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IOT and Insurance – the Internet of Things

When British Technology Pioneer Kevin Ashton first uttered the words “internet of things”, he perhaps didn’t realise he was giving name to the next phase of the digital revolution.

Had he known, he might have had another go at it. But whatever he lacked in linguistic flair, he more than made up for in foresight, and his somewhat inelegant phrase has stuck.

In 1999 – when mobile phones were the preserve of a flashy few and loading a web page was often a task best completed either side of a tea break – Mr Ashton predicted a world in which sensors and computer networks would allow a constant capture and communication of data between everyday items, from cars to carpets.  It is a world in which, to some extent, we already live.

Chances are the phone in your pocket is (or at least is capable of) sharing data with any number of other electronic objects, from home entertainment systems to printers and building security devices.  But so far, we have only scratched the surface.

A recent report on the Internet of Things (IoT) from global insurer AIG says a decade ago there were about 500 million devices connected to the internet.  There are now 10-20 billion, and in five years the figure is predicted to reach 40-50 billion.

It seems the only limit to IoT connectivity is our imagination.

But it’s not all good news. Swiss Re’s latest Sonar report on emerging risks rate IoT as “higher-impact”.  Security is a particular concern.  The AIG report suggests hackers and cyber criminals are licking their lips in anticipation of the potential lucre heading their way. “Every object that connects with the internet is another entry point through which the cyber criminals can enter a business’ enterprise system,” it says.

Aon Client Manager and Cyber Risks Practice Leader Eric Lowenstein expects to be increasingly busy placing cyber insurance.  “We’ve seen some interesting stories recently,” he tells Insurance News. “A Jeep was remotely hacked into while someone was driving it. We’ve also seen how a security researcher managed to hack into the GPS system of rifle and change the firing direction, so absolutely from a cyber-security perspective it creates a huge risk.”

Swiss Re says IoT has “significant potential to challenge entire lines of insurance business.”

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IoT is already making an impact on motor insurance through in-vehicle telematics, whereby sensors record real-time data on speeds, braking pressures, fuel use, location and a host of other measurements.  The data can be viewed online by individuals or fleet owners, to inform future driving behaviour. And insurers can use it too.

“They’re using it to offer discounts for good behaviour, or charge [higher premiums] for bad driving,” Mr Lowenstein says.  In Australia, offerings such as the QBE-owned Insurance Box provide telematics-based policies for private motorists, while Zurich is among the pioneers in the commercial field, with its Fleet Intelligence product.

IoT will also take over our homes, Mr Lowenstein says.  “Everything from smoke alarms to air conditioning and automatic home security systems… You’re starting to see how this technology – and the use of smartphones with this technology – allows people to really inexpensively acquire and manage processes.

“If you think about the power of what that can do… in terms of an insurer being able to mitigate, control and understand what’s happening from a security and safety perspective, that obviously has some huge benefits.”  He gives the example of a smoke alarm that not only alerts the homeowner but calls the fire brigade and notifies the home and contents insurer.

In a recent blog post on IoT, Nigel Walsh, Vice-President and Head of UK Insurance at global consultant Capgemini, says people too are becoming connected.  “The latest in wearable [devices] allow companies such as Vitality Health Insurance [in the UK] to encourage and reward healthy behaviour, reducing your premium for the more active and healthy you are.”

Ultimately, the benefit to insurers equates to one thing: information.

Swiss Re says IoT will become “the true foundry” of Big Data.  “There will be many more ways to avoid losses, while risk assessment can be improved thanks to the availability of additional data,” Swiss Re’s Sonar report says. “This could make the physical world safer, reducing the need for risk management and risk transfer.” Handling the surge of IoT-generated data may prove the difference between success and failure for insurers.

As Swiss Re warns, the sharks are circling.  “If there’s no one driving the car, what insurance policy is responding? How do you insure a car that doesn’t have a driver?”
“Other players such as large technology companies may consider entering the insurance market to capitalise on their enormous amount of data.”

In his blog post, Mr Walsh says insurers are “now really competing on data, nothing more. We never produced any products anyway, now it’s even more transparent.”  He says insurers must “make sure you know your data, can process it efficiently and effectively, understand it and, most importantly, use it”.  “How we use this to enrich our world will be key. Don’t drown – the volume is about to explode.”

Swiss Re flags further threats from the flood of data.  “There may… be legal and compliance risks because new legislation and regulation on data use and privacy could come into force in many jurisdictions, witl1 the risk of little co-ordination and standardisation across countries.”

IoT also presents an existential threat to some insurance lines – threatening to eliminate or significantly reduce risk, or to shift liability.

In motoring, telematics is a start, but the great leap forward will be the driverless car.
Google’s version has hit the streets of America for tests – and has already been involved in its first bumps.  Nissan has announced plans to sell driverless cars by 2019 and Ford expects to sell its first by 2020.  In November Adelaide will host the first driverless car trials on Australian roads.

The insurance industry, not surprisingly, is watching developments closely.  In July Munich Re America announced a partnership with robotics company Comet to research autonomous vehicles, with the aim of understanding their risks and how to cover them.

Munich Re Senior Vice-President Strategic Innovation Leader Mike Scrudato says the transition to autonomous vehicles will add complexity to underwriting and liability.  As Mr Lowenstein notes: “If there’s no one driving the car, what insurance policy is responding? How do you insure a car that doesn’t have a driver?”

AIG suggests liability will become a point of debate as the lines become blurred “on who is responsible for what data”.  “An IoT heart monitor won’t just monitor a patient’s heart looking for warning signs of an impending heart attack,” its report says. “It might also access data from another object that tracks the patient’s fit­ ness routine, which in turn takes data from a device that monitors food intake.  “If the patient has a heart attack, who’s responsible?”