IoT Data Is Disrupting the Insurance Industry

Insurance is an almost 5,000-year-old concept invented by Chinese merchants who started to spread their cargo across multiple ships. If one ship went down, every merchant would lose some cargo, but they were protected from losing everything.

Today, the insurance industry touches almost every facet of our lives. In some ways, the Internet of Things (IoT) seems custom-made to meet the needs of the insurance industry. What could be more useful to an insurance company than accurate, real-time data? IoT technology is already restructuring the business of quotes, claims, and liability.

Who's Liable for an Autonomous Machine?

Undoubtedly, autonomous machines and vehicles will drive new conversations around liability. In 47 states, the law requires that all vehicles on the road must be insured. Currently, the driver is both responsible for acquiring insurance and also liable for accidents. With the introduction of self-driving cars, the issue of liability has become much more complex. Product liability may seem like an obvious solution, however, product liability litigation can produce cascading claims depending upon the type of coverage.

For example, in March of 2018, a woman was struck and killed by an autonomous vehicle in Uber’s fleet in Tempe, Arizona. It was the first pedestrian death associated with a self-driving car. At first glance, it would appear that Uber is liable for the accident. The self-driving car was their product. But Uber buys their Lidar sensors from a company called Velodyne. The woman was hit at night on a dark road, and the Lidar sensors supplied by Velodyne are the component responsible for the self-driving car’s night vision.

To further complicate the situation, the car's Lidar sensors did technically detect the woman. Marta Thoma Hall, the CEO of Velodyne, wrote, “Certainly, our Lidar is capable of clearly imaging Elaine and her bicycle in this situation. However, our Lidar doesn’t make the decision to put on the brakes or get out of her way.”

Therefore, the safety driver, hired by Uber, is also a relevant component in this situation. The degree of driver control over the vehicle can affect the division of liability between Uber and the driver. The safety driver’s role was to intervene if the autonomous system ran into difficulty, and they failed to intervene in this circumstance. Current product and auto insurance structures fall short of adequately covering this scenario.

Some insurance companies have begun to brainstorm a new type of insurance for autonomous machines. AIG has assembled a team of stakeholders to prepare for autonomous vehicles. The major focus for AIG is the anticipated shift from Auto Liability to a new version of Product Liability, where the vehicle, sensor, and software manufacturers take on responsibility.

“The future isn't coming, it's here now and everyone has to acknowledge the rate of change will only intensify." — Harry Stork, AIG

Learn more from Harry Stork and other industry leaders on Connected Insurance’s panel Modernize your Innovation Strategy: Structure Your Investment and Priorities to Maximize Result.

Are Drones the New Claims Adjusters?

The rise of natural disasters over the last two years has encouraged the use of drones in the claim adjustment industry. Land and property affected by hurricanes, floods, and wildfires can be dangerous or inaccessible in the days after the disaster. Insurance companies are often pressed to work quickly in these scenarios, but rarely can they send an adjuster immediately. That’s where a team of drones comes in.

A single roof inspection typically takes an hour—plus travel time. A drone can capture the same information in 10-20 minutes, depending on the size of the house, according to USAA. In 2015, Erie Insurance was one of the first insurance companies to request permission from the Federal Aviation Administration to use drones for claims adjustments. Erie’s first drone was deployed to inspect a roof that had undergone maintenance due to ice damage the previous winter. In 2017, USAA, State Farm, and Allstate all deployed drones to assess insurance claims.

“On a case-by-case basis, a drone could provide for safer, faster inspection of the property, and that would be a benefit to our insured.” — Gary Sullivan, Erie’s Vice President of Property and Subrogation Claims

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While drones have benefits, they also have drawbacks. For example, they can’t fly near airports or military bases, they have to submit their flight path to the FAA prior to taking off, and they're incapable of collecting the same level of detail that a human adjuster onsite could. Drawbacks aside, almost every major insurance company is currently at least considering drones, but only time will tell how widespread adoption will become.

Usage-Based Insurance & Telematics

Usage-Based Insurance (UBI), also known as the "pay-as-you-drive" model, calculates the cost of your insurance by analyzing the type of vehicle used, measured against time, distance, behavior, and place. Unsurprisingly, auto insurers are the leading adopters of Usage-Based Insurance. By 2020, over 50 million US drivers will have tried UBI.

Data is at the core of the UBI model. The insurance company receives everything from a customer’s average speed to their real-time location. This data is used to create the driver’s risk profile. This model would attract safe drivers but deter reckless ones. Many insurance companies have begun testing different forms of UBI. AIG Ireland has already begun pushing for legislation that would make telematics-based UBI mandatory for all drivers under the age of 25.

“We feel telematics is a win-win, not just for road safety but also for our customers, many of whom are delighted with the cost savings and being rewarded for safe driving.” — Declan O’Rourke, General manager of AIG Ireland.

To learn more about building connected insurance products, attend the product development track at Connected Insurance.

A variety of technologies underpin UBI, but the fastest growing application is the use of the vehicle’s OBD-II, or onboard diagnostics, port. Beginning in the 1980s, automotive mechanics used the OBD-II port to gather diagnostic information for vehicle maintenance. By 1996, all vehicles sold in the US were required by federal law to have an OBD-II port. The OBD-II system can report how fast a vehicle is traveling, track a vehicle’s engine revolutions per minute (RPM), help calculate fuel consumption, and even track trip data. It's more secure than most mobile and Bluetooth telematics solutions, but also more costly, requiring expensive hardware and professional installation.

Currently, no single telematics solution is a silver bullet. Insurance companies have only recently begun to introduce different telematics options for their customers into the market. In the US, 70% of all insurance companies are expected to offer some type of telematics UBI solution by 2020.

Looking Toward the Future

There’s no doubt that the insurance industry is changing. The Internet of Things has introduced a wave of new technology, opening the door to disruption on every level from personalized products to real-time engagement and seamless service. In the last four years, insurance startups have taken off, responding to the demands of the new connected customer. Carriers are racing to stay on the front lines.

“Without a doubt, carriers will need to transform—and not only their operations but their behaviors and mindset as well. Insurance is no longer just about the numbers, it’s about providing a frictionless and value-add customer experience at every point in the value chain. Our competition looks different than it ever has before; the stakes have risen and it’s time to meet the challenge.” — Michelle Rustler, Strategy & Optimization Director at American Family Insurance.

Learn more from Michelle Rustler and other industry leaders on how to modernize your innovation strategy at Connected Insurance.

Everyone in insurance knows change is coming. Connected Insurance, an event focused on the Internet of Things' impact on the insurance industry, is providing a platform for these companies to come together and discuss innovation, technology, and the future of the industry. This year, we're focusing heavily on IoT’s impact on the insurance industry. Our panels center on innovations in claims tech and deep dives on the impact of autonomous vehicles. Companies like TCS, DataRobot, Quadient, and EXL will be showcasing their technology on the exhibit floor, demonstrating how their innovations are solving some of the industry's most pressing problems.

“Participating in the conversation, sharing challenges and getting real-world applications to challenging business problems will be a welcome test of our current thinking.” — Allen Lay, Assistant Vice President, P&C Digital USAA

Don’t miss this year’s Connected Insurance event. You can get $200 dollars off your registration with our discount code: 4915IoT200. Register here!