This article originally published on Carly’s monthly column in AM Best’s Review.
How many of your friends have an Apple Watch? A Fitbit? A Nest Thermostat? What about a car starter, a slow cooker, or a coffee maker controlled by a smartphone app? Just the other day, I learned about “smart pens,” which track your writing and create an online record as you write in traditional fashion using ink and paper. It can seem impossible to keep track of all the devices that are capable of connecting to the internet. As new devices connect, we can become overwhelmed or overly excited and ignore the impacts – positive and negative – that these advancements create for the insurance ecosystem. However, if we take a step back, there are probably three major categories that these impacts fall under:
- Cyber Risk
Probably the first concern insurance professionals is the danger of connecting so much of our daily life to the internet. Concerns about hackability and stolen information are valid. We have already seen vehicles with autonomous driving features can be hacked. Homes with smart keys are the next concern. There are tangible bodily injury and property damage claims that could result from this type of hacking. In addition to potential for these types of losses, there are privacy concerns. If your devices are tracking much of your personal data, how can insurers assist after a breach of information? On the business side, there are obvious concerns after your customers information is hacked; but how can homeowners or renters insurance policies respond? Can insurers help customers defend against this type of loss before it even occurs?
- Improved Information
A challenge for insurers has long been the ability to verify the amount of exposure. We have depended on customers to self-report miles driven or audited financial information after the fact. Telematics devices for vehicles have been around for years, now, and they have made understanding auto risk easier. We can imagine similar advances in capturing exposure on a Worker’s Compensation policy. We have used payroll to approximate exposure forever, but we could move to hours worked, especially in a manufacturing setting; it would be easy to gather information on how many hours an employee is on the floor. Trends in issues due to the length of shift could be identified, just as trends in issues due to hours driven have been. Another opportunity to verify exposure exists in contemplating business personal property risks. We can imagine a system in a warehouse that reports stock values to the insurer as freight arrives and leaves.
- Risk Mitigation Capabilities
All of this reporting capability also lends itself to possibilities of risk mitigation, as well. Imagine that a customer has installed a device that monitors the water lines and appliances in the home that you insure. While sitting at the office, they receive a notice that their washing machine is overflowing, they could shut the water main off directly from their desk. Or, they get to the office and realize they forgot to shut off the oven, they can turn this off from their desk. These are simplistic examples, but having connected systems, particularly for those appliances or systems that cause losses, can easily allow a homeowner to assist in mitigating their potential for loss.
How all three of these impacts affect the ecosystem depends upon the quality and speed of our preparation and response. If we are slow to adapt to new technology or consumer trends, we may miss opportunities to benefit from them internally. At the same time, insurers and agents have knowledge and expertise about risk that they can use to help their customers make informed decisions and use the new technology to their advantage in their daily lives. Learning and understanding as much as we can about the Internet of Things and thinking creatively and proactively about the risks generated by it will make us a valuable and relevant source of guidance for consumers.