The Internet of Things and Property/Casualty Insurance

Can an Old Industry Learn New Tricks?
by Donald Light, April 23, 2014
Industry Trends
North America

Abstract

The world is changing. It is becoming more connected. People, places, and things are using these connections to exchange an exploding amount of digital information and data. This digital stuff is stored and analyzed, and then yields predictions, feedback, and control. The Internet of Things will change the property & casualty business.

The Internet of Things (IoT) has three, interdependent components: things with networked sensors, data stores, and analytics engines.

© 2014 Celent, a division of Oliver Wyman

“From an insurance perspective, what is new and different and critically important about this data is that it can provide a much more accurate picture of the exposures, hazards, and risks of what is being insured,” said Donald Light, Director of Celent’s Americas Property/Casualty Practice and author of the report.

“These analytically driven findings create the second critically important consequence of the IoT: insurers can create feedback and control processes to command or request things to change their loss-related behavior and performance.”

This report discusses how the IoT will give insurers first order data on a great many hazards and risks, and the ability to create feedback control processes to substantially reduce losses.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

Introduction

2

What Is the Internet of Things? And How Will It Affect Insured Losses?

3

 

Things with Networked Sensors

3

 

Data Stores

4

 

Analytic Engines

5

Insurance and the Internet of Things

7

 

Objects of Insurance, Exposures, Hazards, and Risks

7

Things, Sensors, Hazards, Risks, and Lines of Business

8

 

How the Internet of Things Will Help Insurers Price Correctly

8

 

Four Kinds of Things

8

What Can Limit the IoT’s Ability to Reduce Losses?

12

 

Operational Contingencies

12

 

Root Causes and Feedback Contingencies

12

The Downside of IoT: Making the World More Dangerous and Intrusive

14

 

Dangerous Failures

14

 

Intrusions

14

The Internet of Things and the Insurance Value Chain

15

Conclusion: Could Insurance Lead the Way? Will Insurance Lead the Way?

16

Leveraging Celent’s Expertise

18

 

Support for Financial Institutions

18

 

Support for Vendors

18

Related Celent Research

19

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