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IoT could unleash more insurance innovation

Mon 19 Nov 2018

The advent of the Internet of Things (IOT) has the potential to increase complexity and amplify risk, but it could also enable more innovation throughout the entire insurance value chain, including the way claims are settled in future, according to new research from Lloyd’s.

Networked World: Risks and Opportunities in the Internet of Things”, published in collaboration with University College London’s (UCL) Department of Science, Technology, Engineering and Public Policy (STEaPP) and the PETRAS Internet of Things Research Hub, analysed the impact of the IOT on the insurance sector.

IoT will lead to data capture and management at an unprecedented scale, according to the report. This could mean better risk assessment and more flexible, bespoke and real-time products. It may also increase policyholder concerns about the use and accuracy of their data.

Meanwhile, interconnectivity will create new business models where more is known about insureds, policies are generated in real-time and are bespoke, and fraudulent claims are recognised quicker. The ability to create personalised policies will also enable insurers to more accurately predict and mitigate risks.

However, the report also noted that new types of threats will emerge, which will increase the demand on insurers to come up with new products and services. The scale and variability of the type of disruption that could occur will affect multiple sectors and lines of business.

In addition, the range and quality of security standards that currently exist for the IoT will make it hard for insurers to make risk assessments. And there are critical blind spots in the regulation and legislation of IoT devices and their impacts. These include uncertainties surrounding attribution and liability should anything go wrong.

To help insurers to understand the evolution of the adoption of the IoT and its potential impacts, the report includes ten extreme scenarios on four critical sectors: Infrastructure and Water, Agriculture, Marine and the Smart Home. Each scenario highlights how IoT technologies could generate and exacerbate risks that could cause losses in several lines of business at the same time.

Insurers should play a role in shaping the IoT landscape and Lloyd’s has proposed several options from leading on data standardisation to working with governments and tech companies. Insurers should proactively talk with clients to review and assess all risks associated with IoT to provide them with advice on best practice and appropriate risk solutions, thereby shaping the development of the IoT ecosystem in which they operate.
Dr Trevor Maynard, Head of Innovation for Lloyd's
Any large-scale technological shift raises challenges to the status quo and creates opportunities for those who see them early on in periods of transformations. Early adopters, especially in markets, are afforded additional benefits, as they can shape expectations, terms of engagement, and best practices in ways that address their interest. This report with Lloyd’s provides a timely study of not only the challenges but also multiple opportunities that the IoT will introduce into the sector.
Dr Madeline Carr, Director of STEaPP's Digital Policy Lab

  • The Internet of Things (IoT) refers to systems that are connected to the internet and collect and use data to operate – often with effects in the physical world.
  • As an umbrella term, IoT includes everything from smart fridges and lightbulbs to wearable devices or even implants up to remote sensors in the physical infrastructure. The number and range of these systems is expected to significantly transform society and the insurance sector is seen as an important element of modifying security behaviour.
  • By 2020, some 25bn devices will be connected to the Internet (Nordrum, 2016) while some studies estimate this number will rise to 125bn in 2030 (IHS Markit, 2017). These will include many things that have never been connected to the internet before.

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University College London’s (UCL) Department of Science, Technology, Engineering and Public Policy (STEaPP) mobilises science, technology, engineering and policy expertise to help change the world for the better. The department hosts the Digital Policy Lab, which is a growing centre for teaching and research relevant to the pressing national and global policy challenges posed by emerging digital technologies. Members of the lab are currently working on the cybersecurity, privacy, and ethical challenges raised by the Internet of Things, international cyber (in)security, regulation and governance of the Internet, and the security of critical infrastructure.