Author Tim Kennedy – Senior Global Solutions Alliance Manager and IOT strategist for Guidewire InsuranceSuite™
The usage of smart sensors to underwrite and manage risk in insurance has a long and successful history. From black box devices installed in automobiles to track mileage and driving behaviors to smartphone apps, IoT has provided significant value in improving on assessing understanding risk compared to historical underwriting criteria. In auto insurance, age, credit scores, accident history, gender, and education levels have provided a good approximation but more improvements are needed. In addition, privacy legislation in the US and EMEA has made some historical criteria ineligible causing insurers to search for new solutions.
Usage-based Insurance (UBI) technologies have proven much more reliable in assessing risk and help close the risk/premium gap problematic in both younger and older drivers. However, while telematics insurance in automobiles has generally increased over the past several years, its growth has slowed recently as the low-risk drivers who flocked to it for discounts have become harder to attain. Moderate and higher risk drivers have less to gain from using telematics and also struggle with privacy concerns. Insurers are looking to take the lessons learned from the use of AI in assessing sensor data to other lines of business beyond auto.
New Frontiers
Established UBI companies such as OCTO Telematics discovered several years ago that the analytics they used to provide insights on auto risk and claims fraud were easily transferable to new markets. Nearly anything insurable with a sensor can now be easily assessed for risk through their sensor-agnostic platform. And claims are equally supported. First Notice of Loss becomes First Notice of Fail now allowing for aggressive loss prevention interventions. This has opened up many new markets such as leasing/micro insurance, service and repair, monitoring, connected home, and connected office and workplace safety.
Guidewire Vanguard member Roost has been an early industry leader in the IoT space for home and office. Through the use of low-cost sensors, cellular notification systems, and smart hubs, Roost provides a monitoring and incident notification solution that helps lower risks for property owners. Water leak detection is one of the highest priority areas for insurers in this space. Having sensors that can detect water leaks or frozen pipes early can support early interventions such as notification to property owners, or in their absence, neighbors or even plumbers who can be dispatched to turn off the water or fix the leak before it turns into a claim.
The sensors in the home monitoring ecosystem have expanded to include detection for smoke, C02, door and window entry, garage door use, motion and can now integrate to other smart home devices like door locks to allow authorized entry into a home to investigate and triage an alert.
Guidewire Vanguard member MakuSafe has taken IoT into the workplace and by using wearable sensor technologies, MakuSafe’s technology helps reduce workplace risk and quickly identify safety incidents for fast triage and compliance reporting. MakuSafe has a wearable sensor (via armbands) that sends data in real time to their safety analytics platform, called MakuSmart. This actionable safety intelligence monitors, and can provide notifications on, environmental hazards and risk as well as ergonomics concerns, strain and exertion, slips/trips/falls, excessive sound exposure, air quality issues, high/low temperatures and light. MakuSafe believes up to 85% of near misses in the workplace go unreported. These leading indicators to claims, and the ability for push-to-talk communication from the front lines, can reduce the risk of more serious accidents and claims. Plus, as Covid-19 now requires new tools to manage its endemic phase, MakuSafe enables on-demand contact tracing in case notification of exposure becomes a long-term need.
Insurers are partnering with IoT sensor providers to confirm active monitoring in exchange for insurance discounts. In return, insurers receive enhanced claims FNOL and fraud detection. Guidewire has worked with Samsung Electronics and their SmartThings platform to implement a water detection and FNOL solution for Idaho Farm Bureau. Roost white labels solutions for Guidewire customers such as USAA, AVIVA, and Country Financial. MākuSafe has launched a program with Guidewire customer EMC. In addition, insurers such as app-based insurer Hiro offer discounts up to 25% off home insurance premiums for devices they already own.
New Challenges
Just as early uses of UBI black boxes and OBD II dongles for auto insurance had significant installation and support costs, current providers for property and workplace smart sensors are addressing similar issues. Smart hubs and sensors have required professional installation for all but the most tech savvy homeowners. But advances in equipment costs and sensor usability and battery life have resulted in enough cost savings from reduced risk to offset the initial sensor acquisition and deployment costs. New innovations have helped Roost with their Zero Install technology that can be set up without an on-site technician.
MakuSafe has a pilot program where they deploy their sensors into a workplace for 100 days and based on the data they capture, their analytics solutions can identify immediate risk mitigation strategies that will assess unknown hazards and provide an ROI and quick payback from reduced claims and premiums. The National Safety Council in 2018-2019 estimated the average cost of a slip and fall claim to be $47,516, which covers the cost of the MākuSafe solution for hundreds of workers. More insurers are using factors such as workplace IoT to assess workplace risk and pass on savings to business that help mitigate the initial investment.
Concerns about privacy have increased in some areas instead of mitigated over time. MakuSafe commits to ensuring no biometric, personal, or HIPPA covered information about its workers. And as concerns over how some smart home solutions are leveraging personal information to drive targeted marketing activities, companies such as Roost, who do not resell personal information, are becoming preferred.
Lastly, with the upcoming deluge of IoT sensor data that can be leveraged by insurers, regulators are working to develop new solutions that protect privacy and ensure fairness to policyholders. The dramatic pace of technological change has been difficult to assess, resulting in regulatory changes that will lag behind the pace of innovation for some time to come.
The Future is Bright
The market for IoT-based insurance innovations looks robust. The 2020 Market to Markets report predicts workplace wearables will grow from $1.1B in 2019 to $8.6B in 2024. Also, according to McKinsey and Company, recent studies project that the number of IoT-connected devices is expected to increase to over one trillion devices by 2025, providing an enormous data set for insurance analysis. A Market Research Future study on IoT in insurance predicts that IoT based Insurance DWP will increase with a CAGR of 56.2 percent between 2021 and 2030. A 2021 JD Powers survey indicated that 59% of homeowners with smart sensors said that having the sensor helped to prevent or lessen damage to property. It’s clear, IoT innovation will drive substantial insurance premium growth and reduced risk.
Guidewire partners like Roost, MakuSafe, Octo, and others provide solutions to help insurers readily adopt these innovations and integrate to a market-leading insurance software platform like Guidewire Cloud today. Please check out Guidewire’s Marketplace to search for IoT solution partners that can help you on your innovation journey.