Tag Archives: internet of things

IoT: A Breakthrough or Just More Hype?

Many industry executives talk confidently about the opportunities the Internet of Things (Iot) presents, but is it really an exciting opportunity, or is it all hype?

To begin to think about opportunities and threats, a simple operational definition is probably going to help:

The Internet of Things is: Different “things” connected by a network that collect and transmit data; interpret it and then make use of the aggregated information. Those “things” could be everyday items in homes, in workplaces, in vehicles and in public. The technology allows automated responses, as well as remote access and control from around the world.

Some of the many examples of the application of IoT technology:

So, yes, the IoT is a hugely exciting development that creates significant efficiency opportunities for individuals and businesses. As with most new technologies, over the coming years we will see some IoT implementations fail (a few catastrophically). People will become disillusioned. But, over time, there will be more successes, the benefits will start to crystallize and it will be more widely understood.

The application of the technology in the insurance world will also be far-reaching. The IoT will help monitor, detect and control risks. It will allow early intervention in the event of a loss, potentially mitigating further losses, while providing valuable evidence of what has actually happened. However, the increased embeddedness of IoT also exposes new risks: A fault in the hardware, software or firmware of a device could lead to a catastrophic loss — imagine heart rate monitors switching off, vehicles disabled midway through journeys, ovens turned on when premises are empty.

Insurers must adapt or may become irrelevant

Many insurance executives find the subject stimulating but a little abstract when it comes to changing the way we do business. The impact will most likely be significant (either positively or negatively) whether we embrace the possibilities or wait until we need to deal with the fallout.

There are plenty of estimates on the future number of IoT devices, some more speculative than others, but there appears to be consensus for somewhere in the region of 26 billion by 2020, and growing fast over the following few years. The insurance industry is, therefore, facing an involuntary paradigm shift as clients implement IoT ecosystems in their homes and businesses.

Client needs and the very nature of the risks they face will be changing. Insurers and reinsurers can either be part of the journey that their clients are taking or try to catch up with the new paradigm once the world has changed. With or without an insurer in the equation, these changes will fundamentally alter the insurance products that clients need. Insurers that are prepared for these shifts, working with their clients to design appropriate solutions, will be the winners.

Probably the best-known IoT deployment in insurance is telematics in auto insurance, but new examples are appearing all the time, such as the adoption rate of water sensors to detect leaks or the recent partnership between Lloyd’s of London and Parsyl that places IoT sensors alongside sensitive marine cargo (to monitor temperature-controlled foods, pharmaceuticals or high-tech products).

Even the most advanced businesses can get it wrong, though. It is worth considering how two of the largest technology companies have approached the integration of IoT. Apple and Amazon both sought to capitalize on IoT to capture the home assistant market. Probably the most important factor determining their relative success has been their ability to interact with the wider smart home ecosystem. One of the companies employed “compatibility strategy” that favored compatibility with its own IoT products, while the other was quick to ensure its product would work with just about every smart gadget in the home through its “distribution strategy”…. We will leave to you to judge which strategy was more effective!

The lesson: Those who stick to a closed ecosystem of products that don’t interact with others are going to lose out to those who provide integration with added-value services that go beyond their core offering.

See also: Global Trend Map No. 7: Internet of Things  

In insurance, data from IoT devices will unlock wonderful new approaches to underwriting and claims:

  • Live underwriting: An enhanced view of risk through asset performance and usage data. Increased customer engagement, becoming a “risk partner,” not just “risk finance.” Alternative usage-based propositions. Live monitoring of compliance with warranties. Real-time coverage adjustments based on changing needs.
  • Smart claims: Improved visibility of loss events and their proximate cause, but also some element of loss prevention as the IoT stops the loss from occurring in the first place. Quicker responses to events and better early loss estimation. Enhanced loss data and insight for risk advisory. New triggers for parametric products. Reduced need for (and cost of) loss adjusting.

But, we also need to think about this from the client perspective. With more data, clients become more sophisticated. They understand more about their risk than we do and can control much of it. Potentially, the IoT devices can independently prevent the loss from occurring at all. So, with less uncertainty, they need less insurance, and premiums could begin to fall. What they choose to buy could be very different. In short, insurers and reinsurers need to think about how products are designed to meet client needs.

Being left behind by more forward-thinking (and maybe new) competitors is a real risk. However, the good news is that it is not too late. Most insurer-led IoT propositions are still in the proof of concept stage. With limited evidence of a loss ratio reduction, it can be difficult to convince clients, or even our own executive teams, to disrupt business as usual for unproven technology pilots. The lessons learned by those insurers and reinsurers that are experimenting with IoT will help them win. Being late to this party is not really a viable option.

Grasping the opportunities of IoT and the Internet of Risk

While the opportunities may be great, and the threats from outside the industry may be very real, insurers still need to be careful to avoid leaving themselves open to unforeseen exposures. As an example, “traditional” cyber products have focused primarily on data breach, but now they must also take account of physical hazards. Security cameras, conference phones, vehicles and industrial machinery can provide a gateway for determined hackers. IoT terrorism is also a potential concern, whereby the manipulation of physical objects could lead to death and destruction. 

Insurers focused on “disconnected assets” need to evolve their thinking and propositions as the economy moves toward IoT. We will see fewer disconnected assets (each requiring less coverage), while there will be far more intangible and connected assets that require protection. 

Insurers will need to service clients holistically: Few clients operate uniquely disconnected, connected or intangible assets. They will look for insurance partners capable of servicing their needs across their balance sheet (or lifestyle). Limited products are currently available to cover IoT-related exposures; thus, it falls to brokers and insurers to innovate and raise awareness (before clients find alternative risk financing solutions). 

Insurers and brokers must look to identify how the IoT is changing their clients’ needs and help them holistically understand and manage the risks inherent in their business or personal life. Opportunities will be found in several places:

1. New clients — e.g. asset-less, sharing and gig economy firms/individuals, challenger banks, new physical-tech firms, blockchain service providers, cloud and data dependent services, etc. 

2. New risks — e.g. cyber coverage, drones, intangible assets, autonomous vehicles, crypto-assets being stolen, instant supply chains and connected cities etc. 

3. New propositions — e.g. new distribution models including players that have never operated in the insurance world but have access to IoT insights, e.g. Amazon, usage- based insurance, parametric covers, partnerships with different organizations etc. 

These will all continue to evolve, so taking a lead means being as advanced as possible in thinking how IoT will change the insurance world and how these new (and evolving) opportunities can be grasped. However, this cannot be a purely academic exercise. There must be a focus on actions that can drive short-term revenues, while creating a sustainable advantage for the longer term.

IoT complexity necessitates collaboration

A multidisciplinary approach is essential, factoring in many views from experts in several areas. When considering how IoT could change what Aon needs to do and how Aon serves its clients, we use expertise from various practice groups across our insurance and reinsurance operations, including the cyber, digital economy and technology practice groups, but also colleagues like Stroz Friedberg, a leader in cybersecurity in today’s digital, connected and regulated business world. 

But it isn’t only about getting insights from within your business: IoT is such a broad, societal mega-trend that anyone who only has a single-dimension perspective would be having a blinkered view (and almost certainly slightly rose-tinted). Aon Inpoint works with several global insurtech accelerators to find companies supporting innovation, while gaining experience in IoT and insurtech more broadly. An example includes an insurtech with which Aon is exploring approaches to quantify IoT-related cyber-physical exposure.  

Aon has also created Aon Digital Monitor, tracking or capturing proprietary insights from activity across the insurance ecosystem, to complement our extensive network of startups, vendors, investors and expert advisers tracking what people are investing in.  

The bottom line is that insurers and reinsurers shouldn’t try an “in house” solution. In an IoT-enabled future, partnering with organizations that have the necessary skills and knowledge is essential – either directly, or through an organization that is set up already with those partnerships.

See also: 12 Issues Inhibiting the Internet of Things  

Is Insurtech a Game Changer? It Sure Is

Several years ago, property and casualty insurance executives were looking over their shoulders anxiously at a growing number of internet startups. Who were these scruffy people wearing black turtlenecks? Could they really “disintermediate” legacy providers that had been around for a century or more?

Since then, we’ve all evolved. By now, most brands know they have inherent strengths that are hard to dislodge. The startups have matured, too, and they clearly have something to offer the market. We’re now working with companies in both camps, helping them navigate this new normal, where collaboration, acquisition and competition are all plausible options.

Some insurers may think they’ve dodged a bullet. But insurtech’s threat is more stealthy, and no less powerful.

Insurtech: the new, new thing?

At this fall’s InsureTech Connect trade show, literally thousands of people descended on Las Vegas to show and examine the latest offerings, from core systems, predictive analytics tools and anything-as-a-service to pitches addressing distribution, pursuing unserved niche markets, offering comparative pricing and broker services and more.

In our recent report on the state of insurtech, we cautioned insurers to look beyond the many truly interesting offerings now coming to market. As impressive as these tools are, we urged decision makers to stay focused on the capabilities that make their companies unique.

See also: Has a New Insurtech Theme Emerged?  

What do insurers really do?

So, what are those capabilities? At holiday dinner tables, you may find yourself talking to a relative about what insurance is, and why it’s important. You may say something like, “We create products that help manage risk by sharing the possibility of individual loss with a larger pool of users.” This explanation held true for a long time, but,
with the rise of insurtech, it may not be the best way to look at your business.

That’s because many insurtech companies have emerged to manage the firehose of data that now shapes our world: the Internet of Things (IoT), wearable health devices, connected cars, artificial intelligence and more. Of course, there’s still a role for insurers when someone else captures and gets the insight from that data. But it’s a commodity role, driven by who is willing to write a policy to offset the risk at the lowest rate. There won’t be many winners, and the margins won’t be attractive.

Some insurers see their business as settling claims and handing out checks. But when someone else is using telematics to assess driving habits, or social media to understand lifestyle risks, who will be able to monetize this data? Increasingly, underwriting depends on getting deep into the data-driven weeds. If you’re not there, recognize that someone else will be.

The rise of outside money

There’s another factor shaping insurance today: the amount of private equity (PE) and venture capital (VC) money flooding into the industry. An industry as highly capitalized as insurance was bound to have external investors come knocking eventually. Now, they have.

To be blunt, many insurance systems are too costly and too slow. PE and VC firms have seen this, and they’ve said to themselves, “I don’t have to be perfect, and I know I can be more efficient than this. Even if I’m only a little bit better than the legacy players, I can make a very healthy profit.” It’s a form of arbitrage, and competition could soon get a lot tougher.

With the acceleration of insurtech and related technologies such as cloud and artificial intelligence, PE and VC firms have found a way in that doesn’t require them to show a century of stability. They can do very well developing an insurtech play for very specific aspects of the P&C value chain. Many traditional companies are finding themselves in a commoditized business, without the structure of a commodity manufacturer.

Finding your way to play

Some of the most exciting developments in technology are now reshaping the insurance industry. That spells new opportunities and new risks. With the rise of PE and VC funding, we now see competition emerging from companies with significant resources—and they’re privately held so they can be more patient investors.

See also: Advice for Aspiring Leaders in Insurtech  

Legacy insurance companies still have enormous advantages, and many opportunities to win. But most won’t be able to do it alone, and there are many examples of insurers that wasted time (and money) on the wrong insurtech acquisition or partnership. As the cycles of innovation and capital movement accelerate, you’ll need to be more focused than ever on the capabilities that make your company great. Insurtech is a game-changer.  Make sure you’re playing the right game.

The Switch to Preventing Claims

To some, it is magic. To insurance, it is reality. The ability to accurately discern the past and predict the future based on nothing but data points and the long-lived experience of actuaries and adjusters has served the industry well, allowing insurance to become a multibillion-dollar industry. The picture has changed dramatically in recent years, however, driven by the advent of the Internet of Things (IoT): technologies that collect, record and transmit live and granular data about their surroundings. The technologies may already seem ubiquitous, but estimates of how many IoT devices will connect our cars, homes, communities, medical services and work lives by the year 2020 range from 30 billion to 50 billion. Whatever the precise number, the IoT will generate a huge amount of data to be analyzed and monetized.

Already, writing policies can now be far better informed by what is known about the risk level of an individual or entity, as opposed to simply what is known about the claims generated by an entire class of risk. John Hancock, for example, announced in 2018 that all new life insurance policies must use digital fitness trackers to monitor policyholders. Using the high-quality, objective data derived from IoT, it is now possible to assess claims more accurately and efficiently, and in some cases, even prevent them from arising entirely.

“IoT is already enabling customers to avoid bad things happening to them,” said Nick Ayrdon, head of strategy and development at Aviva. “Some people call it prevention. I see it as empowerment of customers.”

Insurers are changing how they interact with customers, both before and after a claim. One executive predicted that that we are in fact “shifting from a claims-handling business to a claims-prevention one.” As the value proposition of exchanging data for value becomes more concrete, it could drive uptake of connected insurance products. And yet, already operating in an environment of squeezed profits, high regulation and low consumer trust, the industry is witnessing something of a perfect storm. The tools for insurance carriers to stay relevant and appeal to today’s consumer do exist, but uncertainty over how best to implement such profound strategic transformation is holding many back.

See also: 3 Technologies That Transform Insurance  

To provide a comprehensive overview of the progress and prospects of connected insurance, Insurance Nexus has produced the Connected Insurance Report, an in-depth study of the progress of insurance technology globally, based partly on a survey of over 500 people working in insurance and related industries, as well as on the insights of 20 thought leaders, including Matteo Carbone (founder and director of the IoT Insurance Observatory), Cecilia Sevillano (head of smart homes solutions for Swiss Re) and Boris Collignon (vice president, strategy, innovation and strategic partnerships, Desjardins General Insurance Group).

Access the Connected Insurance Report today for in-depth insights, analyses and case-studies on the technology-led transformation of insurance, including:

  • How the Benefits of Technology Confer to Insurance: More data, fewer claims and lower costs. Discover how the application of technology to insurance is changing the relationship between insurers and insureds and where extra value can be created.
  • The State of Play of Technology in Insurance Today: What progress has been made so far across the different lines of insurance? Which lines are most developed and where is ripe for transformation?
  • The Practicalities of Embedding Technology in Insurance: From proving the business case to organizational restructuring and digital transformation, explore how carriers have succeeded in leveraging the benefits of insurance technology.
  • Making Sense of the Insurance Tech Stack: Provide value to customers by maximizing the worth of all data throughout the value chain. While challenges to each entity and line of business are unique, discover and overcome the principal challenges to embedding technology as reported by the industry.
  • The Long-Term Opportunities: From claims prevention to customer engagement, what will the technology-led future of insurance be like? Discover what is on the management “to-do list” to ensure readiness for the era of “insurance 2.0.”

An Insurance Policy With Some ‘Magic’

A few years ago, it was estimated that in a normal day another 127 devices are connected to the internet each second. This trend toward an Internet of Things is growing exponentially.

Many global insurance companies are working on integrating IoT-based services into their insurance offers. Unfortunately, how to use this technology has been largely misunderstood.

I’ve been lucky to work with some of the few players that have been successful in their usage of IoT. Through traditional distribution channels, these players are selling products that are bundles between insurance coverages and IoT-based services. Many have been able to get the service paid for by the policyholders, according to research by the IoT Insurance Observatory, an insurance think tank that has aggregated almost 60 insurers, reinsurers and tech players between North America and Europe.

Those that have managed to develop a product with a portfolio of a significant size and considerable penetration have had a very specific approach. They first use interesting storytelling about successes that justifies additional fees. This is the case with car telematics in Italy and with the South African Discovery Drive, which represent global best practices in terms of telematics use in auto insurance: The customer pays an annual fee for telematics-based roadside assistance and a range of other services.


Sharing Value With Clients

All the insurance products that have succeeded with an IoT approach share economic value with customers.

See also: 3-Step Approach to Big Data Analytics  

In auto insurance telematics, for example, data is needed to provide assistance, to provide traffic information and to find a car. This data can also be used to manage claims better and avoid fraud, to influence the customer’s driving style or to establish more accurate pricing. On top of that, if you focus your storytelling on some tailor-made services, you can encourage lower risks to select your product. All these elements – I call them five value-creation levers (fees for services, loss control, change of behaviors, risk-based pricing and risk self-selection) – boost profits. All the successful products have shared the value with policyholders through discounts, rewards, cash back….

The same is going to happen with homeowners insurance.


Dynamic Pricing on the Basis of Behavior

In the life sector, the discourse is different. The IoT Insurance Observatory mapped more than 20 initiatives over the course of 2018, and there are more failures than successes. However, there is a best practice that has managed to integrate data from wearable devices, with contextual data on customer behavior that is collected in a variety of ways. This best practice is the South African Discovery. They have created life insurance products where the client’s price increases year by year as a result of age, but could stay stable or even decrease if the customer’s physical activity is sufficient. A U.S. company has implemented a process where a customer who requests a quote finds the option to share the data he has collected on his physical activity, to obtain a personalized offer.

Commercial Lines Still at an Experimental Level

Many successful IoT-based approaches in personal lines can be applied to commercial lines. However, applications are still experimental. I expect these experiments to end in complete IoT insurance products in the U.S. before Europe, but it will take a few years before significant portfolios are created.

The most interesting experiments are in workers’ compensation and commercial property. In the world of SMEs, it will be necessary to specialize by sub-sector: It is one thing to talk about schools, another about residential skyscrapers and yet another about offices. Another area with potential is manufacturing, because of what is being called Industry 4.0. This megatrend is not yet mature, but some members of the IoT Insurance Observatory are scouting 4.0 technologies. The need for installation and tailoring of the technological and service components on the premises of a company will be a key.

The World of Ecosystems

The largest international insurance groups are closely monitoring ecosystems. As of today, IoT usage is sold as a closed option: The insurer chooses its own black box, the set of sensors, the app or the specific wearable items and obtains the data necessary to optimize its own use cases. To understand how an insurer could interact with emerging ecosystems is a key issue that will be addressed in the coming years by the IoT Insurance Observatory. I think that, rather than imagining which insurance product to offer, the first issue to address is how to sell customers products related to offers that come from the ecosystems.

See also: The Dazzling Journey for Insurance IoT  

Insurers cannot stop the IoT megatrend. They can only decide to leverage this data or to ignore it.

How Technology Is Changing Warranty

Let’s take a brief trip down memory lane.

In days past, whenever consumers wanted to make a major purchase—say, for a large appliance or the latest electronics—they had to leave the house and visit their local retailer. If they were concerned about the well-being of their new investment, they’d add a warranty plan once their transaction was complete. If something with their new fridge or stereo system went wrong, they’d need to pick up the phone to schedule a service visit.

Things have changed. Let’s take a look at just how much technology is influencing purchasing habits and changing the warranty experience for consumers, retailers and providers.

Click for Coverage

Today, when consumers need to make purchases both big and small, they’re often opting to make them online. For big box retailers, incorporating additional warranty protection on their websites to accompany those purchases is no sweat; they’ve got the capability and budget to do so. But what about smaller retailers?

According to a report by CBRE Group, about 30% of e-commerce retail is sold by small and midsize companies. While many of these companies might want to offer online consumers the benefits of product protection like their big box counterparts, integrating third-party warranty protection with a retail e-commerce platform can be cumbersome. But some providers have cracked the code and developed apps that allow smaller retailers to level the playing field and easily establish and manage valuable warranty programs.

Another technology solution being explored is blockchain. For as long as anyone can remember, returns, warranties and service contracts have required proof of purchase. Blockchain capabilities can eliminate that need by decentralizing record-keeping, so all relevant parties can instantly access a digital proof of purchase, as needed. Innovative companies are already jumping on board and using blockchain to improve industry collaboration, increase customer satisfaction, boost efficiency and reduce prices.

Make the Connection

As the Internet of Things grows and consumers replace their obsolete, non-IoT devices, the true benefits of connectivity will continue to be revealed. For example, smart home technology will take the guesswork out of claims. Service providers and technicians will no longer be forced to rely on a customer’s diagnosis of the problem, because devices will accurately relay data about malfunctions or damage in real time.

See also: How Tech Is Eating the Insurance World  

Administrators will be able to better identify issues and potentially help the customer find a resolution via phone or chat, without a service visit. If a service visit is needed, the customer representative can approve repairs and estimate out-of-pocket costs in advance simply by using the data already available.

But before the advantages of this new technology can be enjoyed to their fullest, there are some obstacles to overcome. The complexity of connected devices can be a lot to tackle for many consumers. Without the help of a professional, new device setup and network connections can be time-consuming.

Recognizing the opportunity for increased customer satisfaction, streamlined processes and lower costs, service contract providers are stepping up their game to offer plans that not only cover repair and replacement but tech support, as well. This kind of 360-degree service plan can help simplify the consumer transition to the fully connected home experience.

Go Custom

Thanks to the intimate connection to products and data offered by IoT, the opportunity to customize service contracts and protection programs has never been greater. Driven by constant data collection, warranty analytics can be employed to create extended protection plans that categorize failures, identify customers who are most affected by these failures and key in on potential causes. These “intelligent” plans can help determine and customize proper coverage levels guided by each customer’s risk profile.

The opportunity to apply the data extends beyond the connected home to products on the road. Now with the help of analytics, the failures, causes and costs that affect drivers most can be identified to help create intelligent protection programs for automobiles.

Known as telematics, these systems facilitate the transmission of vehicle diagnostic data. Telematics can record a vehicle’s condition to provide quick, efficient analysis that can isolate an issue before it becomes a real problem. This technology can also simplify next steps by alerting the provider to the issue and directing the vehicle owner to the closest repair shop with relevant parts in inventory. This kind of efficiency can help consumers remedy potentially dangerous and costly situations early on, while also reducing expenses for service contract providers.

See also: Common Error on Going Digital  

While some may long for the old days, the benefits of new technology offer a chance to look on the bright side. For providers, retailers and customers, advancements have changed the warranty protection experience for the better and will continue to do so for years to come.