By Chris Gill, Director of Risk, over-c
The insurance industry can trace its roots back to ancient Babylonians in the third millennium BC, whilst its modern iteration it owes a lot to the Great Fire of London that led to a boom in insurance following the destruction of over 3000 properties in 1666. But in all that time, the concept and practice of insurance has changed little; with the insurance provider needing to price risk based on the limited information provided by the policy holder.
All of that is changing with the advent of the Internet of Things (IoT) and the ability for sensors, reports and alerts to provide continuous information, enabling far greater transparency for the insurance provider. This continuous flow of data has the power to inform businesses of risks in real time and enable them to prevent costly incidents occurring.
For the commercial insurance company, being able to gather precise data enables them to both select and price premiums based on actual risks, as well as to eliminate loss cost events through proactive intervention and management. In essence, the coming age of IoT enables commercial insurance companies and policy holders to forge a new cooperation to the mutual benefit of both.
Where Losses Cost
Lloyd’s of London property insurance results shows a loss of £2.6bn between 2016 and 2019. This was driven by an increase in both man-made and natural hazards. As a result of the market conditions, UK commerical property insurance prices increased by 24% in Q4 2020. Water damage costs the industry £900 million alone according to the Association of British Insurers, fire damage sees an average claim of £500,000 (including BI and loss of rent), and a single top five global insurer found itself paying out over £80 million a year for slips, trips and falls.
Despite the massive sums involved, few insurance companies have yet moved to rethink and modernise their operations, despite the clearly available technology that could mitigate risks and cut loss costs. Sensors can detect when mandated duties have not been fulfilled, staff reports can get hazards rapidly cleared up and alerts can signal when urgent action needs to be taken. All too often this information may exist within an enterprise, but is not collated in a way that lead to the systematic elimination of risks and loss events.
To combat these loss costs, technology platforms have been developed which enable businesses and insurers to identify, rectify, record and mitigate risk. These platforms are based on a combination of automated data collection and AI-based responses that lead to faster decisions to minimise liability and provide robust claims defensibility.
Risk Reduction Platform
In any high-footfall, high-hazard environment such as a supermarket, construction site or manufacturer, the risk of events that could generate an insurance claim is substantial. Many of these events could have been avoided through early detection and rectification, some may even be fraudulent, but the lack of monitoring and recording currently leads to large claims pay-outs.
IoT technologies mitigate these risks by monitoring, recording and actioning the reporting of claims. This combines the identification of potential hazard issues by staff with the automated identification of problems by sensors and smart phone devices.
This process allows the risk event to be identified and rectified quickly – or if a slip, trip or fall does take place before the problem can be sorted, then the platform provides the evidence on the steps that were taken to mitigate the risks.
Advanced Technology Platform
Using a combination of sensors and manual inputs to automate the process of data collection, analyse events against a set of risk profiles and automate the response to negate the risk.
Sensors ensure that frontline activities such as security inspections and cleaning schedules are rigorously followed so that any risk events are recorded. Dynamic data can also be added from external sources such as local police reports or weather reports that warn of the risk of a freeze or heavy rain. The platform can also take in data from social media platforms; for example, a tweet stating that toilet in a supermarket is flooded can be understood and ingested into the platform.
The collection of this structured and validated data enables the platform to determine automatically the required response based on an AI algorithm. The platform also uses a machine learning system so it will learn through experience the correct action to recommend.
Based on this AI engine, the platform will then issue alerts and instructions in the event of a hazard or event being identified. In practice this might mean alerting a cleaning crew to a spillage or diverting a security team to an unidentified obstruction. In some cases, the action can even be pre-emptory; a weather report on an impending downpour could see staff sent to the building foyer that might be at risk of flooding.
The New Insurance Model
By creating data partnerships between insurance companies and policy holders, a new era is being created to the benefit of both. While today this partnership may focus on the use of stringent data recording to lower the risk profile, tomorrow the data exchange between the policy holder and the insurance provider could lead to dynamic risk pricing based on factual indicators – just as young car drivers may carry a “black box” to report driving telemetrics and lower their premiums. In the longer term, the sharing of data could lead to detection of previously unidentified risk events through causal analytics.
For insurance companies, the IoT era offers a new future of partnership with customers where lower risk will lead to lower loss costs. As they compete for business, the greater transparency will also enable insurance firms to price more competitively in tenders and for the smartest to win more business. Perhaps most importantly, the era of IoT partnership will serve to raise the quality and prestige of insurers – and for the first time since the ancient Babylonians they will not just be seen as the back stop when all goes wrong, but as an active partner in lowering the risks of running their client’s business.