April 2017 may well go down as the pivot point when the Internet of Things (IoT) went from theory to reality. Some insurers (and InsurTech startups) are building models and working prototypes, but there are some serious gaps including resource allocation and governance. Where are you on the IoT journey?
We have a map to the treasure…
Last April, in a blog focusing on the impact of technology on insurance, I quoted Paul Belanger and Cheryl Satin from Blake Cassels & Graydon LLP who noted that specialty lines products were among the fastest growing types of P&C insurance coverage.
Belanger and Satin indicated that traditional insurers and niche-insurers could take advantage of this trend. However, the authors warned that “These coverages require deep industry, customer and product-specific knowledge and analytics based on demographic and financial trends.”
The authors said that insurers are “offering usage-based insurance (UBI) policies to underwrite risk in a more granular way and technology is making it possible to offer a wider range of insurance choices based on risk allocation and risk reduction models — all at significant savings.”
Belanger and Satin provided a specific call to arms: “Insurers will need to be strategic in assessing behaviours, risks, coverage options and standards and in structuring their businesses to leverage IoT (Internet of Things) data to improve operations, service and the overall customer experience.
Meanwhile, advisers are building a road…
In the same month, Matteo Carbone, announced in a post on LinkedIn that he was leaving his role at Bain & Company to create a position as director and founder of the Connected Insurance Observatory, which would allow him to focus his advisory role on his passion: connected insurance. He wrote:
I consider the use of sensors for collecting data on the state of an insurable risk and the use of telematics for remote management of the data collected to be a new insurance paradigm. For years, many of the use cases we have seen globally have only somewhat used the potential of this technology to support an insurer and achieve his or her strategic goals.
Matteo and others are pushing theory to reality for IoT.
But we need standards and traffic control….
There are three areas:
Cyberrisk – This is an exposure that is fundamental The IoT exposes itself in many dimensions and requires consistence. I posted on a brief history of cyberrisk up to present.
For most businesses, Cyberrisk will require a combination of external expertise and internal understanding of critical elements that will be exposed. The next areas are the domain of latter.
Standards – The IoT continues to change with the demands of multimedia, data controls, testing protocols, etc. At the same time, there are demands for delivery of functionality. Business partners and management must be aware of and actively involved in delivery of standards an protocols.
Governance – I recently had the opportunity of participating in a session at the Canadian Insurance of Actuaries annual meeting on Cyberrisks. I came across a Ponemon Institute Research report that analyzed risks of third parties implementing IoT within corporations and surveyed key participants.
There were three conclusions:
First, there needs to be a recognition that the IoT has arrived and needs to be recognized;
Second, there are serious weaknesses is in governance and chains of command and control;
Third, there needs to be a multi-layered response to IoT security and control.
The top recommendation was: “Ensure inclusion of third-party and IoT risks occurs at all governance levels including the Board.” (emphasis supplied).
What is the issue and the objective?
There are a number of innovations on the ready list or are in production. However, the interconnection of the functionalities using robust, common standards – including security protocols – is critical to achieving success in the Internet of Insurance Innovation.
I’d be interested in your comments