The Internet of (Insured) Things Part 1: Nascent But Potent

2020 brought about an inflection point in smart devices. The count of active IoT connections (e.g. connected cars, smart home devices, connected industrial equipment) overtook non-IoT connections (e.g. smartphones, laptops). From 21.7 billion active connected devices globally, estimates peg IoT-based at 54%. At current growth, 30+ billion IoT connections are expected as soon as 2025. With Covid-19, public interest for IoT dwindled 15%, with search volume remaining stable at the lower level since. IoT did not play as big a role as other topics (unemployment benefits, WFH, gaming) did. An analysis of 3000+ earnings calls showed a decline in the use of “IoT” in Q2/2020, but revived in Q3.

In 2020, standout IoT developments included:

  • In December, “IoT Cybersecurity Improvement Act” was signed into law requiring NIST to update IoT security standards regularly. Manufacturers need to design devices with more cybersecurity hooks (e.g. secure coding, adequate authentication, regular patching)
  • In July, the 3GPP standards body reached an important milestone with version 16, its second set of specifications for 5G technology, a crucial step for 5G IoT use in higher-end applications in Industrial IoT.
  • Electronics manufacturer Xiaomi announced plans to invest $7.2 billion in 5G and artificial intelligence of things (AIOT) in the next 5 years in consumer and enterprise IoT devices including smart TVs, drones, electric scooters, air purifiers, routers and security cameras.

By 2025, total economic value created through IoT could reach $11.3 trillion across sectors and application areas.  Insurers are collaborating with technology and connectivity partners along with ecosystem participants to develop compelling use cases.

In personal lines, an increasing number of IoT-centered value propositions have emerged in the mainstream. Telematics driven auto coverage is regular fare with many major insurers. Autonomous vehicle technology is raring to materially reduce premiums. Wearables are making a dent in life and health. Insurers are capitalizing on new opportunities in the connected home.

In home insurance, water damage prevention has witnessed heightened interest. As the number of homeowners claiming for water damage in excess of USD$1mn annually has tripled over the last five years (average settlement costs being ~$89,000), this is an example of where IoT can have a sizable ROI.

UK-based Neos has been making inroads into the smart home market. With a price-competitive £15 to £50 premium per month, it offers connected home insurance with comprehensive cover, necessary hardware (cameras, motion sensors and smoke detectors), 24/7 monitoring, alerts to homeowners (of break-ins, water leaks, fire or a door accidently left open) and service support by routing to the appropriate personnel. It counts Aviva and Munich Re as investors. Neos has developed its own smart water valve, besides offering a hub to integrate third-party devices into its platform.

Adoption of IoT in commercial lines which seemed less pervasive, is also on the uptick with a range of emerging applications demonstrating potential. These vary from telematics that track performance of vehicle fleets to wearables such as posture devices, activity trackers and monitoring of workers’ compensation incidents. In property insurance, drones are being utilized to assess severe drought and hail damage. Equipment monitoring informs maintenance schedules and prevents breakdowns.

While complexity is a deterrent in the adoption of IoT in commercial insurance, expected value in areas such as claims prevention eclipse the benefits accruing from personal lines. In a pilot program with Church Mutual Insurance Company, Hartford Steam Boiler (HSB) used IoT capabilities to save policyholders more than $500,000 by avoiding losses from frozen pipe leaks. Similarly, Crane Logistics and Caterpillar deployed wearables that reduced the number of high-risk lifts performed by workers by roughly 80%, reducing workers’ compensation claims.

 

Part 2 of this Series takes a closer look at advances in smart home insurance ecosystem and what the future holds. The concluding Part 3 is on the nascent but fast evolving commercial insurance IoT.

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