Connect the Dots

Remember, it is not just the Internet of Things (IoT); it is the Internet of Everything.

Despite the dazzling possibilities – seducing individuals and businesses alike with talk of convenience and new revenue sources, respectively – these possibilities do not come without risks.

Yet, that has not stopped things from moving along.

Gartner, Inc. reported earlier this year that more than half of major new business processes and systems will incorporate some element of IoT by 2020. The effect on the lives of consumers and business models is rising as the cost of “instrumenting” physical things with sensors and connecting them to other things – devices, systems and people – falls, it noted.

Late last year, the company predicted the number of installed IoT units by 2020 would be more than five times the number in 2014. It forecast installed units would number 4.9 billion in 2015, 6.4 billion in 2016 and 20.8 billion in 2020.

Examples of IoT include everything from connected cars to HVAC systems, building management systems and specialized equipment. While consumer uses are expected to account for the greatest number of connected things, enterprises will account for the largest spending.

But all this change brings with it risk. Attendees of a recent claims conference in Toronto heard that one of the insurance industry’s biggest challenges on the underwriting side is how to effectively and profitably transfer cyber risk with respect to machine-to-machine technology.

“I really can’t overestimate how significant the risks associated with machine-to-machine technology are, despite the tremendous benefits that the Internet of Things will confer,” said Brian Rosenbaum of Aon Risk Solutions. “The underwriting community is not ready for this. We don’t really appreciate how vulnerable we are to cyber terrorism, extortion, systems breakdown and just plain mischief.”

Still, a survey last year from Tata Consulting Services noted global insurance firms will be spending an average of US$77.7 million in 2015 on IoT, increasing to US$102.9 million in 2018.

The survey of 795 executives from large multi-national companies in 13 industries, including insurance, found more than 80% of firms had increased their revenue by investing in IoT, with an average revenue hike from IoT initiatives being 15.6%.

Accenture reported in 2015 that a survey of 400-plus insurers globally found 45% of respondents believe connected devices will be a driver of revenue growth in the next three years. Overall, about four in 10 respondents reported that their companies have piloted or launched a connected home/buildings offering, a health/fitness offering or other wearables.

“Insurers are using customer data obtained from IoT-connected devices and applying analytics to make insight-driven decisions on how to better engage with customers and offer more relevant products and services aligned with their needs,” Erik Sandquist of Accenture said at the time.

Accenture pointed out 52% of the insurers responding to its survey said they expect to have a wholly digital sales process within the next three.

Strategy Meets Action predicted last fall that IoT, drones, new payment technologies and wearables will transform the property and casualty industry over the next three years in three major ways: new/changing risks will provide opportunities for new products and coverages; emerging technologies will enable operational improvements; and there is an expectation of major implications for the customer experience.

But as use of IoT devices grows, Gartner noted, so will the unique requirements of IoT architecture, design and implementation over multiple industry segments and scenarios. SMA advised that “emerging tech should be considered during business strategy development, including explicit assessments of which technologies are likely to have the most effect on your company and when, over the next few years, experimentation and investment should begin.”

Now may be the time to make connections – but just safely and thoughtfully.