Monday 21 July 2014 – Soon, billions of objects will have their own IP address. And this connected world could turn insurance models on their heads. (source: Lloyd’s of London)
The Internet of things (IoT), uniquely identifiable objects that have their own Internet Protocol (IP) address, will grow to an installed base of 26 billion units by 2020 – a 30-fold increase from the 0.9 billion in 2009, according to analysts at Gartner. And while the obvious application for insurance is in telematics – monitoring how cars are driven, with policies determined by that data – there are many other uses.
Through a subsidiary, agribusiness giant Monsanto uses internet-connected sensors to capture everything from meteorological information and the size of crop yields to the water-holding capacity of soil. It can then draw on this big data to offer farmers targeted insurance policies – and to determine whether they’re likely to have experienced a loss and settle a claim. In fact, the Kenyan microinsurance scheme, Kilimo Salama, is turning your typical claims process on its head by embracing ‘connected’ agriculture. Really, there is no ‘claims’ process. Automated, IP-based weather sensors record if, for example, rainfall is 15% below the average, a payout is calculated, and the amount owed to farmers is then sent to their mobile phones.
Prevention, not cure
And with sensors becoming ever cheaper and more sophisticated, the ability to capture and use the data derived from the IoT is getting easier – making a shift from a reactive to a proactive approach to claims possible, particularly in personal lines, where risk management is not as prevalent as it is in commercial insurance.
“There is a Chinese saying that a very good doctor is someone whose patients never get sick in the first place, ” says Craig Beattie, an analyst in Celent’s insurance practice. “That’s the opportunity for the IoT. It allows us to monitor data in real time, such that we can prepare for a loss and in some cases prevent it as well.”
In January, Google revealed it was testing a smart contact lens that can help measure glucose levels in tears. Devices that can read your vital signs and raise a red flag early on offer compelling opportunities for life insurers.
“There is a lot of speculation the future will include sensors that will tell life insurance companies how healthy people are, ” says Alex Plenty, Executive Partner at IBM Global. “That could either be used to change premiums, or life insurers will become more benevolent in terms of offering a lifestyle improvement product.”
Around the home and office, meanwhile, there are plenty of ways the IoT might help to avoid loss. In 2012, Philips launched the Hue internet light bulb. It follows that, if lights are being switched on and off in a property that is supposed to be vacant, suspicious activity could be taking place. By linking this information to a security firm, more burglaries could be prevented.
Fred Cripe, PwC Senior Advisor and former Senior VP at Allstate, offers a further example: “An increasing number of seasonal homes have temperature and electrical power monitors. If the power goes out or the temperature falls below a certain level and your pipes are in danger of freezing, it will trigger an alert and the loss prevention folks can go out and do what’s necessary to protect the home.”
As the insurance industry continues to explore the opportunities the IoT presents, the ability to own and exploit big data will deliver a real competitive advantage for pioneers in the space.