Is your business ready for the Internet of Things?
First coined in the early years of the current century, the term Internet of Things (IoT) refers to an emerging ecosystem of real-world devices connected to the internet. The IoT effectively extends the by-now-familiar connectedness of the online world into the everyday physical world that surrounds us.
Internet-connected phones have been commonplace for some time, but they have since been joined by web-enabled TVs, cars, fridges and freezers, home heating and security systems, by wireless audio equipment that comes preloaded with ‘virtual assistants’ like Alexa, and by a host of other ‘smart’ devices. The IoT is already collecting a vast amount of data and uploading it for cloud storage.
All of this connectedness creates exciting new possibilities; but it also raises concerns. Some worry about IoT devices being vulnerable to hacking. Others that the premature obsolescence caused by manufacturers dropping support for connected devices could blur the line between purchase and rental – to the benefit of market-dominant corporations and the corresponding detriment of users – and fuel an ecologically destructive culture of throwaway consumerism.
Such concerns aside, there’s no doubt the IoT offers a compelling set of user benefits, focused primarily on extended control and convenience. There’s no doubt, either, that a rapidly expanding universe of connected devices will produce a veritable tsunami of data – data with potentially transformative implications for the insurance industry.
It has been estimated that there were around one billion IoT devices worldwide by the start of this decade – a figure expected to increase to around 30 billion by 2030, with five billion in China alone. Other estimates go further, predicting 40 billion devices as soon as 2025. The majority (roughly 60%) of these connected devices are currently – and are likely to remain – in the consumer space. But the IoT is also making significant inroads within the industrial, commercial, professional and public service sectors.
Beyond the consumer context, there are already tens of millions of connected IoT devices worldwide across sectors including power generation and utilities, retail, transport and logistics, construction, financial services and government. This figure could well increase to more than 15 billion by 2030. Society-wide applications like a ‘smart grid’ and a growing population of self-driving vehicles will only increase the ubiquity of the Internet of Things.
The insurance sector’s engagement with the world of IoT can be seen as beginning with motor insurance, where the use of telematics has become well established over the past decade. Data obtained either via dedicated we-enabled ‘black boxes’ or increasingly via mobile phone apps enables insurers to price their products based on actual usage and behaviour – and also to gain insight into the circumstances surrounding any claims made.
Data gathered in this way also enables insurers to offer suggestions, advice or incentives aimed at encouraging safer driving habits – potentially reducing the incidence of claims. With the extension of the IoT into smart home, commercial and industrial environments, insurers can make use of data received to alert policyholders to potential claims events before they materialise – or at least before serious damage results.
Insurers can access customers’ IoT data in many different ways. Dedicated sensors can be used to gather and transmit data on everything from water, heating and environmental conditions to worker behaviour and safety via wearable devices – or even the operations of an entire smart industrial facility. There is a growing recognition in the P&C insurance sector that IoT technology is a low-cost, easily deployed way of gaining potentially invaluable insights into the operation of their customers’ businesses.
Insurers can also usefully draw on data accessed via third-party sources that interface with their underwriting and/or claims systems via APIs. This might include real-time climate, weather or seismic data, record checking and verification, and data on political or economic data that could have implications for the operations of insured entities. DOCOsoft’s API-based sanctions checking functionality is a good example of how this can work.
IoT data brings many potential benefits for insurers with the technology infrastructure to take advantage of it. Most obviously, it can enable underwriters to gain unprecedented insight into the current conditions affecting customers’ risk exposures – and help them anticipate how these could alter over time. This can help insurers price more accurately and/or competitively – and also creates scope for targeted real-time risk mitigation interventions.
Instead of relying on the traditional model of gathering information annually pre-renewal, insurers can potentially leverage IoT data to move towards a new more dynamic model based on continuous monitoring. This creates the possibility of a more proactive partnership between insurer and insured – involving rate adjustments and risk-management interactions in real time.
An expanding IoT ecosystem will also mean that underwriters have the data they need to design entirely new products, particularly in the area of usage-based insurance (UBI). Connected devices can help P&C insurers understand customer behaviour and operations at a granular level, allowing them to offer tailored policies in a way that was not previously possible.
In practical terms, IoT data could enable insurers to warn policyholders when abnormalities in temperature, power or water supply could trigger equipment failures that could prove expensive to repair – as well as indicating when maintenance or manual intervention might be required to prevent costly breakdowns.
The catch is that, to benefit from any of the possibilities opened up by the coming flood of potentially valuable IoT data, insurers need to have the technology, the connectivity and the analytical capabilities to channel and focus it into actionable insights. The minimum is cloud-connectivity and robust API capabilities. There is an avalanche of data on its way from the world of IoT – one that will quickly overwhelm legacy insurance systems, yielding little more than deafening white noise.
Insurers hoping to benefit from the IoT will need to be working state-of-the-art systems with the flexibility to accept and make sense of a multifarious profusion of IoT data sources. The challenge of separating meaningful and usable signals from unhelpful noise will forever remain a moving target. Nor is that the only challenge. There remains the vital necessity of relaying those nuggets of actionable insight to the right people within an organisation at the right time to profit from them.
Analyses of changes likely to flow from the rise of the IoT tend to focus on the underwriting side of insurers’ operations. But the benefits are at least as significant in the area of claims. We have touched already on the scope for claims reduction and proactive risk-mitigation created by a world of connected machines and devices. But IoT data can also help claims professionals identify, more rapidly and more certainly, whether and when a claim should or should not be paid.
Data from IoT sensors can alert claims people to the imminence or occurrence of an event that would trigger a claim payment. Properties located in the path of extreme weather-related events, major floods or wildfires provide an obvious example. We are already at the point where insurers have been able – for example, during the California wildfires of 2020 – to alert affected policyholders and even make interim claim payments before the flames reached affected properties.
More transparent automated processes can support more rapid resolution of claims, the shaping of individually personalised offerings, and the proactive provision of real-time risk updates and alerts. The connected world of the IoT can pre-empt or augment traditional routes to first notification of loss (FNOL) and provide claims teams with an unprecedented level of insight into the circumstances leading up to a claim event.
An IoT-driven shift from a backward-looking focus on past risk data to one geared to anticipating future developments could fundamentally reshape the relationship between insurer and insured. A proactive emphasis on mitigating or preventing claims altogether could help carriers redefine themselves as long-term partners who are able to help their customers monitor, mitigate and avoid risk.
Here at DOCOsoft, we continue to take a keen interest in developments in the field of IoT. We are committed to ensuring our clients have the systems, the connectivity, and the analytical capabilities to leverage the power of all this new data, without either being overwhelmed by it or outflanked by tech-led market entrants. Combining advanced AI, machine learning, and data science capabilities, our team is ready and able to help insurance carriers embrace this brave new world with confidence.