IoT – Insurance of Things?

The Internet of Things market is big…$1.7T big by 2020 according to the research firm IDC. Asia accounts for over 50% of the IoT market today and with Singapore at the bleeding edge of Smart City initiatives, the incredible strides in connectivity is fuelled by declining hardware costs and increased processing capabilities combined with quantum leaps in software development and data management thanks in part to the rising adoption of open source development. No traditional industry remains uninterrupted and the Insurance industry is certainly no different. As Smart Data offers the opportunity to identify, mitigate and insure against specific risk pools the question remains: how will the industry adapt?

SAE's formidable attempt to map IoTConsumers are increasingly willing to trade their data and to a certain extent their privacy for convenience, better customer service and a better customer experience. We all want products and services that are smart, simple and usage based and we expect the companies that want our business to provide to understand and provide us with value-add services that make our lives better. Technology is changing our world exponentially and every day we create so much data that according to IBM, 90% of the data today was created in the last 24 months. The Internet of Things that was until recently nothing more than a speck on the horizon is now making its way into federal budgets and community development plans.

As a millennial I am thrilled; I can’t wait for the day that my Fitbit alarm brews my morning coffee, my calendar invite orders my Uber and my Smart Fridge orders my weekly shopping list from my favourite online grocer.

As our world connects and the sharing economy allows us to move towards a consumption based usage model, a myriad of changes that will completely transform our risk exposures and our ability to price and manage that risk, arise.

As CES 2016 has brought with it a parade of endless technological advances in Artificial Intelligence, Robotics and connected devices, the pieces of the IOT digital puzzle are slowly connecting. IOT has dramatic implications across many facets of our life and will cause us to re-imagine how we interact with the digital ecosystem around us. As we gain the ability to outsource the management of our environments through an increased understanding and interpretation of the connecting data points, so does our understanding of our unique risk exposure. IOT will empower consumers to understand and manage these risks in real-time and as such if the Insurance industry is to stay relevant it must cement its position in the supply chain with just in time, context relevant solutions.

At a recent conference on Big Data & Analytics in Insurance organised by Asian Insurance Review the question was raised: as Big Data increasingly allows us to understand our risk and mitigate our exposure, will the data pools shrink the risk pools? As a consumer of insurance, as I gain increased visibility on my individual risk profiles, I will become increasingly focused on ways to mitigate my risks rather than just insure against the rainy day. Obviously I will be less willing to insure against the risks that I can manage effectively and as insurance companies become unwilling to insure me against the risks that cannot be managed the size of the insurable risk market appears to shrink. For the last two centuries, Insurance companies have monopolized the risk management and risk pricing market by using Big Data to make assumptions about my individual risk profile based on the aggregation of my peers risk profiles. However, as yesterday’s Big Data became today’s Smart Data and tomorrow’s Actionable Data, the billions of dollars of InsurTech investment that have flooded the market in the last 24 months are all betting on one thing: Insurance as we know it is a dead man walking. However, before Occupy Wall Street gets too excited, let us dig a little deeper.

Insurance of Things: for the consumer

My connected car will give me real-time information on my driving habits (and those of my family) as well as ensure that I am forewarned of any impending maintenance issues. My tire pressure, fuel and fluids levels will be monitored and advice the closes station for servicing. I will be able to plan trips around lower risk routes and travel at lower risk times. I will be able to monitor in real-time the location of my family and loved ones and telematics will give me detailed information on our driving habits with suggestions for improvements and rewards for good behaviour. Gartner predict a quarter of a billion internet connected vehicles by 2020 and self-driving vehicles open up new possibilities in terms of on-demand shared ownership, but that’s another blogpost.

My connected home will allow me to monitor energy use and switch between more energy efficient sources i.e. Solar when available and natural gas when not, it will alert me of any malfunction in my connected white-goods devices automatically switching off dangerous gas leaks or damaging water leaks. I will be able to monitor my home security, remotely locking windows, doors and contacting emergency services in the event of a security breach. Maintenance of my devices will be monitored and records of ownerships will transparent and traceable through smart contracts and distributed ledgers.

My connected self will provide transparency on the condition of my health and wellness allowing me to make smart decisions with real-time information through the use of wearable fitness trackers, smart lenses and even nanobots providing accurate health data. The early warnings of heart attacks and strokes will dramatically increase my chance of survival empowering me to understand warning signs early and connecting me with the relevant medical help. I will be able to map and track my health profile and provide this data to my family, my doctors, my employers and yes…my insurance companies.

The collection and timely interpretation of data introduces a broader idea of consumers taking up insurance not just as a safety net for when things go wrong, but as a prevention service. Ensuring that the worst doesn’t happen.

Insurance of Things: for the insurer

Startups and innovation labs throughout the industry are already working to use these new sources of data to produce products, but what about the data itself? Now in case you thought that unless your name was Ashley Madison cyber risk was something that didn’t need to keep you up at night, unfortunately I have bad news: the new risk is Cyber. As IoT unbundles insurance into usage based components and flexible insurance policies written on new sources of data that reward virtuous decisions (driving at less risky times, increasing steps walked, keeping doors locked and appliances maintained) so does a convergence of cyber and P&C and Life as the risk of physical or personal damage to assets increasing comes from a cyber hack.

The opportunity to completely re-imagine risk has emerged. Imagine the impact of medical records being hacked (and your blood-type data changed) or lost; the threat of a hacker opening your garage door and stealing your autonomous car. Imagine the impact of a smart power grid being hacked and the incredible implications on the connected ecosystem. OK I’ll stop my doomsday report here but my point is this: the opportunity for the Insurance market to use the power of ubiquitous data to focus on providing cyber risk mitigation and emerge with commercial standards for risk assessments and Smart Data collaboration to increase safety, deliver improvement in customer service and experience and create new and relevant insurance products, is nothing short of enormous.

Whether it is the Insurance companies, the Re-Insurance companies, the InsurTech startups, the Tech giants or a collaboration of all which crack the Insurance of Things opportunity remains to be seen.

Nick Macey

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Nick Macey (LinkedIn : Twitter) is a Technology Consultant for Leo Tech.

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