The imbalance between insurance and IoT
VP Business Development | Thingstream
There is an imbalance between the Internet of Things and industrial insurance. Hauliers and commercial logistics providers carry goods on long distance journeys across the globe with little to no visibility of what is happening to them.
Inevitably now and then goods are spoilt, lost or damaged. When this happens, hauliers and logistics businesses look to their insurers for support. It is the responsibility of the claimant to demonstrate what happened and for the insurer to decide who is liable for the loss. Difficulty often arises though when evidence is unavailable. For example, if goods vanish without a trace there are a whole number of potential scenarios; they could have been lost and left on the tarmac somewhere, stolen, or delivered to the wrong location. Information on where goods are, their status and state of repair can, therefore, be of particular benefit to owners, logistics providers and insurers alike.
There has been an appetite within the insurance sector to leverage technology in order to improve location, status and spoilage information, better knowledge of which could also work to lower premiums. With the right information, lost or stolen goods could even be traced and retrieved.
We’ve already seen the value detailed monitoring can bring insurance in the automotive insurance market. Consumers are having their cars fitted with black boxes as a means to demonstrate their safe driving and lowering premiums, and countless numbers of couriers, taxi drivers and hauliers have installed dash-cameras to live record evidence should they be involved in an accident.
Taking this one step further and monitoring goods themselves could work to have the same impact. Issues such as temperature changes, damaged packaging, or spoilage could even in some cases be fixed before whole shipments are lost beyond repair. As a consequence of better monitoring insurers could lower their liabilities and premiums and claimants would be able to receive compensation more quickly through providing instant evidence.
So why haven’t we seen widespread implementation? My view is the challenge has continually been cost. Current monitoring solutions, particularly in the supply chain have traditionally come at such a high cost that these outweigh savings made on premiums.
The first issue has been space. Traditionally goods monitoring systems have been too cumbersome and large to be stored directly with goods. To monitor something like temperature, the actual sensor is usually quite small, however, the means for the data to be communicated can be cumbersome due to the processing power required for transmission, whether it is via satellite or mobile data. As a result, where space is expensive, the cost of installing a monitor outweighs savings that can be made.
Secondly, comes connectivity. By nature, goods in transit are moved from one location to another and inevitably areas where coverage varies. The most obvious means for communicating information - mobile data presents an enormous challenge on its own. We’ve all for example have been without phone signals in areas where coverage should exist - and in areas where it does exist, but capacity issues result in dropped calls and a lack of internet connection.
A further challenge is cost. If goods are moving overseas, organisations will need to subscribe to multiple networks or purchase an expensive roaming SIM - yet again defeating the cost benefits that can be gained from lower insurance premiums through monitoring. Satellite tracking presents a slightly improved solution, but this also has reliability issues and can be influenced by incremental atmospheric changes.
The unfortunate imbalance is that it appears the cost of installing, carrying and operating effective monitoring for the insurance market is too high to justify the savings and benefits that can be generated. This does not, and should not be the case though.
Internet of Things monitoring for the insurance market simply needs to be approached differently. Devices need to be simple and affordable to connect and small to install. As a result, I believe the ideal solution could come in the form of a little known messaging protocol called unstructured supplementary service data (USSD).
Effectively an internet without the internet, USSD is a secure messaging protocol which is globally available as part of GSM networks. It has however traditionally been underused. It can operate as a transport mechanisms for internet of things and its ubiquity makes it an ideal solution to enable insurance firms to monitor goods.
USSD requires little power to operate, enabling devices to be active considerably longer than a mobile data based solution, and SIMs can be installed into devices not much bigger than a USB memory stick - making the cost of space significantly less than alternatives. Given there is no internet being used - there is also no need for expensive microprocessors and components to communicate the data - in turn reducing complexity and costs for manufacturing devices.
USSD has the potential to resolve the existing imbalance between insurance and IoT. Technology applications that could lower premiums and simplify processes have been viable for a number of years, but we haven’t seen mass uptake because of the practical challenges presented around connectivity and cost of integration. With the right technology however, IoT can live up to its potential in insurance, restore the balance and critically drive financial and practical benefits for all involved.
Posted on: July 6th 2017