Pakistan has an insurance problem. Too few people are insured, premiums are high relative to perceived value, claims remain contentious and insurers frequently price risk using broad assumptions rather than the behaviour of the individual customer. Technology can change this.

The Internet of Things (IoT) — small connected devices capable of continuously collecting and transmitting data — could fundamentally alter how insurance is priced and sold in Pakistan.

Motor insurance provides the most obvious opportunity. Today, two customers driving similar cars will generally receive similar insurance pricing. Yet their risks may be completely different. One drives 10 kilometres a day, carefully and mostly during daylight. The other drives 100km, accelerates aggressively, brakes suddenly and regularly travels late at night.

Why should they pay the same premium? A small telematics device installed in the vehicle can record distance travelled, speed, acceleration, braking, location and driving hours. Add a dash camera and the insurer begins receiving something it has historically lacked: actual information about risk.

Internet of Things insurance devices can be used for assessing risk in vehicles, household appliances

Insurance can then move from pricing the vehicle to pricing the driver. This creates the possibility of usage-based insurance. Drive less and pay less. Drive safely and receive a lower premium. A customer who uses his second car only on weekends should not necessarily pay the same premium as somebody driving daily.

We can go further. Pakistan could introduce point-to-point insurance. A customer travelling from Karachi to Hyderabad could purchase cover for that journey through an app. A motorcycle rider could buy insurance for a day. A ride-hailing driver could be insured only during the hours he is working.

Insurance becomes something consumed when required rather than an annual product purchased reluctantly.

Driver and passenger insurance can automatically activate when somebody enters the vehicle.

IoT can also transform claims. Consider an accident involving two vehicles. Today, the insurer may rely on statements from drivers, photographs and physical inspection. A telematics device could show the vehicle’s speed immediately before impact, braking behaviour and location. A dash camera could provide additional evidence.

This can reduce fraudulent claims and accelerate genuine ones. The same device could also create entirely new products. Driver and passenger insurance could automatically activate when somebody enters the vehicle. Commercial fleets could price insurance according to the performance of individual drivers. Parents could monitor young drivers. Financing companies could better understand how financed vehicles are being used.

The opportunity becomes even larger as Pakistan moves towards electric vehicles. EVs are computers on wheels. They generate information on battery performance, mileage, charging, location and vehicle health. With customer consent, this information can help insurers understand risk much better than traditional actuarial tables alone.

There is another interesting possibility: carbon credits. An electric motorcycle replacing a petrol motorcycle potentially reduces carbon emissions. But creating a credible carbon credit requires measurement and verification. IoT devices can provide data on distance travelled and energy consumed, creating an auditable digital trail.

Aggregate hundreds of thousands of electric motorcycles and Pakistan could potentially build platforms that measure avoided emissions and connect them to carbon markets.

Economics has become interesting. The same device installed for insurance could potentially support financing, fleet management, theft recovery, maintenance and carbon measurement. Instead of five companies installing five different devices, one piece of hardware could support multiple financial services.

IoT insurance does not stop with vehicles. Consider household appliances. A refrigerator, air conditioner, solar inverter or industrial machine can increasingly communicate information about its own performance. An insurer could offer extended warranty or breakdown cover based on actual usage rather than simply the age of the equipment.

A connected solar system could report generation and equipment failure. An industrial machine could indicate abnormal operating conditions before a breakdown occurs.

Insurance then moves from compensating losses to preventing them. That is potentially the biggest change. Historically, the insurer enters the relationship after something has gone wrong. IoT allows the insurer to intervene before the loss occurs.

But there are obvious risks. Who owns the data? Can an insurer continuously track a customer’s location? Can driving information be shared with another company? What happens when a device provides incorrect information and a claim is rejected?

Customers must own their data and explicitly consent to its use. Insurers will need clear rules governing privacy, cybersecurity, retention and third-party access. Algorithms used to determine premiums must also be transparent enough to be challenged.

Pakistan’s insurance industry has traditionally suffered from low penetration. Perhaps part of the problem is that we continue trying to sell yesterday’s insurance products to today’s digital consumer.

IoT gives us an opportunity to redesign the product. Instead of asking everybody to pay roughly the same premium and compensating them after a loss, insurers can measure individual risk, reward better behaviour and increasingly prevent losses.

The black box inside a car may appear to be a small device. For Pakistan’s insurance industry, it could represent a very big change.

The writer is the chairman of the Pakistan Fintech Network

Published in Dawn, The Business and Finance Weekly, October 19th, 2026