Lloyd's Networked World : Addendum

Posted 23rd December 2018 by John Needham

Further to the release of Lloyd’s IoT report and the enquiries we’ve received on our contribution, we thought we’d publish the “directors cut”. Please enjoy reading this below.

What is a Citizen Engagement Platform?

Citizen engagement platforms that use a city mobile app to help users discover and engage with their local area are being developed and tested in cities around the world. The idea is that, instead of citizens using multiple apps to access local amenities, everything is put in one place for them.

Loqiva is a mobile city services platform and payments solution where citizens, local businesses and the council can work better together, supported by contextual intelligence and IoT. Citizen experiences like personalised digital advertising displays, sensor-led parking and responsive street lighting can be triggered through the platform using a citizen’s mobile phone.

How can the insurance sector help councils to create smart cities?

The smart city vision is to have all IoT devices – from streetlights to building sensors – connected through a single, consolidated network so that councils can manage their resources more effectively. The issue is that every IoT device is a possible point of attack.

Technology can be used to mitigate this risk (e.g. via subnets, Web Application Firewalls, improved IoT firmware, etc.), but the scale and complexity of city-sized systems mean that catastrophic scenarios are, however remote, a possibility. Such scenarios might include a Distributed Denial-of-Service (DDoS) attack from a group of compromised IoT devices, or a targeted attack on public digital displays or traffic management systems.

Cities embarking on IoT initiatives are acutely aware of such risks and require that technology vendors adequately manage them. Contractual limitations of liability however, are likely to vary considerably between vendors and city IoT projects, and this is where insurers can play a significant role. Not only can they support cities with contract evaluations, but they can also provide the financial resilience they require against unforeseen costs, claims and losses. Better packaging and promotion of this kind of product could potentially help advance the rate at which IoT is adopted by cities worldwide.

In parallel, cities are looking for innovation from insurers. Future cities generate huge volumes of high definition data in real-time on everything from air quality to energy, crime to citizen behaviour. Similarly IoT is a very new industry where the dominant technologies, and the business models required to finance them, are still to be fully defined. A 2017 report by Black and Vetch stated that whilst most cities are willing to initiate IoT projects, just 16% have the means to self fund them. Most cities are reliant on grant funding and public-private partnerships (PPP).

Insurers are incredibly well-placed to take advantage of the new wealth of data produced by smart cities. Future-thinking InsurTech could help cities, through PPP models, to monetise this data and fund IoT infrastructure. It’s worth noting that Ping An Insurance, China’s largest insurance company, is investing more than US$1bn in technology R&D this year. In August, they unveiled their 1+N Smart City Platform at the Fourth China Smart City International Expo in Shenzhen. The platform supports 10 core smart city sectors including: smart administration, insurance, security, transportation, port, financial trade, finance, education, healthcare, real estate, environmental protection, and elderly care.

IoT offers insurers the potential to monitor risk profiles in real-time, enter new markets and deliver services in completely new ways. It going to be an incredibly disruptive force and, in some market sectors, insurers may need to stay a step ahead and engage with data owners like city councils to stay relevant.

3. Where can insurers get involved?

Today, many IoT projects are moving beyond small-scale pilots towards full-scale city deployments. Insurers should get involved to initiate their own demonstrator projects.

To learn more, insurers can engage with cities, industry associations, management consultancies, technology vendors and smart city consortiums. In the UK, the government backed Future Cities Catapult should be the first point of contact for insurers looking to collaborate on new urban technologies like IoT. Internationally, insurers should approach the Smart Cities Council.

From an industry perspective, it appears an IoT data framework for insurance is needed, with its own markup language ready to connect via APIs to insurer-side exchanges. To achieve this, the industry requires a representative body, or a pioneering insurer, to be part of the global IoT conversation and willing to invest in new technologies long term.

4. What’s the future?

Technologies like Blockchain, AI, robotics, 5G, IoT and serverless systems will mature over the next 5-10 years. Together, they have the power to transform the way we live and work. For example, self-driving cars already exist today thanks to the sophisticated AI pioneered by the likes of Google, Tesla and Apple.

It’s inconceivable that insurance won’t be radically changed by this technology. Not only will certain types of insurance wane in popularity as data prevalence helps shift the customer’s perceived and real risk, indeed some insurance products may need to evolve or cease to be relevant at all. For instance, will insurers for self-driving cars take into account the driver or the marque when calculating the premium? Will future generations even bother to take a driving test or own a car? Will the market for car insurance constrict over time assuming car sharing becomes more popular? McKinsey predicts that up to 15% of all vehicles will be autonomous by 2030. Who will own these?

What is likely is that IoT, together with all the above technologies combined, will significantly change how insurers package, promote and manage their products. With big data, we are likely to see real-time risk analysis using AI and predictive analytics, and new formats for pricing policies based on the thousands (potentially millions) of new data points customers have available.

Some market sectors might become commoditised, although IoT also offers insurers new ways to differentiate themselves. Application of new technologies, exclusive brand partnerships, improved market segmentation and on-demand service provision will assist with retention and brand loyalty. Administrative processes might change too. For example, insurers may need to see 3 months of data from these feeds prior to arranging cover, much like banks do with commercial loans today.

In short, all of these technologies generate more granular, more timely data, or help to manage data more effectively. The future will provide greater visibility of risk for insurers, and potentially better prospects for profitability.

5. Where are the commercial opportunities?

When it comes to monetisation, questions around data ownership, security and privacy arise. City councils exist to protect citizens and enhance their standard of living.

If anything, forward thinking councils are looking to hand back data ownership and management to citizens using blockchain technologies. Many councils also have open data initiatives that allow third parties to freely use and redistribute publicly accessible city data.

Councils wishing to monetise data to pay for public IoT infrastructure will likely limit this to anonymised information in the first instance. Personal data would only be transferred if citizens explicitly ‘opted in’ – for financially or socially beneficial reasons.

In any case, the most practical solution would be for cities to provide an API to insurers to be able to access authorised datasets. The API would use an agreed IoT data standard for insurance, and insurers would be charged an amount by cities each time a request for data is made. The industry could then take this one step further and aggregate all UK city data into a single exchange.

Another route for insurers is to partner with a citizen engagement solution like Loqiva. Our platform provides an ‘opt-in’ service for citizens who are willing for businesses to use their demographic profile to recommend best fit information, products and services. Insurers will be able to access this information like any other business on our platform.

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