Michael Spiar, Member Engagement & Communications Specialist | Alberta Broker, April 2016
Insurance, perhaps more than any other industry, thrives on information. This was true as long ago as the 1600s, when Lloyd’s Coffee House in England was the de facto place to be for the reliable shipping news. Sailors, ship owners and the forerunners of modern underwriters gathered in droves to stay informed and, of course, negotiate insurance policies. It is telling that the establishment’s legacy of information gathering, and not coffee brewing, is what survived through the centuries to become the venerable Lloyd’s of London.
With demand for current, accurate information always high, it is no small wonder that conversations in our industry invariably turn to technology — specifically, the growing number of wireless, smart devices. Just a few years ago, the thought of plugging a telematics device into a personal vehicle was considered controversial in the extreme. Now, consumers strap a FitBit or Apple Watch onto their wrist without a second thought.
This network of connected devices representing a treasure trove of data for our industry is commonly referred to as the Internet of Things (IoT), and we have only just begun to tap its potential.
Convenience is King
In order for our industry to benefit from the IoT, consumers must consciously choose to be monitored. Initially, this was an extremely difficult idea to sell. The allure of lowering one’s auto premium with a telematics device was at odds with a desire for privacy — what costs more, a few dollars or the freedom to speed or take a tight corner every now and then? As journalist David Booth of driving.ca put it in 2013:
This entire system must be an authoritarian’s ultimate dream. No longer will it be necessary for insurance companies to rely on the police to catch miscreants in the act of breaking the nation’s traffic laws before raising their rates; said scofflaws will simply volunteer the proof of their misdeeds themselves. Thank you very much and your premium will be going up by 20 per cent this year, sir.
Three years later, popular opinion has turned, according to Intact Insurance. “Our UBI product, currently available in Ontario and Quebec, has seen good adoption by consumers in these provinces,” says Jennie Moushos, senior vice president, western division, “and we are looking forward for it to be available in Alberta. We believe this program will do what is intended — encourage safe driving amongst our customers that will help reduce the frequency of accidents.”
The reason why this is the case — and why personal tracking devices such as FitBit are so popular — may lie in the success of iTunes. Before its introduction, songs and albums were essentially free via illegal downloads, yet iTunes convinced consumers to part with their money anyway. Simply put, downloading music is easier with iTunes than it ever was on Napster, and consumers decided that convenience was well worth a dollar a song.
Convenience is king. And as connected devices promise to make all aspects of life easer, the future looks bright for the IoT.
Opportunities for Insurance
Connected devices have already evolved far beyond telematics. According to Accenture, 39% of insurers globally have already piloted programs to track data from connected homes, tracking anything from security to humidity to overall maintenance.¹ John Hancock Financial in Boston was the first company in America to offer life insurance discounts to customers who allowed the company to tap into their FitBit data.
Commercially, the IoT could be of even greater benefit. It is already common for companies to use tracking devices internally to monitor equipment performance, security and other areas of concern, but the data collected is often strictly for internal use. With access to that information, particularly in real time, insurance brokers could dramatically increase their value as expert advisors, able to offer more nuanced risk management advice than before. The broker channel maintains over 90% market share of commercial insurance in Canada, and the IoT could be invaluable in maintaining or even growing that strength.
Research from Cisco indicates that the IoT will include 26 billion units by 2020,² generating data in any number of forms including numerical, text, audio and video. At just four years away, that future will arrive sooner than we think.
IoT Not Without Risk
As with everything, the IoT is a double-edged sword, and despite its potential to improve both everyday life and the way our industry does business, security remains a critical issue. In the technology sector’s heedless rush to develop exciting new devices as quickly as possible, it often ignores basic safety protocols and allows criminals easy access to connected devices.
Even when password-protected, a connected home’s wireless network can be hacked if an individual device connected to it lacks the proper security protocols. Researchers at a 2013 security conference demonstrated how any number of devices can be hacked with relative ease, successfully taking control of a “smart” bidet, turning a child’s camera-equipped toy into a surveillance device and even changing the code of a wireless, smartphone-controlled door lock.³
Imagine the insurance adjuster assigned to a case of robbery with no sign of forced entry, all because a door lock was picked electronically.
Future of the IoT
Despite the risks, consumers show no signs of slowing their adoption of smart devices – the value of the North American market for smart home security alone is projected to be $14.1 billion US by 2018,4 an 11.5% increase over its 2014 value. In response, the Canadian Underwriters Laboratory has turned its eye to this growing sector, offering to certify various home monitoring products in an effort to improve consumer safety.5
The IoT may yet be in its infancy, but the sheer volume of data it can provide makes it impossible for the broker channel to ignore. The Lloyd’s Coffee House of 2016 is digital – it’s time to wake up and smell the data.