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IoT puts the personal into insurance

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The Internet of Things is changing how car, health and home insurance works for both the provider and the consumer.

People behave better when they feel like they’re under observation. Thomas Jefferson knew it 200 years ago when he advised: “Whenever you do a thing, act as if all the world were watching.” Researchers at Newcastle University backed up Jefferson’s advice with a study demonstrating the effects of simple images of eyes on everyday behaviour - people were more likely to clear up litter with pictures of watching eyes around them. This phenomenon, using sensors to detect behaviour, has started to change the face of the insurance industry. Traditionally, insurers hire actuaries who calculate risk of loss based on years of data provided by past customers and their claims. However, advances in technology mean we’ve now reached a point where proxies may no longer be necessary to understand an individual’s behaviour and product usage. The emergence of networked objects, often referred to as the Internet of Things (IoT), has brought with it a boom in telematics - the transmission of data captured by a connected device in real-time. Sandip Patel, general manager of IBM Global Insurance Industry, says the growth in use of IoT devices is driving a shift in an insurance company’s function: “Streaming sensor data from connected devices - coupled with availability of other exogenous datasets such as weather and GPS data - enable proactive monitoring and the prevention of losses.”

By feeding customer data back to them, the biggest firms could tackle three of the biggest issues facing the industry: fraudulent claims, the sector’s reputation among consumers and the cost of processing claims - which accounts for around 80 per cent of their costs.

Drivers’ awareness of being monitored by black-box recorders, combined with the fear of losing preferential insurance rates, may ultimately prove to be powerful motivations for people to improve their lifestyle decisions. Patel says: “If a driver knows that driving patterns such as excessive speeding or rash driving will result in an increase in their auto insurance premium, there is a high chance that they will change their behaviour and become safer drivers.”

Data drive

Patel’s automotive example is grounded in reality. Telematics is already taking root in the car industry. Black box devices have already been fitted in millions of cars worldwide. This allows drivers to opt into telematics insurance policies. There are about 12 million such policies globally, with the biggest markets being the US and the UK - the latter currently has more than 450,000 policies. The devices monitor speed, acceleration, braking and cornering, among other things. They help insurance companies flag ‘crash for cash’ scams and fraudulent personal injury claims. These practices cost the industry billions in losses every year.

Benefits extend beyond saving the insurance industry money - connected cars are saving lives. If g-force rises above a certain level, devices can trigger a call to check driver and passengers are unharmed, alerting emergency services if needed. This ability to call emergency services will be compulsory on all new vehicles sold in Europe from April 2018 under the European Union’s eCall initiative.

Better than flagging accidents is avoiding them altogether. As far back as 2014, UK-based black-box service provider Ingenie was reporting the crash risk for new drivers on their telematics policy as one in eight, compared with one in five for non-telematics policy holders. Scaled up, that translates to the avoidance of 40 per cent of crashes involving UK drivers aged between 17 and 25. That means a drop in collisions of some 28,749 per year.

Among experienced drivers, those who cover fewer miles per year are also beginning to turn to usage-based or ‘pay as you drive’ insurance. The assumption is that the fewer miles you drive the less likely you are to be involved in an accident.

Healthy innovation

In the same way the growth in use of telematics has started to alter car insurance, so personal wearable devices could revolutionise health. Fitness trackers such as Fitbit and Jawbone can already help keep tabs on your activity and diet. Even the fridge is joining in. Owners of the LG Smart ThinQ refrigerator are meant to key in their body mass index and weight-loss targets into the front panel. The appliance then suggests healthier eating options, as well as keeping tabs on foodstuffs that have their barcodes scanned when placed inside.

The aim of IoT health devices now going into production is to go beyond basic fitness metrics, with the aim of delivering analysis that can help improve ‘wellness’ more holistically. In-ear and headband health monitors add sensors to measure a wider range of bodily functions. The LG Heart Rate Headphones measure physical activity together with blood oxygen levels. The Mio SLICE goes further, using a Personal Activity Intelligence (PAI) metric based on the Hunt Study, a large-scale health study in Norway that linked activity levels to overall health and longevity.

Unlike the basic ‘10,000 step’ goal used by simpler devices, Mio’s PAI score is a personal metric. It is based on age, gender, resting heart rate and maximum heart rate. “Whether you work out only occasionally or you are a world-class athlete, your PAI score will be tailored to your body’s response to exercise,” the company claims. Mio’s ultimate goal is to maximise lifespan and reduce risk of diabetes and heart disease.

One potential scenario here is monthly insurance rebates from your insurer triggered by stocking your smart fridge with healthy food, or sharing running stats from your watch. But what is the flipside to the data deluge? Could customers be unfairly treated due to health issues they have no control over?

As it stands, many groups already face high insurance premiums. More analytics could help them. Those who suffer from certain types of diabetes, for example, could use connected technology to help improve their lifestyle, and subsequently find themselves with lower premiums.

Although it is possible that insurers may come to demand data from customers as a prerequisite for cover anytime soon, IoT-led insurance is likely to remain an incentive-led sub-market for years to come.

Before you rush out to buy a smartwatch with plans to save on life insurance, it’s also worth noting that this is still an industry in its infancy. Providers are trying to work out in which direction the market is moving. Furthermore, the cost of processing data from all the newly emerging IoT platforms presents a significant obstacle in terms of cost. Insurers are therefore racing to understand how all of these new opportunities can be managed at scale.

According to Ruth Middleton, senior manager of insurance at Ernst and Young, the vast range of IoT devices and platforms emerging on the market will drive growth in collaborations: “[Insurers] will need to develop strategic partnerships with emerging data ‘gatekeepers’ to support their products and services.”

Home help

To try to find new ways of linking insurance and IoT technology, Dell Services unveiled an accelerator programme last winter. Much of the accelerator’s focus is on home services.

Example tools include use of a smart building, whereby companies can fill a model home with sensors to monitor water, smoke or gas leakages, among others. The sensors send data in real-time to a gateway that filters, aggregates, encrypts and uploads the data to a cloud-based IoT lifecycle management platform. This data can be used for multiple outcomes, such as providing dynamic insurance policies and alerting the property owner of potential risks.

So how might consumer behaviour change in the home? Energy and water usage are obvious starting points, and the effect is already telling. In the UK, for example, everyone will be offered a smart meter by 2020 under the supervision of Smart Energy GB. As people see the exact amount they are charged for leaving lights on and doors and windows open, so the level of household energy wastage is set to drop radically. Government estimates suggest the initiative will result in £5.73bn of consumer benefits.

Other major gains can be made from adding sensors to water pipes and appliances. Some of the most expensive damage to homes comes from water, especially if a burst pipe in an empty home is not dealt with for several days. Some systems, such as leakSMART are moving beyond simple alerts and allow customers to shut off water via a smartphone app at the first sign of a leak.

With the explosion of IoT innovations, it’s important to note the challenges that still lie ahead. Middleton, highlights one prominent concern: “Disadvantages [with the IoT] may include the potential for cybercrime as it becomes a more attractive proposition for perpetrators given the quality, breadth and depth of data becoming available about individuals.”

Reports suggest that customers are happy to pass over data in return for benefits like lower premiums or faster claims settlements - Accenture found that 78 per cent of insurance customers would be willing to share personal information - but that good faith must be repaid.

Middleton is under no illusions on the need for high standards here: “Data security has been, and remains, of key importance for insurers. Larger datasets lead to new risks in data management and cybersecurity.”

Nevertheless, if clear security strategies are put in place, Middleton sees a way forward: “Risks can be ‘mitigated’ through insurers having a cyber-risk insurance policy, associated controls, and risk appetite metrics in place,” Middleton adds.

At present, devices such as smart cameras remain surprisingly insecure, leading to a spate of negative news headlines in recent months. If the IoT is to bring about significant societal benefits by facilitating the behaviour change of individuals, it’s absolutely key that security issues are addressed with greater urgency. It is not a huge leap from Jefferson’s well-intentioned observation to a situation that resembles George Orwell’s warning of constant technological surveillance. *

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