Another day and another technological revolution is gathering pace – The Internet of Things (IoT).
In this article we want to summarise how we interpret this technological development, explore how this will affect the insurance world and more importantly how it will benefit you, the customer. After all most of us either have to buy insurance (motor – if you drive, employers liability – if you’re an employer and so on) or choose to buy it to protect your business and/or personal assets. The IoT presents potential benefits but there are also privacy implications which need to be considered carefully.
So, let’s start at the beginning – What is the IoT – Well, according to Wikipedia (so it must be true, ha) ‘the IoT is the network of physical devices, vehicles, home appliances and other items embedded with electronics, software, sensors, actuators, and connectivity which enables these objects to connect and exchange data’. In laymen’s terms we’re talking about devices that ‘talk’ to each other via the internet.
What does the IoT mean for insurers?
This technology has the potential to assist across the entire insurance world. The benefits may include improved risk monitoring and notification, accident prevention, early loss notification, corrective measure identification and efficiency.
In summary from an insurer point of view it will aid operational efficiency, hopefully reduce losses, provide greater precision when rating risks, and identify fraudulent activity. All these have the potential to increase profitability for the sector and deliver premium savings to customers.
And what are the privacy concerns?
The simple fact is that anything connected to the internet could potentially be hacked. So there’s a chance your data, which of course could be extremely personal, could be breached. Although, this isn’t just an insurance issue, this is an IoT wide issue,
The next big concern is surveillance. You need to consider how much information you are comfortable with a company/group knowing about you. The recent Cambridge Analytica scandal has opened up many people’s eyes to data security and what these companies can do with the data. To give you an example it has been hypothesised that if Cambridge Analytica know 150 of your Facebook likes they will actually know you better than your parents, 300 and they know you better than your partner and 500 likes and they know you better than you do! Scary stuff.
In addition, if every product becomes connected then there is the potential for every part of your life to be observed; from the contents of your fridge, to your location, to what you do in your bedroom (be careful smart watch wearers, ha).
So, is this technology already in use in the insurance world?
No 1. Telematics – There are a number of providers that are offering telematic solutions and this sector is helping younger drivers obtain insurance where otherwise cover may not be available. This technology can rate driver performance and be used to monitor curfews. Driving performance can be measured; not just speed, but breaking, cornering, average routes i.e. A roads, B roads or motorways, fuel consumption and many more factors. By applying the technology the potential is there to rate drivers individually as opposed to current rating which is still heavily based on age, post code and driving record (points etc.).
There are also insurance companies looking at pay per mile insurance policies where your premium is tweaked dependent on which route you take and how long the journey is. The idea of pay as you go insurance is intriguing and if you think of classic vehicles that may only go out a few times a year the road risk element could well work on a pay per mile system.
No 2. Connected smoke alarms – Nest customers (in the US) who have installed a Nest Protect smoke and carbon monoxide alarm receive a discount on their property and contents insurance.
No 3. Fitness and wearable trackers – Insurers are now leveraging the power of wearable trackers with some providers supplying free activity trackers to their customers. They do this so they can track well-being, activity and then reward customers for activity. By offering incentives for living a healthy lifestyle the insurers are looking to reduce claims and claims frequencies, which in term should lead to premium discounts for the right customers.
No 4. Drones – Drone use in insurance is on the rise. It is assisting greatly when property inspections are required in the event of a claim. Drone surveyors are a speedy alternative to traditional methods that require manpower and technical resources. Drones can assess a damaged property without endangering employees and it is often a more cost effective solution.
No 5. Digital Doorbells – The rise of digital doorbells and remote CCTV is another interesting development that is enabling householders to utilise the latest technology to have a virtual presence at their property, and provide an additional security measure. Some insurers are now offering discounts to households who use this technology as again it is thought to reduce claims at properties that utilise this technology.
And what is the future of the IoT in insurance?
As you can see there are a number of low cost initiatives that have the potential to play an important role in insurance and helping people pay a premium based on their individual risk level and needs, as opposed to the wider rating mechanisms currently in place. We are entering (in fact we’re in it) the era of data is king, the IoT is a huge part of this revolution and will offer benefits as well as threats to consumers. It will reward ‘safer’ customers but where does that leave the customers more at risk? Are we happy for companies to know our every move? Are we happy for them to tell us when and where we drive? These aren’t simple questions to answer but ones we need to consider.
Personally, at Edison Ives we embrace technology but are also fiercely private. So we are observing this technological development and interacting cautiously but with an open mind. Let’s see where this journey takes us.
Please Contact Us to discuss any of the points raised in this article,