The Internet Of (Insured) Things Part 3: Commercial Lines

Commercial insurance plays a crucial role in global economies. It shields businesses from failure by assuming risks in production of goods and services. In USA alone, there are over seven million small businesses, ranging from construction firms to grocery stores to home-based businesses. Without right coverages, each could be devastated by disasters or lawsuits. In commercial lines, IoT is in early stages of development, but is heralding a future of differentiated products and services with more equitable premiums, usage-based coverage and tailored interventions.

As highlighted in Part 1, economic value created through IoT is projected to reach $11.3 trillion by 2025. Using personal lines experience as guidance, barriers are expected to come down in commercial lines and value clarity achieved from growth in IoT applications. While insurers are not necessarily frontrunners, the premise of loss prevention, mitigation and restitution creates a value proposition that is irresistible.

IoT in commercial lines is finding multiple opportunities, few being:

  • Telematics solutions to track fleets and vehicle performance
  • Wearables to curb worker on-the-job injuries
  • Activity trackers to ensure process execution success
  • Exoskeletons to safeguard employee health and prevent injury
  • Equipment monitoring for predictive maintenance to prevent breakdowns.

In cargo insurance, available IoT data is helping understand risks in real time. Smart-Cargo Insurer Corvus leverages temperature stability data from decades of food and pharma shipments along with the insured’s shipment data, to curtail a major cause of loss – spoilage. Based on this, a relative risk score is shared, with better scorers receiving price reductions and broader coverage. Negative trends from ongoing shipments are reported with actionable recommendations.

Due to floods, every year, as much as $41B of damage remains uncovered, leaving people and businesses to foot the bill. Many are denied insurance or face high premiums due to lack of accurate data. Furthermore, claims can take months to verify and settle. FloodFlash uses IoT sensors to measure flood levels in customer properties. Data provided by its sensors helps customize quotes for individual buildings rather than a wider postcode area. When floods breach depth thresholds, payouts are done sans loss adjustment or complicated document filing.

In Munich’s Werksviertel district, Munich Re equipped a building with 25 multifunction sensors for monitoring during construction. The sensors detected water and measured humidity and ambient temperature, transmitting results to its IoT platform. Data is analyzed around the clock and warnings transmitted immediately for breaches, so site management can react and damages prevented. The carrier is offering these as additional services that save efforts, costs and avoidable building delays.

The above examples expound the latent IoT potential in commercial lines. Needless to say, there are obstacles that need to be surmounted for wider uptake, primary being structural and economic. Proactively identifying risks and taking timely actions requires sensors and connectivity to be embedded in heavy machinery, buildings and operating practices. Installation and servicing is expensive with tall lead-times and is alien to carrier competencies. Besides, given the intricacy and criticality involved, companies are decidedly cautious. As the market turns more competitive, corporate customers are turning the corner with insurance companies offering newer sops. Discounts for IoT connected devices for property and fleet management is one such incentive.

Nascent industries (e.g. crypto, drones) stand to benefit from IoT implementations in insurance. With little real prior experience and the high risks associated, they have historically had a tough time getting insurance. IoT’s data collection ability is letting insurers move more swiftly, without waiting for years of experience to effectively model and assess risks.

Steady flow of connected device data will let insurers identify and remediate risks. It will also bring new sets of challenges and associated opportunities, as privacy, security, massive data volumes, changing insurance paradigms come to the forefront.

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