The Internet of Things (IoT) has gone beyond a passive monitor of activities to become an intelligent nervous system for the world of devices and people. As a result IoT could be the largest opportunity for improving the business of insurance.
Last year, Aviva Canada introduced the “Home Protect Bundle” which included coverage that provided credits to install approved sensing and alarm devices to prevent recurring damages (e.g., sewer backup). Other organizations – such as The Guarantee – introduced similar programs for high value homeowner products.
Good stuff, But a new entrant is adding IoT to the mix.
What happens when IoT gets more intelligent?
Roost is a Silicon Valley company which produces a platform for homes which detects fires, carbon monoxide, water leakage, etc. and notifies the homeowners and others. Last week, Roost announced a partnership with WillisTowersWatson to establish an independent Home Telematics Consortium with a to-be-determined set of US insurance partners, which will test the value of ‘Home Telematics’ for the insurers and the homeowners in this IoT environment
Roost will be supplying 10,000 Home Protection Kits and will anonymize and aggregate data for analysis. The results will be used to measure mitigation of water and fire perils, test consumer engagement, and establish best practices for home telematics deployment.
So, what will be the impact?
Not determined yet, but let’s look to the commercial lines side for a hint.
Rooney Gleason is president of U.S. Grocery and Retail for Argo Group, an international specialty insurance and reinsurance underwriter. Writing for PropertyCasualty360.com, Gleason contends:
Insurers are applying a host of different IoT-related technologies to reduce the number of claims their clients face. Sensors are simultaneously growing more complex in their application, far less expensive, and more easily adaptable to everything from machine vibration to the working height of a construction worker.
However, Gleason also notes that the outcomes are less attractive than they could be as the insurers tend to focus on premium discounting rather than risk mitigation.
Money math and the IoT…
Gleason’s example goes like this: A retail insured retains $3 million for slip and fall claims. The premium is $300,000 for claims adjusting and excess coverage for a catastrophic claim.
Let’s say the client does some shopping and pressures the insurer to drop the premium by 20% to $240,000. That’s a $60,000 saving. Pretty good, yes?
Well, not really, according to Gleason. Assuming there will still be $3 million in claims, the “savings” drop from 20% to 1.8% overall.
Gleason contends that use of IoT can bring value by focusing on claims mitigation. He writes:
If a company’s broker can embed a proven IoT loss-reduction solution in a policy, then even if the insurance premium costs more, the insured company may realize significant and permanent reductions in its total cost of risk.
Gleason says this is possible because sensors in the IoT are “simultaneously growing more complex in their application, far less expensive, and more easily adaptable to everything from machine vibration to the working height of a construction worker.”
This is a win-win-win scenario. With sensors tied into analytics tools, causes for slip and fall can be detected and the risk mitigated. Lower risk can improve employee morale as well as reducing down time. And the overall cost of risk drops.
And the IoT starts to look like a Risk Manager.
What does all this mean?
The IoT, like all of the digital innovations, are just technology. The benefits come from creative use cases, driven by open-minded insurance and technology professionals and supported by forward thinking insurance executives.
Until, of course, the IoT starts thinking for itself.
Editor’s Note: A number of faculty members at the 2017 Insurance-Canada Executive Forum (ICEF2017) will be focusing on the Internet of Things and new versions of Telematics.