Fun fact of the week: I learned from a new biography of Milton Friedman that he had intended to become an actuary but failed the licensing tests and decided to become an economist instead. That's just one more reason to respect all you actuaries out there who, unlike one of the two most important economists of the 20th century (along with John Maynard Keynes), prevailed in your rigorous training. Well done.
Now on to business:
A webinar I conducted recently with John Riggs, chief technology officer at Hartford Steam Boiler, and Matteo Carbone, the founder of the IoT Insurance Observatory, made me rethink my expectations for the Internet of Things. I've been a proponent of its potential ever since I first heard the term, more than a decade ago, but they convinced me that it's time to stop thinking about potential and to start thinking about mass deployment.
The key exchange, for me, came when John described a 639% return on investment on their IoT work and Matteo, after coyly asking if it was okay for him to be controversial, said the ROI was TOO HIGH. He wasn't doubting the number. His concern was that the high ROI meant companies were ignoring lesser, but still highly promising opportunities, in the interests of demonstrating the potential of the IoT.
"Players have scaled only programs that are too good to be denied," Matteo said. "There are hundreds of other programs that will provide 80% return on investment, 60% return on investment, and all these opportunities should be deployed." He said he looked forward to the day when a major carrier would say, "We have 20% IoT penetration on our portfolio, not just on the niche we chose" for the initial test.
I encourage you to watch the whole, eye-opening webinar -- or, if you're pressed for time, at least the final 25 minutes -- but I'll give you a summary here.
Much of the discussion was about how connected sensors can detect problems so they can be corrected before they cause any damage. So I asked John to start off with a bit of the history of HSB, which began as an engineering company to inspect boilers and prevent explosions and only got into insuring the boilers and other equipment later.
He traced HSB's roots back to 1865, when a ship named the Sultana was bringing home Union soldiers who had been prisoners of war in the South, just days after the Civil War ended. A boiler exploded on the wildly overcrowded ship, and nearly 1,200 people died, making the disaster the deadliest in U.S. maritime history. One boiler was exploding every four days somewhere in the U.S., blowing away huge chunks of buildings, so a group in Hartford got together to see what they could do to diminish the carnage.
Fast forward to today, and John said HSB has been focused on the IoT for a decade.
"We're very much focused on keeping things up and running at peak performance, not paying out against losses, because in that equation, no one wins," he said. "You might get reimbursed, but you still had major inconvenience. You still had a disruption to your business. We want to mitigate that and if along the way we also mitigate losses, so be it. That works well for everyone involved."
John said they've counted up hundreds of millions of dollars of savings for clients based on their IoT work.
Matteo said, "We have examples from commercial properties focused both on real time risk mitigation and on providing IoT tools to the loss control team. We have experiences with construction, where the risk mitigation demonstrated strong returns. In Europe, there is a player applying IoT to medical malpractice. They are equipping surgery rooms with cameras and retrofitting sensors already present in the surgery rooms. We have examples of people using IoT data for continuous underwriting. We have examples in commercial auto. Here, the set of use cases is really complete, from using using telematics data for claims management to the safety programs and even continuous underwriting."
Matteo closed with an interesting observation about how to think about the IoT. He said he initially made a mistake by thinking about it as a product for insurers. Instead, he said, he has realized that it's a capability that must be drawn on for a whole range of products and services, but isn't itself a product.
As I said, I hope you'll take the time to watch the whole webinar. More broadly, I'd suggest you check out the Future of Risk series of which this webinar is a part. It includes some of the best thinking we've gathered at ITL over the past several months. While I love all my children, I'd especially encourage you to watch the "Predict & Prevent" webinar that kicked off the Future of Risk series. I'll also single out the Q&A with Nick Lamparelli on "The Biggest Opportunity for Innovation," which has become one of our most-read pieces in recent months, and an interview I did with Stefan Heck that asks the question, "Could Auto Accidents Be Reduced by More Than Half?" and explains why the answer is yes.
Stay tuned, too, because we're going to be doing a lot more with the Future of Risk in 2024.
Cheers,
Paul