The internet of things (IoT) is growing. The rapid proliferation of smart devices is creating new opportunities for loss prevention, but it’s also exposing owners to additional cyber risks. By addressing both the risks and rewards of IoT devices, insurance carriers can boost their bottom line and add value for their policyholders.
The internet of things refers to smart devices that are connected to the internet. IoT devices include smart leak detectors, smart security systems, smart refrigerators — the list goes on. As more devices are gaining internet connectivity, the number of IoT devices is growing rapidly.
According to IoT Analytics1, the number of IoT connections grew by 18% in 2022 to reach 14.3 billion active IoT endpoints. The number of IoT connections in 2023 is expected to grow by another 16% to reach 16.7 billion active endpoints. The potential for the insurance industry is immense.
IoT devices can serve many purposes – from helping you manage your grocery list and playing the music you like to preventing losses.
According to Sean Ringsted, EVP & Chief Digital Business Officer at Chubb: “The IoT is very exciting. It creates this value proposition where you can go beyond the “repair and replace” model for insurance and get to “predict and prevent” because you have so much information available to you in real time, not just after the fact”.2
In the property sector, smart water leak detectors are a prime example. Water leaks are common, but many go unnoticed for long periods of time. According to the U.S. Environmental Protection Agency3, 10% of homes have leaks that waste more than 90 gallons of water a day. Every year, more than one trillion gallons of water are wasted nationwide due to water leaks. Smart leak detectors can help homeowners save water and reduce their water bills while avoiding serious problems like rot and mold.
At a 2022 ITC panel discussion ‘Reinvented Big Data Practices That Incentivize Risk Reduction’, Hernant Sarma, SVP – Global Digital Internet of Things (IoT) Lead at Chubb discussed how Chubb’s IoT successes were tied directly to sensor solutions and partnerships that proactively address the area of water leakage, one of the highest areas for claims, at greater than USD$15 to $16 billion annually.4 Chubb had offered to handle the installation and tracking of the IoT monitoring systems with the caveat that they receive all the data on the backend. That way they could continue to innovate and track ROI to demonstrate value.
With insurance premiums rising, policyholders have been looking for relief. According to the J.D. Power 2023 U.S. Insurance Shopping Study5, auto insurance costs increased 14.5% in February 2023, prompting many consumers to shop around for less expensive coverage. As a result, usage-based insurance (UBI) has started to go mainstream as drivers look for new ways to save.
The fact that people are interested in auto insurance discounts for using smart devices that track their driving means there’s a good chance they’ll also be interested in homeowners insurance discounts for using smart devices that track water leaks and other common risks.
Some insurance companies already offer these discounts. According to ValuePenguin6, some carriers offer discounts on homeowners insurance, whereas others offer discounts on smart home devices or professional monitoring services. For example, Allstate customers can receive a discount of up to 5% for using a Canary theft-protection system, whereas Hippo offers discounts of up to 13%.
By offering discounts on either smart devices or insurance coverage, insurers can appeal to budget-conscious consumers while controlling claims. However, these options may just be the tip of the iceberg. Going forward, Chubb’s Sarma4 stated that in order for insurers to increase IoT adoption, it will be important for them to not only provide incentives with premium reduction and lower deductibles, but to also introduce new pricing tools such as a separate rating model for a water protected building. And in an interview with Insurance Thought Leadership7, Dave Wechsler, the insurtech lead investor with the $2 billion venture fund operated by OMERS, suggested offering water loss avoidance as a service. By adding risk management services that leverage smart devices, insurers can create new income streams while providing additional value to existing customers and reducing losses.
IoT devices are popular because they’re useful, but they also carry risks.
A smart leak detector can detect leaks to enable property owners to act before serious water damage occurs – but this is only possible if the detector is in the right place to detect the leak. If consumers rely too much on smart devices, there is a chance risk exposures and losses could actually increase.
Smart devices can also create new risk exposures. Since smart devices are connected to the internet, they are vulnerable to cyberattacks. In fact, they may be more vulnerable than computers because people don’t always take basic security precautions with their smart devices.
Many people aren’t even aware of how many smart devices they own or that these devices could possibly pose a threat. According to Deloitte8, the average U.S. household has 22 connected devices as of 2022. That’s a lot of entry points for hackers, who are doing everything they can to exploit vulnerabilities. According to Which?9, a home with smart devices could face more than 12,000 hacking or scanning attacks in a single week.
IoT cybersecurity is a problem, but it may also be an opportunity. Insurers can educate their policyholders on IoT cyber risks and how to keep devices safe. This is another way to add value, boost engagement, strengthen relationships, and, ultimately, boost policyholder retention.
Under pressure from emerging and increasing risks and armed with new data-powered technology, insurance is changing. IoT devices are providing new insurance opportunities, just as digital payments are creating better insurance customer experiences. At One Inc we provide seamless digital payment experiences that allow insurers to deliver more to their customers.
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