There has been a recent spate of articles in various publications about the "Internet of Things" or IoT. At first blush, the non-techies' eyes glaze over when new and emerging technologies are the topic of conversation. Techies, as we know, have been into the IoT for several years. But to either group, there is somewhat of a misunderstanding as what the IoT really is.
A "thing" in the IoT can be a person, animal or object with a unique identifier that has the ability to transfer data using technology such as an individual with a heart monitor, an animal with a transponder chip or even the sensors in a car that tell a driver when the tires are low on air. Initially, the IoT has been closely associated with machine-to-machine (M2M) communication used in the oil, gas and utility fields, as well as manufacturing. M2M communications are often referred to as "smart" because they transmit information without human interaction such as through bar codes and QR codes.
The Internet of Things is one of the fastest growing aspects of information technology and, the McKinsey Global Institute estimates "the potential economic impact of the Internet of Things to be $2.7 trillion to $6 trillion per year by 2025" through six different applications the company has sized, with the largest impacts being in healthcare and manufacturing.
In some cases, the IoT is fairly well recognized by the general public and has been in use for several years. From smart phones and watches to chips that can track vehicles and cargo, the commercial and personal aspect of some of the technologies associated with IoT are into the second and third generation of the underlying technology. Not exactly long in the tooth, but in common use for several years.
IoT technologies are also commonly used in the insurance industry. The technology is solving some vexing insurance issues, but it isn't quite here just yet. The opportunities for matching new IoT technology to insurance are really limited only by the imagination. Some IoT technologies are gravitating toward governmental applications such as the Smart Cities program, others are focused on manufacturing and logistics, while still others are developing technologies for the consumer or personal technologies market. Insurance, because of its position in the overall economy, can take a technology developed for Smart Cities and find a myriad of uses for that technology in insurance.
Take healthcare, where some of the earliest IoT technologies were developed. One of the most problematic lines of insurance is workers' compensation, which has been dealing with issues of fraud, pharmaceutical abuse, litigation, and long-term disability for decades. Some of the technologies specifically developed for healthcare should become commonplace in handing workers' comp claims, as well as any claim for bodily injury. Smart phones should be able to monitor glucose levels, blood pressure and heart-rate. Specially designed slippers can track movement and balance. There are health technologies now that will monitor internal bodily functions for diabetes or intestinal issues. A new technology plants a marker in each prescribed pill, say a narcotic, to record the date and time the pill was ingested.
The latest addition to the IoT playbook involves Smart Fabrics, which are specially created fabrics that have specific technology imbedded within the fibers. These fabrics could do much more for insurance claims than meets the eye. Smart fabrics can be imbedded with solar cells or piezoelectric panels to collect, conduct and store energy that can power devices such as mobile phones and provide off-grid power. Think about a storm team that can deploy smart fabrics to an area where power was knocked out due to a tornado or hurricane. Smart fabrics can also enable human physical data monitoring; heating wraps; illumination; and measure and store data on temperature, heart-rate, blood oxygenation and blood glucose levels. For insurance companies that are on the paying side of medical costs, many of these proven and emerging technologies have the ability to significantly reduce medical costs, get injured parties back to work faster and reduce the amount of fraud.
Insurance companies proactively spend a tremendous amount of money on loss control. Most insurance companies will attest that it has been money well spent not only in reducing claim frequency and costs, but by building a solid relationship with the insured. The IoT has the potential to deliver even more in the area of loss control. Sensors that are embedded into various machines can monitor for minute changes in operating conditions and alert operators that a malfunction is about to occur. Hartford Steam and Boiler has been a pioneer with early oversight technology, but with IoT the reach is broader and deeper into exactly how certain critical machines are operating.
One area of IoT that has been receiving a lot attention is the area of telematics or what insurance companies now call Usage Based Insurance (UBI). The idea behind UBI is to have the ability to track a vehicle's usage and determine if the premiums charged match the risk. UBI can, for example, monitor the date and time of the trip, the speed at which the vehicle is being driven, the GPS coordinates for the duration of the trip, and so on. An underwriter can then look at the data and determine that the vehicle was being driven at 3 am in an unsafe area of town, and that it was speeding or being driven recklessly. All of that data can go into the pricing of the risk, or serve as a reason to non-renew the coverage. While many personal insurance companies are looking at UBI as a future tool for them, it is their commercial auto brethren who are putting UBI to use. Wrapped into the area of UBI are driverless automobiles, smart infrastructure and usage-based toll roads where the toll varies by traffic.
While the IoT is full of rosy scenarios, there are some concerns with it as well. The principal issue is that IoT is, in many respects, a function of what is commonly referred to as big data. As a part of big data, IoT will do its share of requiring significant investments in communication and data infrastructure, mobile technologies and storage. Of those investments, storage will become a choke point. While the IoT is expected to utilize the cloud, for insurance companies there is enough personally identifiable information that, depending on the application, the data might be required to be on-premises and not in the cloud. As the technologies of IoT become more commonplace, they will draw hackers and other unsavory people into the mix.
The Internet of Things is moving very quickly, but bear in mind that very few of the IoT technologies are market ready. However, as these technologies come to market, some will be home runs and others will disappear. Over the past two decades, the Internet has developed in ways no one imagined back in 1995, and the once ground-breaking technologies are now just part of cyberspace.
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