In a fascinating presentation at the March 2017 ACT meeting, Marc Saulsbury, VP of Hartford Steam Boiler Ventures, outlined a near-term future in which the insurance industry will have drastically evolved. Premiums will drop, as insurance products as we know them today will be less valuable; at the same time, valuable services will increase and make up the difference.
"Today, the world's largest taxi company has no cars," he said. "The largest hotelier has no rooms. The largest retailer has no inventory. Maybe the world's largest insurance company will pay no claims."
The Internet of things, or IoT, consists of "smart, connected devices of every shape, size and type connected to the Internet," Saulsbury said. It's the convergence of three different areas:
- Inexpensive hardware, which means easy investments in even mundane devices such as toasters.
- Ubiquitous connectivity—it's cheaper to connect that hardware to other hardware and to the Internet in any number of ways. There are an estimated 6.5 billion devices connected today, and the number will shoot to 50 billion by 2020.
- Inexpensive analytics in the cloud, which will make IoT prolific by making Nos. 1 and 2 easier.
Tiny sensors that power themselves in various ways from the environment, such as vibrations around them, mean infinite battery life and a significant difference in the products you can deploy, Saulsbury said. The sensors can operate quickly and on multiple levels. Equipment and offices can be monitored and controlled with far greater efficiency and with the capacity to interconnect devices at multiple locations and of many different types.
Insurance Opportunity
Saulsbury noted a major opportunity for IoT in the insurance industry, which he called "fundamentally a data industry."
"Interconnected devices will increasingly be at the center of equipment, systems and operations in industry," he said. "Major industrial and technology players are involved in IoT development. But none of them have the financial incentive that we do in the insurance industry."
With a major reduction in risk driven by IoT, total insurance industry premiums will fall, Saulsbury predicted. The industry will lose 40% in auto insurance premium alone. However, IoT-enabled service offerings as well as financial products will offset the revenue loss.
"Insurance will evolve from product-centric to service-centric, all powered by the Internet of things," he said. "Rapid advances in technology are disrupting the insurance industry with a shift toward near-perfect information that unpacks risk. Thus, there will be a shift from product toward new value-added services as a matter of course. With near-perfect information, the need to insure traditional risk decreases, and our core value proposition will need to adopt a service-first solution.
"We will address the future 'business moments' of our partners, client companies, brokers and facility owners with service-first offerings that define the nascent IoT landscape—coupled with insight, products and more."
With the insurance industry "entrenched in the innovation ecosystem," Saulsbury urged the industry to look at investments, acquisitions, partnerships and vendors. "Experimentation is important," said Saulsbury, who is liaison for HSB and affiliate Munich Re between investors and the IoT ecosystem of partners and technology.
"It's about ensuring the good rather than insuring the bad. We go from insurance to assurance. Underwriters of the future will be more like software developers than actuarial types," Saulsbury said. "We need to bring more nontraditional thinking into the business."
FROM THE EDITOR:
To access Marc's PowerPoint presentation, click here.