Top 6 Insurance IoT Use Cases in 2025

The rapid growth of IoT is transforming the insurance industry by enabling continuous monitoring, which could prevent risks and reduce the need for traditional insurance.¹ However, it also introduces challenges like cyber threats, making cyber risk insurance a potential focus. Since insurance relies heavily on data, IoT’s ability to increase data availability offers efficiency benefits.

Explore 6 key areas where IoT will impact the insurance sector, helping executives prepare for the future:

1. Better knowledge of customers behavior

IoT improves underwriting and risk assessment processes.

Take the case of car insurance. Insurers are used to evaluate statistics such as age, gender, mileage, and car model to determine the premium. However, thanks to the IoT, it is now possible to review statistics such as driving speed, driving time, number of full brakes per kilometer, drivers’ classic routes (highway vs. crowded narrow city streets), and drivers’ engagement with their cell phones.

Undoubtedly, such information about the customer provides insurance companies with a more effective risk assessment and underwriting experience.

Figure 1. New data sources for car insurers 

Source: Deloitte²

2. Efficient claim processing

Claims processing is one of the most important operations in the insurance sector, impacting both customer satisfaction and insurance company profitability. The Coalition Against Insurance Fraud reports that fraudulent claims cost approximately $309 billion per year.³ On the customer satisfaction side, insurance customers expect quick responses.⁴ IoT improves both processes thanks to instant communication between devices.

Let’s look again at the case of car insurance to illustrate the positive impact of the IoT on claims processing. In the past, when a car accident occurred, the policyholder had to call the insurance company to fill out the first notice of loss (FNOL).

Depending on the extent of the accident, this process took some time. For example, the policyholder could pass out and not inform the insurance company quickly. The more delayed claims, the higher the probability of fraudulent claims as well as unsatisfied customers.

Today, claims processing is different. When airbags deploy, telemetry automatically alerts the insurance company. This speeds up the first notice of loss (FNOL) process, resulting in greater customer satisfaction and less fraud.

3. Customized insurance practices

More data about customers means better risk assessment. As a result, insurance companies no longer need to divide people into risk categories to hedge their operational risks. For this reason, special customer insurance policies, known as pay-as-you-go (PAYG) policies, are being added to the menu of insurance companies.

PAYG premiums are calculated depending on the use of the insured items. For example, the more often you park your car, the less you pay for its insurance.

4. Loss of business

The interconnectedness of smart devices and their rapid proliferation are eliminating some risks that have been insured for centuries due to the risk-averse nature of humans. This phenomenon could potentially threaten the future of the traditional insurance sector.

For example, we tend to insure our houses in the event of a fire. However, thanks to smart homes, telematics can detect a gas leak and shut off the gas flow before a fire occurs. Similarly, a smart factory can monitor the performance of working machines and prevent loss before a disaster occurs, reducing the need for business insurance.

Thanks to the IoT, many risks can be identified and eliminated before they cause damage. Every insurance company naturally sets a price that supports making a profit. Still, the new, relatively risk-free world may mean that insurance companies do not add margin to the price of risk, forcing at least some of them to exit the market.

5. New insurance areas

It is true that the rapid increase in the number of connected smart devices is reducing some of the risks we used to face. However, it also introduces a systematic risk that can be insured against. The more people depend on smart devices, the more vulnerable they are to cyberattacks. Insuring against cyber risk would be the future of the insurance sector.

You can read our Top Cybersecurity Best Practices for Corporations article to improve your cybersecurity posture.

6. Greater risk of data privacy and security issues

A massive flow of data implies more information about customers’ personal lives. Consequently, the risk of data leaks, hacker attacks, and simply being persuaded to share data with insurance companies increases.

Privacy

While telematics captures data that helps insurance companies assess risk, it also likely captures other information that could be useful to companies in other industries or completely private to the customer. In such cases, data misuse can occur. The customer can become the target of personalized sales efforts that inevitably exploit their privacy and threaten everyone’s quality of life if the problem remains unresolved.

Security

The massive data collection thanks to the IoT also makes cyberattacks more likely because the return of hacking is greater. Consequently, ensuring data security will be both costly and an important issue for insurance companies. 

It is important to know that many insurance companies outsource their IT services through cloud computing services, which reduces their IT expenses and their control over data and data security.

Especially with public clouds, data security is not adequately protected. As a result, the lower short-term cost of clouds that comes from not having to develop hardware can cost insurance companies more in the long run.

Convincing Customers

Ensuring data security is one thing; convincing customers is another. We live in a world of perceptions, and the truth is not always important or understandable. 47% of drivers believe they would not want to share their driving data under any circumstances, while 27% would consider sharing data in exchange for a discount. Additionally, 9% of respondents expect a discount of more than 20%.⁵

Still, the next generations may have a different attitude toward data sharing. It is clear that it is a challenge for insurance companies to convince customers.

Figure 2. Percentage of those who would allow driving to be tracked via smart devices

Source: Deloitte⁶

Benefits of IoT in the insurance sector

According to estimations of 2025, the insurance industry embodies IoT opportunities potential across nine key sectors.

Figure 3. Economic potential across nine key sectors

Source: McKinsey⁷

Here are some key benefits of IoT in the insurance sector:

1. Increased efficiency and resource optimization

• IoT enables insurers to streamline operations by leveraging real-time data, reducing administrative burdens, and improving claims processing.
• Sensor-driven decision analytics help optimize resource allocation and reduce operational costs.

2. Enhanced risk prevention and loss mitigation

• IoT-triggered maintenance mechanisms, such as predictive alerts for industrial equipment, help prevent costly failures.
• Smart water valves automatically shut off leaks to prevent extensive water damage, while IoT smoke detectors provide instant fire alerts.
• Motion sensors notify homeowners and businesses of unauthorized entry, enabling quick intervention and reducing theft risks.

3. Improved safety and faster emergency response

• IoT extends safety standards by enabling real-time emergency responses. For instance, automatic dispatch of ambulance services can be triggered immediately after an accident.
• Insurers can use connected health devices and wearables to monitor policyholders’ well-being and provide proactive interventions.

Read 40 IoT Applications & Use Cases with Real-Life Examples, for information on IoT applications used in insurance and other industries.

Further readings

You can check our other articles on the use of digital technologies in the insurance sector:

• Insurance Practices that can be Improved with NLP
• Blockchain technology is used in the insurance sector in core areas such as claims processing, fraud detection and underwriting.
• Top Digital Transformation Applications in Insurance

To find innovative insurtech companies, you can read our Top 7 Innovative Insurtech Companies article.

External Links

• 1. Disruption in the insurance industry. IBM. Accessed: January/30/2025.
• 2. Opting in: Using IoT connectivity to drive differentiation. Deloitte. Accessed: January/30/2025.
• 3. Fraud Stats - InsuranceFraud.org . InsuranceFraud.org
• 4. Digitalization in insurance. Deloitte. Accessed: January/30/2025.
• 5. Opting in: Using IoT connectivity to drive differentiation. Deloitte. Accessed: January/30/2025.
• 6. Opting in: Using IoT connectivity to drive differentiation. Deloitte. Accessed: January/30/2025.
• 7. Tackling the IoT opportunity for commercial lines insurance. McKinsey. Accessed: January/30/2025.