Insurance and the Internet of Things. What could go wrong?

Everything connected and yet nothing is connected.

Depending on the day of the week, one of three buzz words that seems to be filling every single column inch, new product or solution and latest press release. To me these are, Digital (Insert anything here), Big Data and the Internet of Things (IoT). It’s no surprise that it’s at the peak of Inflated Expectations in Gartner’s Hype Cycle.

In this post, I want to explore IoT a little further, specifically with the Insurance world in mind.

Like any self-respecting early adopter (technology geek/gadget magpie), I personally see the IoT as one of the game changing disruptors of today’s generation, regardless of industry. My kids won’t know a world without almost every conceivable thing being connected to the internet. Depending on which report you read, there will be anything from 100 to 500 sensors in every home and a market worth $7.1 Trillion by 2020 (IDC) compared to just $1.7 trillion in 2013, with over 4.9 billion connected Things by 2015 (Gartner). There are very few of the large technology giants who are not investing heavily in this sector, from all walks of life. This is not just a fad.

So what is the IoT?

It’s simply the ability to connect a network of physical objects that feature an IP address (directly or indirectly) to connect and interact with and can include device to device or device to human. Today you can connect lots of things to the internet, some you wold never expect. Some typical examples include:

• Homes and Commercial Buildings – Smart buildings with smart sensors and smart utilities, Security Systems, Environment monitoring, Smart Carpet,
• Automobiles and transport vehicles of any nature tracking when, how and where you drive, travel, driverless cars, Individual items/packages on a Cargo ship
• Livestock - Wi-Fi sheep – see here from the BBC on why sheep are being fitted with Wi-Fi Sensors
• Human Beings, for example the latest in wearables allow companies such asVitality Health Insurance to encourage and reward healthy behaviour, reducing your premium for the more active and healthy you are.
• Smart Cities – where everything is truly connected. Libelium have 50 great examples here. Have you walked down Regent Street in London recently? It’s an interesting experience. We live in a truly great context aware world.

As Ben Evans said in his great piece on 'Mobile is Eating the World' 'Sensors profoundly change what a computer can know'.

Perhaps an easier question to ask is ‘What can you NOT connect to the internet’ these days? I honestly think this is a rapidly diminishing list. Just looking back 12 months or so to the Top 25 weird things to connect to the internet, all of a sudden they don’t seem so weird, what will happen in the next 12 months? For fans of contactless payment cards, how do you feel when you can’t use it as a retailer hasn’t yet adopted it yet. Inconvenienced? These are the sorts of simple things that give me time back and are simple and convenient.

Ultimately, it’s all about automated data collection from the source itself. As an Insurer, this is of course imperative to our success. It’s what drives our very industry, right from the very first research, through to quote, bind and every event thereafter that drives our risk, pricing and actuarial teams. Getting this and monitoring this directly from its source has huge potential in today’s traditional insurance business model.

Another example of positive uses of data is from Uber, in which their data is nowsupporting city planners with urban transport. As insurers, we could use the same to avoid accident black spots, congestion and much more. Traffic systems would be linked directly to the flow, density, type and vehicles themselves. Basic data such as time of day, postal code or gender is simply not enough anymore. IoT Connected services can change all of this.

Opportunities
The cost of connecting Things today has becoming almost insignificant, and importantly the desire for things that are not connected is diminishing at a greater pace. 10 years ago, you would get in a car and nine times out of 10 see how the driving experience was. The first thing people do today is check the ‘infotainment’, how your smart phone can connect, what you can control via an app. It’s not just cars, I recently moved house and when looking at new house alarms, a key consideration was what can I control and monitor via my phone or an App. Manufacturers are quick to jump on the bandwagon. Have a look at ADT Pulse(unfortunately not yet available in the UK!, but many others are).

It seems there are lots of options, but they are still working on old fashioned business models. When will Alarm monitoring be undertaken by your crowdsourced/handpicked local community as opposed to the centralised service centre who then call the police or other emergency? With IoT, who needs or what role will the middle men have? The FNOL or Claim process becomes automated (we have talked about this for years). Equally the level of fraud can be dramatically reduced. Everything you can interact with or monitor, you can now predict better than ever.

For the Insurer, how does affect – negatively or positively the carrier, agent or broker. From the infographic below, have a look – what of these ‘things’ did you expect to connect or monitor.

Source: http://www.libelium.com/

As the local city administration, can you reduce accidents or claims from understanding smart roads, pot holes damage and more? Reduce health costs by understand pollution?

Where we as Insurers typically struggle is that customer rarely pro-actively want to speak to their insurers companies. In the new economy we have the opportunity to be connected all the time to each other. This brings a vast number of possibilities and new potential business models to us, based on this new wealth, quality and source of data.

Insurers now have the ability to know in advance of an event, ultimately improving their customers and potential customers experience, security and wellbeing, based on what we know and offering the appropriate cover to maintain peace of mind.

With everything connected, what could go wrong?

However, this has to come with a health warning too. For me, three of the key things to consider here as insurance organisation are –

1. You are now really competing on data, nothing more. We never produced any products anyway, now it’s even more transparent. 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. As an example, every minute, OCTO stores over 118.000 data points from drivers around the world every minute. How will you differentiate and stand out from the crowd? I wrote recently here on how Brand will be critical. Ownership of the data will also be key. BMWrecently announced that they would not share any of their connected car data. They do however have a significant partnership with a large global insurer already.
2. Another key risk is from Cyber Security. There are already stories of UBI car devices potential being hacked. What happens if your driverless car gets hacked and then crashes causing serious damage or worse, a fatality. Who will carry the risk?
3. Understand how this will and can drive New Business Models, based on customer demand. Ray Wang recently mentioned that we are now supporting mass personalisation for a market segment of 1. What can you now insure that you never could previously for individuals and organisations? New business models doesn’t mean we have to go alone either. New partnerships will drive innovation and importantly, convenience for the end user. Be careful not to miss out early e.g. British Gas with Hive or nPower with Nest. Ignore the connected device, we just lost the output data to another party.

For once, the insurance industry could be as quick as everyone else to adopt, or ahead of it. We are on the forefront of data enrichment and much more. We can better price, engage and interact with our customers and prospects as a result of this. We can interact with each and every stage of the insurance life cycle, we can join and automate the dots faster and better than ever before.

It’s an exciting time, and while it may be a while before the legacy oil tanker turns, we had better be ready and at the wheel if we are to own or orchestrate the opportunity.