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Insurance and The Internet of Things

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Last week, we penned some thoughts on trends in insurance and technology for 2014. These included items which have received attention in this space and elsewhere: Modern Admin Systems, Cloud Technology, and Telematics/Usage-Based Insurance. We added in one that is just climbing out of the geeky world and hitting the horizon of business: The Internet of Things (or IoT).

We believe that implementations of IoT will have far-reaching impact on the insurance world in a number of ways; some are technology-related, some business-related. We will be monitoring developments and will offer our comments periodically. Our purpose today is to introduce IoT and provide some thoughts on its reach. As we explore this new world, we value your contributions.

What is the Internet of Things?

The Internet is a network of networks, allowing users to access  resources such as data and applications on other networks.  IoT  broadens this by expanding ‘user’ and  ‘resources’ to include applications, devices, processes, etc.

There are lots of stand-alone applications which are forming the thin edge of the IoT wedge into insurance.  Telematics is an example.

Inside the modern automobile, telematics devices gather data from the vehicle’s components measuring mechanical performance, and from the driver measuring behaviours. These data are packaged and sent off to remote sources which process the data for human analysis (underwriting, e.g.), but can also interact with drivers, in the form of warnings about behaviour, or revised bill estimates for insurance in the event that the behaviour triggers  premium changes.

Quoted in LiveScience, SAP Research’s Stephan Haller defines the Internet of Things as “a world where physical objects are seamlessly integrated into the information network, and where the physical objects can become active participants in business processes.”

Gathering Clouds of a Sensor Storm

The IoT world is sensor driven.  These devices are getting smaller and more intelligent.  They can gather data, send and receive data, and make basic decisions on the data that they gather.

Taken together, groups of sensors, communicating amongst themselves, can begin to emulate human characteristics like understanding, extrapolation, and decision making based on their surroundings.  Autonomous (driverless) vehicles are one example.  Drones used for delivering Amazon packages are another.  IBM’s Watson beating humans at Jeopardy shows the capacity of technology to participate in an interactive environment.

What does this mean for the business of Insurance?

So, how will IoT impact the business world and the business of insurance?  Thomas Meyer, Insurance Lead for Accenture in Europe, Africa and Latin America, wrote on his blog about the opportunities in a world with a changing risk profile based on IoT Technology:

In the commercial and industrial space, the Internet of Things could be used by insurers to transform the way they approach the risk assessment and management of, say, utilities clients. Moreover, this data could be used to provide value-added services to customers—alerts about predicted equipment failure, say, or a plant’s capacity to accommodate extra load to take advantage of a spike in demand. This last service would be relevant to a power utility selling energy on the spot market, for example.

In addition to increasing underwriting knowledge, IoT driven services could be a new source of revenue for insurers that comes from managing risk rather than simply underwriting it.

What does this mean for Insurance Technology?

Most current insurance technology is based on processing well-defined data in relatively small amounts in order to provide users with actionable (by the user) output.  The IoT will challenge that paradigm.

First, data from a swarm of sensors will be big, very big, and not always well defined.  According to Sara Angeles, writing in BusinessNewsDaily,

The Internet of Things will be a data machine. This means that companies will have to rethink how they collect and analyze information — not only will decision-makers need to learn and adapt to a new form of data intelligence, but the amount and type of information produced by IoT will also introduce new or expanded roles for data analysts, strategists, and even customer service.

As sensors start appearing in a wide variety of devices, the Usage-Based Insurance model will encompass other insurance lines and systems will be tasked with supporting these.

What do you think?

We think that IoT will be disruptive and will drive fundamental changes.  We will follow its evolution in this space.

One thing will stay the same:  We value your thoughts.  Are you seeing the IoT providing opportunities, threats, or …?  Let us know in the space below.

 

One Comment

Wendy Watson

These thoughts have to be quite frightening to many brokerage principals. Many, if not most, brokerages have not begun to differentiate themselves based on servicing offerings so they acquire and lose customers based on the most common denominator – price. The development of the IoT world says brokerages better get on top of what sets them apart from their competitors or they will not survive. These are the best of times for those leading edge, out-of-the-box principals and the worst of time for those who are stuck in the past.

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