By Samantha Adessky · On March 30, 2017
What once used to be a cool piece of technology that some used for fun, has now become a central part of our day-to-day lives. Wearable devices, telematics and drones are just a few of the innovative ways that the Internet of Things — also known as IoT — has evolved from an emerging technology to an actual reality.
Since its inception, wearable technology has continued to grow in popularity. Currently, over 20% of Americans currently use wearables and Tractica, a leading market researcher, estimates that the market is expected to grow to $6.3 billion by the year 2021. Given the speed at which consumers are adopting the IoT, and the myriad benefits they deliver, many companies have begun utilizing the data collected from Wearables like Fitbits and Apple Watches to provide analytical insight on various health and safety issues, ranging from providing daily reminders to take medication and analyzing our fitness levels (such as hydration, electrolyte levels, heart rate etc.) to detecting signs of cancers. IoT technology has even changed everyday activities such as driving, with telematics technology successfully tracking and reducing risky driving behaviour. With increased data prevalence, however, consumers are now subject increased monitoring as companies continuously seek to better understand their customers and improve their profitability.
Insurance companies, whose primary challenge is to accurately assess and price risk, have been able to leverage the IoT to improve the depth with which they analyze a potential claimant. With an ability to more robustly gather and analyze data, the industry has adapted by introducing Usage Based Insurance (referred to as UBIs) policies. According to VentureBeat, by utilizing “predictive modeling” to formulate UBIs, insurance companies have been able to reduce prices, target more specific segments, and improve long term profitability, due to the fact that they can assess risk with greater accuracy and allocate premiums accordingly. Similarly, many companies within the healthcare sector have begun using these methods to monitor and assess lifestyle patterns based on data gathered from wearable devices, ultimately increasing product personalization, providing better service, and improving customer loyalty. Evidence of these consumer benefits can be seen with various health insurance plans. Increasingly, consumers have been able to reduce their premiums by demonstrating an improvement in some of their unhealthy habits, often as a result of the constant notifications they receive from wearables tracking their habits and keeping them on track.
In addition to improved customer service, companies are able to reduce consumer costs by improving fraud detection. By using information derived from “Big Data”, businesses are able to more accurately profile fraudulent users. Insurers using predictive modeling have begun matching new claims with past claims that have had indications of being fraudulent, which has allowed them to flag and follow high-risk accounts them for further investigation. In doing so, insurers have substantially reduced costs in a way that directly benefits consumers. According to the FBI, insurance fraud costs the average U.S. family “between $400 and $700 per year in the form of increased premiums”, which means that consumers stand to directly benefit from improved fraud detection. In spite of their clear utility, technologies that track behavior have raised new and critical questions regarding consumer privacy and security. Specifically, it is imperative that we understand how secure the data is and who exactly has access to it.
While many customers enjoy the price reductions and lifestyle improvements of UBIs, cyber security and data sharing continues to be a top concern. For most consumers, there is nothing inherently egregious about use of data itself. Instead, many are rightfully worried about the lack of transparency surrounding how the data is used and how it may be used against them. According to the Globe and Mail, the IoT produces 40 zettabytes of information annually, which is an amount so large and so difficult to secure, that many companies are ill-equipped to properly handle it. Furthermore, the novel and constantly evolving nature of the technologies has created a large regulatory gap that may never be filled in a fashion that keeps up with the speed of innovation. Say for example that a consumer is involved in a serious car accident. There is currently no legislation that regulates whether or not telematics data can be used by the police, and consumers are seriously vulnerable to penalized based on information that they did not know was being collected. Many consumers are also concerned that companies are not adequately protecting their information from cyber attackers. In a study conducted by icontrol Networks, a leading provider of connected technology, 44% of all Americans indicated that they were “very concerned” with the possibility that their information could be stolen or hacked from their smart home. Business Insider also found that many devices lack sophisticated security and encryption measures, enabling hackers to look directly into what consumers doing. Automobiles, for example, have increasingly been the target of hackers, who have developed tools for remotely accessing vehicles and represent an increasing dangerous security threat. Insurance companies are therefore being encouraged to update their security not just on IoT devices, but on all software applications and networks related to these devices, which in turn will cut into their margins. This begs the question: will insurance companies be willing to bear these costs and address this issue in a meaningful way?
While UBI awareness has grown from 39 to 43 percent since 2015, many customers have noted that discounts are not enough of a benefit to encourage them to participate in UBI policies. Citing privacy concerns, many consumers are seeking alternative ways to improve their lifestyle choices. In order to determine how both parties can use latest advances in technology to their advantage, insurers and consumers will have to strike a balance between the benefits offered by data-driven personalized insurance and the considerable privacy and security risks associated with the technology.