activity (e.g., regular exercise and stable heart rhythms result in lower insurance premiums). The policy actually encourages users to pick up healthier habits. Some variations of these offerings also include tracking nutrition and even sleeping patterns.

Example: Using Fitbit and Apple Watch data, John Hancock's "Vitality" program offers discounted life insurance policies for customers who meet daily activity goals. The company's CEO famously describes this approach as "people get healthier" while we are making money.

5. Smart home devices for personal property insurance

IoT-enabled home sensors help insurers prevent losses from fires, water leaks, and burglaries.

• Homeowners install smart smoke detectors, water leak sensors, and security cameras.
• These devices watch the house 24/7 and send real-time alerts to homeowners and insurers in case of emergencies. For example, smart doorbells can identify burglars, while an intelligent fire alarm can determine the possibility of a wire before it occurs.
• Insurers use this data to prevent damage and adjust premiums based on risk levels. The devices can let a homeowner know that specific devices need maintenance before it is too late. The result is fewer claims, less damage, and satisfied customers.

Example: State Farm partners with ADT smart home security to offer premium discounts for customers who install IoT-enabled security systems.

6. IoT for agricultural insurance

IoT sensors in farming equipment help insurers assess crop risks, monitor weather conditions, and offer tailored insurance coverage.

• Farmers deploy soil moisture sensors, weather monitors, and drone surveillance to track crop health, soil conditions, and other factors.
• Insurers receive automatic alerts if a drought, flood, or pest infestation is detected.
• Insurance payouts can be triggered automatically without requiring manual claims submission.

Example: Swiss Re and The Climate Corporation offer weather-based insurance for agricultural businesses, where payouts are automatically issued based on real-time climate data from IoT sensors.

7. Industrial & construction risk management

IoT wearables and environmental sensors enhance worker safety and reduce liability risks in hazardous industries.

• Construction workers wear smart helmets, vests, and biometric sensors that track movements, heart rate, and fatigue levels.
• IoT sensors monitor worksite air quality, noise levels, and structural integrity to assess the risks.
• IoT sensors also analyze the behavior of industrial machines and robots, preventing accidents before they are set to occur.
• Alerts notify supervisors and insurers about safety hazards to prevent accidents before they happen.

Example: AXA partners with Triax Technologies to provide IoT-enabled wearables for construction workers. This technology reduces workplace injuries and lowers insurance costs. Spot-r Wearable Sensors clip onto a worker’s belt, tracking location, movement, and incidents (e.g., falls, slips, trips).

Challenges and considerations in IoT adoption for insurance

The Internet of Things in insurance is still a relatively new industry, which may result in many challenges due to a yet unformed regulatory landscape and unclear implementation pathway. Here are some of the biggest challenges with solutions that already exist and are proven effective:

Data privacy & security concerns

IoT devices collect vast amounts of sensitive personal and business data, raising concerns about unauthorized access, data breaches, or data misuse. Given that insurance and IoT regulations are still new, it is not always clear whether the client or the insurer owns the data. Accountability for data breaches is also a relatively new issue that has not yet been fully solved. Companies that invest in adopting insurance IoT are at a high risk of cyber attacks.

Solution:

• Implement end-to-end encryption and zero-trust security frameworks to protect data.
• Ensure compliance with GDPR, CCPA, and other regulations to maintain transparency and build customer trust.
• Use blockchain -based data validation to prevent tampering and unauthorized access.
• Use smart contracts to define transparent and automated claim processing rules.
• Implement user consent mechanisms that allow customers to control how their data is used.

Data overload & integration complexity

Insurers must process massive volumes of real-time data from multiple IoT sources, which can result in integration and analysis challenges. Many insurers struggle to process traditional data, let alone the more complex data associated with IoT in the insurance industry. Integrating insurance with IoT means investing in data analytics tools capable of accurately processing data.

Solution:

• Adopt AI-driven data analytics platforms to filter and process relevant insights.
• Utilize cloud-based IoT data management systems to improve scalability.
• Standardize data formats and protocols to streamline interoperability between IoT devices and platforms.

High implementation costs & ROI concerns

Deploying IoT solutions requires significant investment in infrastructure and data processing capabilities, making ROI unclear. This is especially true because many competitors have already implemented IoT for insurance at the start and benefit from it.

Solution:

• Start with pilot programs to test IoT solutions before full-scale implementation.
• Partner with third-party IoT service providers to reduce upfront costs.
• Use predictive analytics to demonstrate cost savings in fraud detection, risk reduction, and personalized policies.

Dependence on IoT infrastructure & connectivity

IoT solutions rely on continuous internet connectivity, making them vulnerable to outages and hardware failures.

Solution:

• Deploy edge computing to process data locally, reducing dependency on constant internet access.
• Implement redundant communication networks (e.g., 5G, satellite backup) for uninterrupted data transmission.
• Regularly update and maintain IoT devices to prevent failures.

Customer adoption & trust issues

Many customers hesitate to share IoT data with insurers due to privacy concerns and a lack of clarity on benefits. Sharing data related to driving habits in auto insurance makes many drivers uncomfortable. While some remain adamant, others feel OK with sharing their data in exchange for a substantial discount, according to Deloitte research (Source ).

Solution:

• Offer incentives and discounts for customers who opt into IoT-based insurance plans.
• Provide clear communication about how data is used and the benefits of IoT-powered policies.
• Ensure transparent opt-in/opt-out policies to give customers control over their data.

Future of IoT in the insurance industry

Here are some predictions for the future of IoT in insurance based on the current IoT trends . The new advancements in IoT in insurance will be intertwined with an extended use of AI and ML .

• AI & predictive analytics for risk prevention

As AI models become more sophisticated and IoT adoption grows, insurers will move from reactive claims processing to proactive risk mitigation. Advanced AI will detect potential failures or accidents and recommend real-time preventive actions. For example, auto insurers will predict maintenance needs before breakdowns occur, and home insurers will issue alerts for preemptive repairs based on sensor data trends. It is safe to say that AI and IoT projects are the future of insurance.

• 5G & edge computing for faster processing

With 5G expanding and IoT adoption increasing, insurers need faster, more reliable data processing. Edge computing will allow IoT devices to process data locally, reducing latency and improving response times.

• Hyper-personalized policies

While usage-based auto insurance and wearable-driven health policies already exist, future personalization will go beyond discounts to real-time policy adjustments. For example, home insurance could dynamically lower premiums when IoT sensors confirm security systems are active, or travel insurance could auto-adjust coverage based on real-time trip changes.

• IoT-driven climate & disaster insurance

As climate risks rise, insurers rely more on parametric insurance, where weather sensors and satellite data automatically trigger payouts for disasters like hurricanes or droughts, ensuring faster financial relief.

• IoT growth in emerging markets

As IoT devices become more affordable, insurers are expanding microinsurance in regions like Southeast Asia, Africa, and Latin America, where traditional insurance penetration is low. For example, in Kenya and India, IoT-powered weather sensors help farmers access parametric crop insurance, triggering instant payouts based on rainfall and temperature data. Similarly, mobile-based health microinsurance is growing in Bangladesh and Nigeria, using wearable data to offer affordable coverage.

Conclusion: Embracing IoT for smarter insurance

IoT is at the forefront of the insurance industry's digital transformation. It is useful for all types of insurance and completely changes how claims are processed, and premiums are calculated. It also enhances customer satisfaction because it is convenient and capable of helping customers prevent accidents from happening.

Adopting insurance IoT solutions brings massive opportunities to the insurer because it reduces costs and improves efficiency. Yet, adopting it has many challenges: data quality and privacy concerns mixed with an unclear ROI. Partnering with a qualified IT team can help you navigate these challenges.

At Binariks , we offer IoT development services .

We can:

• Build scalable IoT infrastructure for seamless device connectivity and data processing.
• Enable real-time data analytics with AI-driven insights for risk assessment and claims automation.
• Ensure secure data transmission with encryption and compliance (GDPR, HIPAA).
• Integrate IoT platforms with insurance systems for automated workflows.
• Optimize IoT adoption with cost-effective planning and long-term scalability.
• Develop cloud-based IoT ecosystems using AWS , Azure, and Google Cloud .
• Implement predictive analytics to detect fraud and prevent risks before they occur.
• Automate claims processing by integrating IoT data with AI-powered decision-making.
• Provide IoT consulting to help insurers adopt and scale connected solutions.