KEY TAKEAWAYS:
--Insurers can access new data streams to identify new risks, such as to city infrastructure, including smart grids, intelligent transportation systems and IoT-enabled devices.
--New, sustainable and efficient transportation systems, such as electric vehicles, bike-sharing programs and autonomous vehicles, create unique risks that require coverage.
--Smart cities face increased cyber risks, and insurers should collaborate broadly with officials on new legal and liability issues.
--Insurers can encourage eco-friendly initiatives by offering incentives.
--They can also leverage telematics data collected from connected vehicles to offer usage-based insurance policies.
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Smart cities and insurance are intertwined in various ways. As urban areas around the world continue to embrace smart city technologies to improve efficiency, sustainability and quality of life, insurance plays a crucial role in mitigating risks and supporting the development and sustainability of these cities.
Urban areas are growing at lightning speed. Worldwide, there are now 37 cities with populations of over 10 million, and, by 2050, around 68% of the global population will live in urban areas.
As more people move to cities, rapid technological advancements have given rise to innovative solutions that enhance the quality of life and streamline daily tasks in urban areas.
What Are Smart Cities?
Smart city initiatives focus on integrating technology and data-driven solutions to improve urban infrastructure, transportation, energy efficiency and public services. The implementation of these innovations extends beyond individual homes to encompass the entire urban landscape, affecting insurance in several ways.
Here are some key aspects where smart cities and insurance intersect:
1. Risk Management and Data Analytics: Smart cities use advanced data analytics and real-time monitoring to identify potential risks and vulnerabilities in the urban infrastructure. Insurance companies can collaborate with smart city authorities to access and analyze this data, enabling them to develop customized insurance solutions for specific risks faced by the city. For example, insurers can offer policies tailored to address issues such as infrastructure failures, cyber-attacks or natural disasters.
2. Infrastructure Coverage: Smart cities often involve extensive and complex infrastructure networks, including smart grids, intelligent transportation systems and IoT-enabled devices. These connected systems may be susceptible to various risks, such as cyber threats, equipment failures or physical damage. Insurance providers can offer coverage to protect against these risks and provide financial assistance in the event of disruptions or accidents.
See also: Smart Cities, Smart Choices for Insurers
3. Mobility and Transportation: Smart cities often promote sustainable and efficient transportation systems, such as electric vehicles, bike-sharing programs and autonomous vehicles. Insurance companies can adapt their policies to address the unique risks associated with these emerging technologies, such as accidents involving autonomous vehicles or specialized insurance products for shared mobility services.
4. Cybersecurity: With increased reliance on digital technologies and IoT devices, smart cities become potential targets for cyber-attacks. Insurance companies can offer cybersecurity insurance policies to protect against data breaches, ransomware attacks and other cyber incidents that could disrupt city operations and services.
5. Liability and Regulation: As smart city technologies evolve, new legal and liability issues may arise. Insurance providers can work with city planners and policymakers to understand these emerging risks and help establish appropriate insurance requirements and regulations. This collaboration ensures that both public and private stakeholders are adequately protected.
6. Environmental and Climate Risks: Smart cities often incorporate sustainability measures to address environmental challenges. Insurance companies can encourage eco-friendly initiatives by offering insurance incentives for environmentally responsible practices, such as energy-efficient buildings or green infrastructure.
7. Telematics and Usage-Based Insurance: In the context of smart transportation, insurers can leverage telematics data collected from connected vehicles to offer usage-based insurance policies. These policies adjust premiums based on actual driving behavior, promoting safer driving practices and potentially reducing the number of accidents.
New York City's Connected Cars Program is a smart city project that uses connected vehicle technology and IoT sensors (e.g., smart street lights and cameras) to gather real-time data about where drivers made sharp turns or braked abruptly because of traffic congestion and poor road conditions.
Leveraging data from connected devices, innovative data-collecting technologies and other smart city technologies can help officials and insurers across many lines of business better understand urban risks, allowing them to analyze trends and patterns effectively.
The McKinsey Global Institute found that smart technology can help improve quality-of-life indicators in cities by 10% to 30% -- numbers that translate into lives saved, reduced crime, shorter commutes, a lower health burden and carbon emissions averted.
More urban areas are adopting smart city approaches, many of which are aimed at reducing vehicle accidents, improving public health, enhancing the quality of life and predicting and preventing risks. Over 225 municipalities in Canada have expressed interest in exploring smart city benefits.
Overall, the integration of insurance solutions into smart cities is vital for creating a resilient and sustainable urban environment. Collaboration between insurance providers, city planners and technology experts can lead to innovative approaches that address the unique risks and challenges of the urban landscape in the digital age.
