Tag Archives: iot

Will IoT Upend Insurance? [Hint: NO!]

So many gurus and their ilk are looking for, hoping for, any technology or group of technologies to “disrupt” or otherwise upend the insurance industry. One of the latest hopes for transforming the insurance industry is IoT: the Internet of Things.

Unlike mobility, social media, cloud computing, big data and associated data science-driven analytics, or blockchain, IoT will definitely upend the insurance industry. The IP-enabled sensors will help people stop or reduce losses before they occur or soon after the losses occur. Traditional insurers will run for the hills because their industry will be in shambles. Shambles, I tell you !

Nirvana achieved!

The reality is uglier, of course

There certainly are an expanding number of IoT devices appearing in homes throughout the country. A veritable panoply of devices popping up in the basement, the attic and every room in between. Even the front door bell !

(BTW, is anyone with an IoT door lock looking forward to the day when the cloud service maintaining the door lock goes down? Perhaps when you have bags of groceries in your arms or after a long day at work, and you just want to get into your OWN HOME?)

The reality is a tad uglier, of course, than the gurus tell us, as reality always is. The IoT-laden Pom Pom wavers neglect to pay as much attention to the ugly realities. Don’t you just want to tell them what they can do with their Pom Poms?

Ugly realities of IoT

The panoply of IoT devices is actually an expanding zoo of varied species that are blind to the existence of the other species in the zoo. The IoT devices don’t ‘talk to each other.’ There are no standards, including data standards that would enable the IoT devices to actually be …., well, useful. (Yes, I know that Apple, Amazon and Google are working on this issue – but today’s situation is like cooking some hot dogs and finding out that the mustard is on the shopping list but that none is actually in your refrigerator.)

Beyond not being part of a coherent integrated whole for the homeowner, each of the IoT devices represents a wonderful opportunity for hackers to spy on the family, and the devices create opportunities for distributed denial of service (DDoS) attacks on other targets by using the IoT devices as cyber-zombies or for other sorts of havoc (if the IoT device can alert the homeowner about water leaking, why can’t a hacker cause the IoT device to actually start the water leaking?)

This brings us to another superb attribute of the IoT devices: Their security truly sucks. (That’s the technical term, folks; what can I tell you?) Can you (easily) reset the password on each of your IoT devices? Will the IoT device use two-factor authentication?

See also: Insurance and the Internet of Things  

Big Tech is coming (NOT)

But, hey, insurers should still fear the Big Tech companies coming into the loss-prevention space, right?

Why not fear these non-insurance players? Assuming security, privacy and trust become commonplace with each and every IoT device (and how many decades before that happens?), the firms offering loss prevention bundled with the IoT device (i.e.. warranty on steroids) only have to, at a minimum:

  • Augment their devices with networks of vendors that can repair/replace the IoT device OR the appliance itself
  • Ensure the vendors are bonded or have other insurance in case they don’t show up when they say they will or don’t actually do the repair/replace job the homeowner expects
  • Instill confidence in the homeowners that the vendors can be trusted to come into their homes in the first place

I imagine there might be Big Tech or platform players who want to get into the loss-prevention business. (OK, I can’t.) They might erroneously believe that setting up a FAQ web site will do the trick. Have a problem with the IoT device/appliance? Not a problem – click to this FAQ web site. And let us know if the FAQ page(s) were helpful.

Oh, and augment that FAQ web site with voice-recognition units (VRUs) or chatbots that stick to their scripts. Yup, that’s the ticket: Make it hard for someone with a broken IoT device/appliance to actually talk to a human. That will endear the customer to the firms providing the service.

Moreover, I hope that firms realize that if anything goes wrong repairing/replacing the IoT device/appliance, they will be sued. Oh, wait, that’s another opportunity for traditional insurance – these firms will need to purchase liability insurance (drat it all).

Why not upend the insurance industry?

What has the insurance industry ever done except keep society, families, individuals and businesses operating in times of war, famine, plague and recessions?

What a horrendous societal effect: helping clients manage or mitigate risk in a legal, regulatory manner through the centuries of civilization.

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

Don’t insurers realize that an integral part of their value-add is helping VCs and other investors (and conference organizers) to generate revenue off the insurance industry? Why can’t the insurance industry accept that even these human vampires have a right to exist and profit? Oh, why??

What will happen? Really?

Will IoT upend the current insurance industry? Will being able to prevent losses upend the current insurance industry?


The league tables of P&C insurers (whether personal or commercial P&C) will remain as they are for many, many, many decades to come.

I believe that traditional insurers will create or strengthen their own networks of vendors to repair/replace either IoT devices or appliances and potentially bundle lower premiums (where insurance regulators allow).

So, sorry … no upending or disrupting of the insurance industry. Not an iota of upending.

This article was originally published on Rabkin’s Opinions.

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.

Smart Home Devices: the Security Risks

Smart devices have become a popular topic in the P&C insurance world. Tools like smart thermostats, smoke detectors and water sensors offer the potential to halt property damage before it starts, protecting insurance customers from injury, property loss or both. Yet these devices come with risks.

Smart devices often represent the most vulnerable point on any given network, exposing customers and insurers alike to potential risks. Insurance companies that understand these risks are better-poised to protect both customers and themselves.

The Rising Trend of Smart Device Use

Smart home devices were a wildly popular gift during the 2018 holiday season. Amazon broke records for sales of its Echo and Alexa devices, Voicebot’s Bret Kinsella says. Sales of smart sensors, security systems, wearable devices and smart toys were also strong.

Currently, the most common smart devices used in private homes are televisions and digital set-top boxes, says Gartner research director Peter Middleton. Initially more popular among businesses, tools like smart electric meters and security cameras are becoming more popular among homeowners.

As more people use smart devices, insuring these devices becomes more important. Even Amazon has announced an interest in offering homeowners insurance to complement its smart devices like Alexa speakers and Ring Alarm systems, says Julie Jacobson at CEPro.

Growing Security Concerns for the Internet of Things

As reports of data theft, hacking and other malfeasance reach the news, concerns about security and privacy in the smart device realm grow. For instance, a distributed denial of service (DDoS) attack in 2016 incapacitated websites for internet users across the East Coast of the U.S. The attack was launched from an army of smart devices conscripted by malware, says Lisa R. Lifshitz, who works in internet law and cybersecurity. In this attack, many of the device’s owners didn’t even know they were involved.

These events have raised concerns about device security among both government regulators and private device owners. Insurers seeking to offer smart devices to customers can play a role, as well.

See also: Smart Home = Smart Insurer!  

Laws and Regulations Address Smart Device Security

Most laws and regulations to address smart device security are still in their infancy. Although the U.K. introduced guidelines for improving IoT security in 2018, the guidelines remain voluntary. This means that not all manufacturers will adhere to them, says Rory Cellan-Jones, a technology correspondent for the BBC.

In September 2018, California became the first U.S. state to pass a law addressing smart device security. The bill sets minimum security requirements for smart device manufacturers selling their devices in California. It takes effect Jan. 1, 2020.

Rather than listing specific requirements, the California law sets a standard for determining whether security is reasonable. For instance, the security features must be appropriate to the device’s nature and function. They must also be designed to protect the device and its information from unauthorized access, modification or other forms of tampering, say Jennifer R. Martin and Kyle Kessler at Orrick.

Customer Interest in Security Has Increased

As smart devices become more popular, so do demands for greater security and privacy regulations. A 2018 study by Market Strategies International found that people who use smart devices at home or at work are twice as likely to believe that governments should regulate the devices.

“We believe that these workers have already seen the massive potential of the IoT and recognize that the risks – data security, privacy and environmental – are very real,” explains Erin Leedy, a senior vice president at Market Strategies. With a sense of both the potential and the risks, smart device users become more interested in stronger regulations to protect privacy.

A 2017 study by digital platform security firm Irdeto polled 7,882 smart device users in six different countries worldwide. Researchers found that 90% of those polled believe that smart devices need built-in security. Yet, respondents also said they too had a role to play in keeping themselves secure: 56% said that users and manufacturers share responsibility to prevent their devices from being hacked, security director Mark Hearn says.

Consumers understand that their devices can pose risks, and they’re willing to join the fight to protect their privacy and data security. Insurance companies can help them do so by providing the information they need to make smart decisions with smart devices.

Who Controls Your Customers’ Devices?

When today’s smart home devices were designed, the main goal was to simplify tasks and make life more efficient. Security took a backseat to functionality, Fortinet’s Steve Mulhearn says. To function well, smart home devices must integrate seamlessly with other devices — meaning they’re often the weakest security point on a network.

Hackers have noticed these weaknesses and are taking advantage of them. In August 2018, the Federal Bureau of Investigation issued a public service announcement warning that IoT devices could be hacked, conscripting them into malicious or illegal online activities.

“Everything from routers and NAS devices to DVRs, Raspberry Pis and even smart garage door openers could be at risk,” says Phil Muncaster at Infosecurity Magazine. While some devices are at higher risk than others, no smart device is totally safe from attempts to use it for ills like click fraud, spam emailing and botnet attacks.

Helping Customers Understand and Address Smart Device Risks

Most smart device users want to play a role in preventing privacy and security breaches. Yet, they don’t always know how to participate effectively.

Helpnet Security managing editor Zeljka Zorz recommends that homeowners adopt smart devices only after asking and answering two questions:

  • Will the device improve the quality of my life/fill a need I have?
  • Am I satisfied with the level of security and privacy the manufacturer provides users?

Insurers seeking to incorporate smart devices into their business and their customers’ lives can help by providing answers to both questions.

As Steve Touhill explains on the Resonate blog, demonstrating the usefulness of smart devices can help insurers attract new customers. Smart device owners are 42% more likely to change insurance companies in the coming year. They’re also more open to embracing insurers that offer smart device discounts or support.

Insurers can help customers protect themselves by providing information on privacy and security issues. Options include comparisons of security options for various devices, information on changing usernames and passwords, how-to guides for installing regular updates and checklists for spotting signs of cyber tampering.

When presented as best practices for using smart home devices, these steps can help homeowners and insurers address security risks without raising undue alarm.

Property and casualty insurers that encourage smart device use play an important role in influencing how customers use their devices. While this relationship can be beneficial for both insurers and customers, insurers that enter it face further privacy and security complications.

Protecting Customer Privacy

Insurance companies will need to consider how to protect customer privacy while still gathering relevant data from smart home devices.

This is because smart devices offer the potential to provide more data to insurance companies, changing everything from policy recommendations to underwriting accuracy, Mobiquity’s Sydney Fenkell says.

See also: How Smart Is a ‘Smart’ Home, Really?

Gathering this data requires insurance companies to be smart about protecting the privacy of customers and the security of the information received.

“It is not a matter of if but when these systems will be compromised, and the consequences could be much more severe than lost Social Security numbers,” says Dimitri Stiliadis, chief technology officer at Aporeto.

Moreover, P&C insurers will also need to protect their internal networks when communication with these devices presents a weak point.

Being Smart About Smart Device Data Use

The use of smart device data was recently brought to light by an announcement from the insurance company John Hancock. It made public the company’s intention to incorporate information from fitness wearables like the Garmin or FitBit into calculations of life insurance premiums.

This raised a number of concerns with customers, says Chris Boyd, a MalwareBytes senior threat researcher who goes by the pseudonym paperghost. Boyd notes that these devices often have weak security, which means that a user’s personal data could be altered — affecting  insurance premiums.

Similar concerns arise for users seeking to link smart devices with their auto, homeowners or renters insurance. A hacked or malfunctioning device that reports multiple loss events, or that fails to report events that did happen, could affect customers’ insurance rates. Unless, however, human intervention in the system verified the event.

For insurers, one of the best early principles to adopt may be one of transparency, says Chris Middleton at Internet of Business. When consumers know what information their smart home device collects and transmits, and under what security protocols or safeguards, they are better-equipped to understand and use the device in a way that benefits both their interests and those of their insurer.

Moving Toward Prevention, With IoT

The spirit of “insurance,” as we know it today, developed in response to a need to mitigate risks related to international maritime trade: treacherous waters and storms, piracy, war, physical handling of goods at ports, etc. While many of these risks have become obsolete and while new, more modern versions have appeared (think cyber security), the function of insurance companies has remained as old as the idea itself: to compensate for the effect of financial loss after it has been caused. Insurers that wish to remain competitive in the 21st century, however, must supplement their offerings to mitigating the cause before the effect. Workplace injuries and property loss will continue to happen, but the future of insurance is, quite palpably, preventing these events from happening in the first place.

To this end, companies have begun to leverage technology to aid in this process, and a whole new category of devices – dubbed the Internet of Things (IoT) – has emerged. These devices, and the sensors and algorithms they contain, hold the promise of enhancing our eyes and ears to perceive all things at all times. These new sources of data, and the analysis performed on them, hold the key to alerting customers of potential loss BEFORE it occurs. While the traditional insurance definition would say “this is not our responsibility,” the reality is that insurers can be uniquely equipped to use these new technological advancements to significantly reduce their losses and greatly improve the customer experience.

See also: Insurance and the Internet of Things

Let’s take a consumer use case – roughly one-third of all household claims relate to water leaks. Several companies such as Water Hero or Gems Sensors make a small connected device that attaches to a home’s main’s pipes and can seamlessly monitor water flow, continuously. If any anomaly is detected, both the customers and insurer can be alerted to take action before a catastrophic event occurs. Some devices can even turn off the main’s supply or make an automatic call to a plumber. While these devices won’t stop every incident, this low-cost technology can reduce the cost of claims to the insurer and provide a better experience for the home owner. This mutual benefit will make prevention a strategic advantage.

In commercial lines, similar examples can be found. Wearable technology and the valuable data it offers about worker safety can lead to a reduction in workers’ compensation claims while offering significant value to employees. For example, Kinetic has developed a wearable device for manual laborers to detect high-risk ergonomic movements and postures that can cause injury, gently alerting workers in real time. Data from the pager-sized device is fed into Kinetic’s software, which can identify ways of revising processes and workflows to reduce or prevent that risk in the first place. Deployments at manufacturing and logistics sites have shown reductions by up to 84% in the number of high-risk postures performed daily by workers. These postures are known leading indicators of musculoskeletal injuries, and customer sites have seen injury reductions of up to 60% for employees that have worn the device for over six months. Similar lessons can be drawn from telematics systems installed in vehicle fleets, which monitor driver activity through cameras and sensors. These systems provide feedback when certain activities or motions are detected, such as exceeding the speed limit or aggressive driving. As drivers start to modify and improve the way they drive, both accidents and the associated claims can often be reduced.

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

While some effort is needed to navigate, deploy and maintain these IoT devices in a cost-efficient manner, these products can change the nature of the relationship between insurers and customers from merely transactional to partnerships, where both parties are invested in preventing costly incidents. In this booming, digital era, it seems now is the time for insurance to seize the opportunity and light the way into its own future.