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Internet of Things (IoT)

Last Updated 7/30/18

Issue: The Internet of Things (IoT) is a network or system of internet-connected devices transmitting, collecting and sharing data. IoT applications are present in nearly all industries and aspects of daily life. Among the most mature and fast growing IoT applications involve connected vehicles using telematics, smart home devices (e.g., Amazon Alexa), and wearable devices (e.g. Fitbit). Today, there is more than one connected device per person in the world, and by some estimates the figure will reach seven devices per person by 2020.

IoT-connected insurance represents a new paradigm for the insurance business. This new approach is based on the use of sensors to monitor the state of an insured risk transforming rough data in usable and actionable information that can be immediately processed along the insurance value chain. Advances in IoT can improve productivity at top line levels, overall profitability of the business and the risk profile of the portfolio. Also, through IoT, insurers can better connect with consumers adding important touch points in particularly sensitive phases, such as acquisitions and claims. Moreover, IoT advances can be realized for the full range of products and lines of business, from commercial, to life, property and casualty and health.

Background: The use of IoT sensor data opens up many opportunities. IoT technology-with the proliferation of data from sensors and smart devices-present great opportunities for insurers to reduce and mitigate losses, improve underwriting and enhance the personalization of products and services.

New data types allow for increased precision in assessing risk and pricing policies. Underwriters could, in theory, recommend real-time pricing and policy term adjustments through continuous monitoring and assessment. The integration of IoT can also help in loss mitigation and prevention through behavior modification and active alerts. For example, drivers using telematics learn how to be better and safer drivers and sensors placed in cars and homes can provide warning signals when recognizing unusual actions/patterns which could potentially lead to accidents or damages. In fact, sensors used during Superstorm Sandy in 2012 allowed insurers the ability to track the impact of the storm. Policyholders were then contacted immediately, describing the imminent risks.

IoT can also give insurers much greater insights into consumer behavior creating greater levels of granularity in risk modeling. Since IoT greatly expanded the universe of accessible data, it provides opportunities for more personalized service offerings to consumers. For example, wearable technology provides increased and connected data streams to help determine consumer needs and life changes. Medical wearables are starting to be introduced, providing real-time access to health records and quicker diagnosis and treatment of various conditions. In addition, through auto telematics, insurers can now provide value-added services, such as driver feedback, theft prevention and road assistance.

For instance, Biotricity, an innovative medical technology company, has built its foundation around the use of IoT. They created a wearable called Bioflux, a remote cardiac monitoring system for use by physicians in testing and diagnosis. The IoT hardware is flexible, and can be applied to different applications by changing the sensors integrated. The IoT helps Biotricity produce real-time analytics on patients, as well as actively monitoring health conditions. Auto telematics company, Geotab has also started using IoT to gather measurable data and detect dangerous intersections and roads while driving using a connected device. Their use of IoT helps extract accurate and actionable intelligence from real-time and historical trips data, to assist the driver. This then allows consumers s to view all vehicle and driving information in one place, creating a simpler and safer experience for the driver.

However, the increasing use of IoT does present a number of risks and challenges for insurers. As IoT applications are becoming more ubiquitous, more opportunities for cyber criminals and fraudsters open-up. With data transferred back and forth from system to system, the risk of interception increases. New IoT products may also lead to new types of applications and claims fraud. As a result, IoT may require an expansion in data security and fraud protection. Additionally, big data used in IoT brings the challenge of processing and analyzing in a timely manner. A data management strategy will likely help merge the new IoT-sourced data, and the traditional data like customer and policy records, to help manage IoT as a core asset.

Status: The NAIC tasked the Innovation and Technology (EX) Task Force to provide a forum for the discussion of innovation and technology developments in the insurance sector, such as the IoT. Most recently, this included the NAIC Insurance Summit in June 2018.

The Task Force is also charged to discuss emerging issues related to insurers or licensees leveraging new technologies-in addition to potential implications on the state-based insurance regulatory structure-including, but not limited to, reviewing new products, cancellations, nonrenewals, coverage issues, notice provisions and policy delivery requirements.