The GPS in your car. The Pokémon Go app on your smartphone. The heartrate monitor on your FitBit. These are all common examples of how the Internet of Things affects our daily lives.
But what about a prescription bottle that reminds you to take your medication on time (GlowCaps)? Or a thermostat that uses sensors monitoring activity and weather forecasts to optimise your home heating (Nest)? Or a street lighting system that provides different levels of lighting based on the time, season and weather conditions (Echelon). These are also a result of the Internet of Things. But what exactly is the Internet of Things (IoT)? And how does it affect the insurance industry?
The IoT represents the breakdown of the divide between the physical and the virtual world, where everyday objects are connected to a global network, producing and communicating data to each other and the world.
There are already more than double the amount of IoT devices in the world than people, and a recent Accenture report predicted that by 2030 there will be 100 billion connected things. It also found that 80% of insurers believe the IoT will radically change the nature of risks covered.
Insurance companies have begun to harness the power of this data in various ways:
- Car insurance carriers are utilising “telematics”: sensor technologies which analyse data on drivers’ habits, from their speed and braking patterns, to the distances driven and times of use, to calculate ‘usage-based insurance’. The lower the drivers’ risk, the lower their premium, leading to premium growth, improved loss ratios and better margins.
- Health and life insurance carriers, for example Qantas Assure, are offering rewards for policyholders who meet exercise and other health targets measured through fitness trackers.
- Property insurance companies are using drones to assess damage immediately after incidents occur, making assessors’ jobs safer and more efficient.
So what’s next for insurers?
As the number and types of devices connected to the IoT continue to expand, the potential uses for the insurance industry are virtually endless, for example:
- Just as the car and the self are already being connected directly to insurance providers, soon the home could be too, with environmental sensors constantly monitoring for break-ins, fires, toxic fumes, leaks and other hazardous conditions, and feeding this data back to homeowners’ insurance providers, who could adjust their risk accordingly.
- Workers compensation carriers could use GPS and biometric data to monitor the compliance of people claiming under disability policies to their rehabilitation regimes. Improved compliance would shorten their time off work, leading to lower claims costs.
Challenges posed by the IoT
However, these benefits do not come without costs. As the above example illustrates, the more the IoT permeates our daily lives, the more privacy and security challenges it presents. Steve Raynor, Executive General Manager of Transformations at QBE, has noted that
as we become more and more reliant on our networked devices, including household appliances, homes and cars, the extent to which devices are connected becomes a risk in itself.
The risk of cyber fraud is heightened because many connected things use simple computers with limited security functions, making them particularly vulnerable to hackers. Combined with the potentially sensitive nature of IoT data in the future, this remains a risk insurers will need to manage.
As the IoT continues to disrupt the industry, insurers will need to become ‘Insurers of Things’, staying ahead of smart technology to take advantage of the opportunities it offers, while responding to the new challenges it poses.