As the Internet of things (IoT) takes hold and the ability to measure just about everything takes shape, it’s becoming clear—sometimes painfully so—that pricing models are changing dramatically. We’ve already witnessed the shift to subscription-based pricing for software.
Now, a growing number of once pricey IT products and services—from hardware to bandwidth—have been reduced to commodities. Think Amazon Web Services (AWS), Google Cloud, Microsoft Azure, Rackspace and others.
In addition, in the industrial space, we’re seeing everything from jet engines to hospital equipment charged by engine cycles or precise usage models.
Meanwhile, insurance companies such as Metromile and Esurance (a division of Allstate) are introducing connected telematics devices to track mileage and charge for insurance accordingly. For many individuals, particularly those who don’t log a lot of mileage, this approach can save hundreds of dollars a year. The concept encompasses several variations, including Pay-As-You-Drive, Pay-How-You-Drive, Pay-As-You-Go and Distance-Based Insurance.
Although usage-based insurance is still in the nascent stages, BI Intelligence reports that usage-based insurance (UBI) will affect 17 million people by the end of 2016 and 50 million by 2020. It’s only a matter of time before we hit the tipping point.
When this happens, traditional insurance companies will have no recourse but to follow suit. Can you say “M-a-s-s-i-v-e D-i-s-r-u-p-t-i-o-n”?
But all of this pales in comparison to the digital freight train that’s about to hit the health care industry. Accenture reported that a growing number of companies are building IoT devices that stream health and fitness data to doctors and other health practitioners. For now, this involves relatively benign and fun things like Fitbits and Apple Watches. But, again, we’re early in the adoption curve.
Once the tipping point occurs, everything from treatment modalities to insurance will change radically. Individuals most likely won’t pay group rates. Instead, they will pay based on their specific health indicators, including body mass index, blood sugar, blood pressure, cardiovascular health, exercise level, eating habits and a whole lot more.
While some boundaries will surely exist based on privacy, expect this space to become another wild frontier of disruption.
What’s more, granular health insurance pricing might motivate more people to engage in healthier lifestyles. By now, it should be apparent that the only thing that motivates a lot of people is their pocketbook.
Over the next decade, expect business, life and technology to change radically, as the IoT connects dots that were once invisible and introduces pricing models that were once impossible.