Imagine leaving your business at night, only to get home and wonder if you locked the front door. Most people have been there, either at home or at work. The good news is we're not too far off living in a world where you can pull out your mobile phone and find your answer on an app, with many parts of your property hooked up to the internet and ready to transmit data.
With the swipe of the finger, you could lock the doors and get on with your evening instead of making an impromptu journey back to the office. That's just one potential way the Internet of Things (IoT) can help to reduce risk in the near future, and their business insurance premiums could fall in line.
Another influence will be in car insurance. If a person is about to run a red light in front of you, they're less likely to cause a collision in an IoT world. Your car will communicate with theirs, sense the danger, judge the risk of making an emergency stop or change in direction, and act appropriately on your behalf.
The impact of IoT is as broad as our imaginations, and the discussion continues into what role business insurance will play in tomorrow's hyperconnected universe.
The endurance of insurance
The general consensus is that insurance will, of course, keep its relevance for businesses and families alike, though not without changing, as Capgemini noted in its 2016 World Insurance Report.
"The IoT is expected to redefine the very notion of insurable risk."
"Impacting global insurers is the steady advance of the Internet of Things, a series of breakthrough technologies that may potentially transform the insurance industry in stunning fashion," Capgemini's report began.
"Affecting everything from how consumers maintain their homes to how they drive their cars, the IoT is expected to redefine the very notion of insurable risk. Indeed, as the world becomes safer and more connected, the fundamentals of assessing and underwriting risk may see a complete transformation."
So yes, it's safe to say insurance will carry on, but it will also need to adapt in line with the evolution of society. As the study continued to explain, insurance companies and brokers alike "must begin considering new long-term business models to ensure their ongoing viability".
Could risk-based insurance pricing be one answer?
With so many devices collecting data on people's behaviour, identifying risk will become easier for forward-thinking insurers. Not everything a business does will be under scrutiny, but they may be able to open themselves up to auditing if it means getting a risk-appropriate cover option.
The IoT will likely play a roll in this too, collecting information that insurers can use to create a suitably priced policy.
For businesses, it's a great advantage. Owners generally don't feel happy about paying for something they don't intend to make a claim on, which is likely a reason why Australian companies are so grossly underinsured.
Risk-based insurance would soften the blow a little when it comes time to paying premiums, while lower prices could help smaller businesses with their cash flow problems.
But how likely is the IoT really?
It's important to remember that the IoT is not a particularly new thing; we've seen a slow transition to smart devices, such as phones, in the last decade or so, which will set the stage for a faster adoption of the trend in the near future.
"Insurers do not have a choice about whether to prepare for … the IoT."
In 2006, for instance, there were two billion smart devices, from intelligent computer chips to huge business machinery, according to Intel. By 2020, the technology company says there'll be an incredible 200 billion such devices – or 26 for every human on Earth – putting us a huge step closer to this utopian IoT future.
Insurers and brokers should not take the trend lightly, but Insurance and Risk Professional found that they might be doing just that. Only 16% of insurance providers think consumers will embrace driverless cars, for instance, while 23% of consumers themselves say they are interested.
Those in the industry shouldn't assume anything when it comes to technology and advancement – after all, who would have thought 10 years ago that half the world would use social media to the extent we do? We need to have some form of preparation, or be left irrelevant in a quickly changing world.
As Capgemini summarised: "Insurers do not have a choice about whether to prepare for … the IoT. These forces are unstoppable, and their impact on the insurance business is only going to increase."
Do you agree? We'd love to hear your thoughts.
