- Where Insurance & Technology Meet

Threats and Opportunities in a Totally Connected World

How does insurance work in a totally connected world? Would the available data and expanded mitigation opportunities decrease risk, potentially lowering premiums? Or would we see new risk opportunities with increased value and exposures associated with connectivity (cyber risk, critical failures)? Stick around, the next decade will be informative. And you can get a preview of 2025 this August 31st.

The road race toward total connectivity

Last week, we tapped into the thinking of Singularity University executive director, Dr. Peter Diamandis, and his prediction on changes in healthcare and its implications for insurance.  We had some interesting feedback, so we thought we’d try a second cut.

This week we will look at two more predictions from Dr. Diamandis:

  • 8 Billion Hyper-Connected People … We will grow from three to eight billion connected humans, adding five billion new consumers into the global economy.”
  • A Trillion-Sensor Economy …By 2025, the IoE (Internet of Everything) will exceed 100 billion connected devices, each with a dozen or more sensors collecting data”

At present, ubiquitous, reliable, high-speed connectivity is still pretty much a first world benefit.  But social organizations such as Facebook, Google, and network suppliers including Qualcomm and Virgin are planning on world-wide connectivity with speeds greater than one megabit per second.

As or more significantly, the Internet of Things (IoT, Like the IoE, but missing living beings) is expanding geometrically, with an explosion of sensor enabled devices, some of which are devoted to detecting and responding to a variety of risk scenarios.  And do so all over the world.

Show me the money …

We have learned that the adoption of standards reduces friction costs, increases value, changes process, behaviour and, in some cases, business models, and even culture. And ease of connectivity is the sine qua non of the IoT value proposition.

For example, Cisco projects that the IoT will drive changes in public sector development, with a global value of US$4.6 trillion (over half of their total projected IoT value):

“The $4.6 trillion in public sector Value at Stake will result from IoE’s ability to help public-sector organizations manage assets, optimize performance, and create new business models.”

While the majority of initial implementations are in the developed world, the developing world is not far behind, and is poised to overtake global growth. And this is where we see new growth opportunities.

The GSMA, a trade association representing mobile operators worldwide, reports that IoT mobile connections in the developing world  now number 128 million, or 52% of global total.  It estimates that this will rise “to nearly 60 percent or 575 million in another six years.”

Developing areas have an advantage; they do not have to support legacy technologies. According to Anne Bouverot, GSMA’s Director General, “In Africa sometimes you can leapfrog and go to the latest in innovation and technology at the same time. It is absolutely excellent.”

Adding value adds insurance opportunities and threats…

Increased value will add increased insurance opportunities domestically and worldwide. The most recent SwissRe SONAR report says the IoT will increase opportunities as “risks may increase in the digital world with people increasingly relying on data and digitally supported processes.”

At the same time, the report notes that cyber risk is an emerging claims exposure and governmental actions limiting access/use of data could reduce the value of the data collected.

(Outside the IoT scope, SwissRe also sees a trend towards “De-Globalization”, where some nations retreat from the world community and create protectionist – or terrorist – barriers to commerce.  We can’t comment except to say that this is antithetical to an old adage we like: “Information is born free, and always seeks to return to this state.”)

What next?

We’d like your input here, and at an important event in August.

Exploiting opportunities while minimizing threats will demand new skills and, possibly, organizational structures.  We will be exploring these topics at our annual Executive Forum, ICEF2015.

We hope to see you there.