Insurers’ role in the Internet of Things
The concept of the Internet of Things [IoT] sounds like something straight out of science fiction: connecting everyday objects to each other and the internet thorough embedded computing devices, which allow the objects to send and receive data. Just about any device with an on and off switch can be a part of the IoT, and its applications are limitless.
In the insurance space, the IoT has long played a role in commercial lines, helping insurers and their clients keep track of business vehicles and shipping containers, among other things. Only recently have IoT applications in the P&C, life and health sectors been considered.
Through interconnected devices, non-commercial insurers can determine risk based on individual customer characteristics and use the knowledge to better serve customer needs. For instance, usage based insurance [UBI] takes data from a connected car or home, allowing insurance companies to offer applicable coverage and set appropriate premiums. Wearable tech that tracks user health habits can be used by life insurers to gauge the average well-being of its policyholders and issue discounts to healthy individuals.
IoT applications can also improve the way insurers identify and address preventable losses, potentially lowering the cost of insurance for all. The knowledge of possible risks based on collected data can transform insurers from being reactive (paying restitution for claims) to proactive (approaching clients and providing them with prevention solutions).
But while the IoT promises many bright things for the insurance sector, it is not without its flaws. Some experts believe the IoT exposes devices to shared vulnerabilities, making the systems prime targets for hackers.
“When devices are connected, one device’s vulnerability becomes a problem for the entire network,” said Anne Hobson, a tech policy fellow at R Street, in a report tackling the shared vulnerabilities of IoT systems.
“[The] scale of interconnection among today’s devices magnifies the consequences of insecurity.”
Another related insurance concern is that current technology won’t considerably lower insurance costs. Connected devices could even threaten insurer revenues once they start eating into premium prices.
“[The IoT] changes the underlying need to have insurance,” said Sean O’Neill, a partner at Bain & Co. “If you take down the severity and frequency of losses, that’s basically what premium dollars support.”