Collaboration on IoT could transform risk and insurance

More affordable and accessible IoT presents a fantastic opportunity to gain insights into risk, supporting new risk management services and expanding the scope of risk transfer, according to Gloria Lozano Garcia, head of IoT products, Zurich Insurance, and Peter Grezl, principal risk engineer, Zurich Resilience Solutions

The internet of things (IoT) is set to transform the business world and the economy during the next decade, from wearable devices and smart homes, to Industry 4.0 and digital supply chains. Despite some challenges – namely cybersecurity and implementation at scale – IoT uptake is expected to accelerate with multiple use cases in factories, offices, homes and cities already in place.

According to McKinsey, IoT technology could unlock about $5.5trn to $12.6trn in economic value globally by 2030, up from an estimated $1.6trn in 2020. Manufacturing presents the biggest opportunity, generating a potential $1.4trn to $3.3trn of economic value by 2030 (or 26% of the total), with big opportunities identified for retail, health, automotive and construction, according to McKinsey.

Expanding use cases
Interest in IoT among businesses continues to grow, as companies turn to technology and data to improve efficiency or tackle strategic objectives. The Covid-19 pandemic and subsequent supply chain disruption have acted as a catalyst for the further deployment of IoT solutions, highlighting the need to build resilience and boost remote working. More recently, the energy crisis in Europe has turned attentions to energy consumption and efficiency, while climate change and sustainability are also driving IoT investment.

At the same time, barriers to IoT implementation are reducing. The cost of technology, such as sensors, cameras and connected personal devices, has fallen, while changes to IoT business models are making the technology more accessible and easier to install. Myriad digital technologies are being tested, piloted and scaled up as companies look to increase efficiency, boost performance and/or build resilience.

Risk and insurance applications
As IoT use cases expand, so do the opportunities to use technology for risk management and insurance purposes. Sensors and devices installed for maintenance or performance monitoring will likely generate data that can be used to gain risk insights, trigger early warnings and prompt preventative action. Data and insights from IoT can save risk managers time and effort, pointing them to the root cause of the problem and creating opportunities to prevent and mitigate losses. Data visualisation has progressed significantly over the years, making the data much easier to interpret and more actionable when in the hands of a knowledgeable risk expert.

Keen to unlock the benefits of IoT, commercial and specialty lines insurers have been developing and testing a variety of IoT products and services in recent years, with scalable solutions now coming to market. Zurich, for example, has been working intensely with clients to develop IoT solutions across multiple use cases, with promising results. Our expanding IoT service offering already includes solutions to prevent property damage and business interruption, machinery breakdown and workplace injuries.

IoT also has the potential to significantly enhance insurers’ risk engineering capabilities, automating processes, expanding the scope of services and creating insights. Risk engineers are able to advise clients on how to get the most from IoT solutions in a way that minimises business interruption and avoids costly losses. One Zurich client in Australia, for example, recently avoided a costly environmental incident and potential regulatory action after sensors installed on effluent discharge pumps identified unusual activity.

Emerging risk solutions
Data from IoT devices will also have a growing role to play in addressing risks that are currently challenging to underwrite due to a lack of historical claims data, such as supply chain risks or green technologies. Real-time data from connected devices could provide an alternative source of risk data for underwriters, as well as enable new risk management services and risk transfer solutions. Parametric triggers, for example, could provide protection for a wide range of risks based on data provided by sensors.

Advanced analytics and IoT ecosystems could one day enable companies to pool data from multiple sources and gain even greater insights. For example, companies can analyse telematics and logistics data alongside GPS and refuelling data to better understand risks related to supply chains, health and safety and fuel efficiency.

Turning data into action
Turning IoT data into effective risk management action is critical. Having clear use cases in mind and asking the right questions of the data is key to unlocking the risk and insurance benefits of IoT. This is where skilled risk managers are so important – defining the use cases with other corporate departments, helping data scientists find the right data points, and deciding on the most effective actions to prevent losses and/or mitigate risks.

IoT need not be complex. There is a good chance that appropriate technology or data already exists within an organisation, although insurance providers may also be able to refer customers to trusted technology providers. For example, Zurich’s ZRS Marketplace is home to solutions from a variety of IoT providers, offering industrial, environmental, wearable and energy optimisation solutions.

Collaboration key to unlocking benefits
IoT offers an opportunity to fundamentally transform the insurance and risk management proposition in the large commercial space, to the mutual benefit of both customers and carriers. Networks of partnerships and IoT ecosystems will enable insurers to bundle technology, risk management services and risk transfer, while the flow of real-time risk data and insights would pave the way for a range of new and innovative solutions.

However, these benefits can only be fully realised when IoT is installed in close collaboration with risk management and other business functions that stand to benefit or that would be impacted. Risk managers and risk experts play a vital role in transforming IoT data into a meaningful tool, and are ideally positioned to facilitate these discussions with internal stakeholders, as well as insurers.
We are only at the start of this exciting journey, but collaboration will be critical for understanding customer needs and creating new solutions.

Contributed by Gloria Lozano Garcia, head of IoT products, Zurich Insurance, and Peter Grezl, principal risk engineer, Zurich Resilience Solutions