The Internet of Things (IoT) refers to the implementation of internet connectivity to all manner of everyday appliances, buildings, clothing, vehicles and other physical 'things'. From the humble toaster to fully autonomous vehicles and smart homes, everything tangible is gradually becoming Wi-Fi enabled. It has been estimated that IoT will consist of around 30 billion objects by 2020.
The aims behind IoT are to enable greater control over our surroundings and make things smarter, but the burgeoning network capabilities also come with a huge host of new vulnerabilities for hackers looking to take advantage of cybersecurity weaknesses. The insurance industry needs to observe this paradigm shift as it leads to both new opportunities and threats for the sector.
What are the implications of IoT on the insurance sector?
To understand how IoT may affect insurance, it’s worth first considering the main types of current and potential deployments:
- Driverless vehicles – although this is still primarily at a testing stage, by 2021 major car manufacturers (eg Ford) plan to sell fully autonomous vehicles for use on Britain’s roads.
- Wearables - smart watches and bracelets are currently mainly used for fitness purposes, collecting and analysing activity data. They are also used for communication and tracking of employees in the workplace.
- Home automation – smart electricity meters, heating systems and lighting allow more control over one's home environment. Criticisms have been leveled at the alleged 'gimmickry' of certain smart home devices such as kettles which can be switched on from a mobile - as well as the potential cybersecurity issues which are exacerbated by unnecessary IoT.
- Health and welfare - various health devices such as blood pressure monitors and implantable cardioverter defibrillators (ICDs) are being connected to the internet to allow hospitals to access patient data remotely. In the context of geriatric care, both smart homes and wearables can allow relatives to monitor the wellbeing of elderly parents.
- Smart Cities and environment - monitoring various aspects of city infrastructure, linking these together and using big data methods to understand how to react quickly can help keep things running smoothly. Larger scale environmental monitoring can also help to avoid disasters.
- Industry and agriculture – many traditional manufacturing and farming processes are being revolutionised through the application of IoT. Automation and increased employee monitoring are leading to more general changes to the world of work.
The development of IoT in all of these areas will undoubtedly have a significant impact on the construction of insurance policies, especially in relation to cybersecurity responsibility. If a smart key system is hacked, enabling a house to be burgled, can fault be attributed to the software developers or the resident (eg for failing to apply a security patch)? Insurers will need to consider new scenarios and adapt their policies accordingly.
What are the opportunities for insurers?
Although IoT is principally designed to streamline the use of products, a major side effect is the collection of vast troves of data on how people interact with their possessions and their environment. Insurers who have access to this big data can analyse it to discover useful information about their policyholders. This can help to assess risk, customise policies and develop and sell new insurance products.Another opportunity of the growth in IoT, particularly as a result of the increased potential for hacking, is the provision of cyber insurance policies. When IoT goes wrong - whether as a result of a malicious cyberattack or due to faulty software - this can lead to financial loss (eg increased heating bills due to smart thermostat which receives an erroneous software update) or it could even have catastrophic consequences (eg an orchestrated cyberattack on a fleet of driverless cars). Insurers may find that both consumers and manufacturers of IoT devices, as well as the software developers, will increasingly require insurance in this area.