IoT will drive insurance innovation: Lloyd’s report

By nature, risk managers are tuned into new risks from innovative technology, and while the internet of things (IoT) has taken centre stage, a new report from Lloyd’s maps out how it could improve risk management and put pressure on insurers to develop products. The report, written by academics from University College London (UCL) and the PETRAS Internet of Things Research Hub, says the IoT could drive innovation “throughout the entire insurance value chain”. Data capture will be elevated to an “unprecedented” scale that will improve risk management, while insurance products are expected to respond with more flexibility and bespoke features as more is known about the insured, the report says. “Personalised policies will also enable insurers to more accurately predict and mitigate risks,” it adds. The report also notes that the IoT will influence claims processing, identify fraudulent claims more quickly and place a greater focus on preventing and reducing losses, for example by using IoT wearables to improve health and safety in factories. On the flipside, increased data capture will raise policyholder concerns about the use of their data, while risk managers grapple with new risks from IoT. “The scale and variability of the type of disruption that could occur will affect multiple sectors and lines of business,” Lloyd’s states. For insurers, IoT devices open up “blindspots” in regulation and blur liability lines between manufacturers, software developers, cloud providers and users, it adds. The report analyses IoT risks for insurers in four sectors – infrastructure and water, agriculture, marine, and smart home. It features ten scenarios that will likely play out the IoT threat, in particular how IoT risks could affect multiple lines of insurance business in an increasingly interconnected world. Trevor Maynard, head of innovation at Lloyd’s, commented: “Insurers should play a role in shaping the IoT landscape and Lloyd’s has proposed several options, from leading on data standardisation to working with governments and tech companies. Insurers should proactively talk with clients to review and assess all risks associated with the IoT, to provide them with advice on best practice and appropriate risk solutions, thereby shaping the development of the IoT ecosystem in which they operate.” Madeline Carr, director of the UCL Department of Science, Technology, Engineering and Public Policy’s Digital Policy Lab, commented: “Any large-scale technological shift raises challenges to the status quo and creates opportunities for those who see them early on in periods of transformations. Early adopters, especially in markets, are afforded additional benefits, as they can shape expectations, terms of engagement and best practices in ways that address their interest. This report with Lloyd’s provides a timely study of not only the challenges but also multiple opportunities that the IoT will introduce into the sector.” Demand for cyber insurance is expected to spike as businesses adopt more IoT technology and new types of loss – including loss of data, loss of privacy, loss of business, loss of reputation and exploitation – will need to be covered, the report notes. At the same time, physical risks and digital risks are expected to converge, with breach of digital systems leading to fires or bodily injury claims. “This interplay requires risk assessments to account for both physical safety and information security, with pre-existing risk assessments having neither adjusted to this variability and scale, nor accounted for the dynamism of interconnected IoT systems,” the report states.

IoT will drive insurance innovation: Lloyd’s report

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