Commercial property insurers are facing an unprecedented opportunity to redraw relationships with their clients. Technologies such as the Internet of Things (IoT) and cloud are creating an explosion of data, which can be used to deliver more value to both tenants and landlords, while enabling closer partnerships and fresh sources of revenue.
In our view, insurers that fail to act will be left behind, as their client interactions will become infrequent, cyclical, and ultimately diminished versus the new wave of smart insurance.
The increasing cost effectiveness of smart sensor technology opens the opportunity to transform commercial buildings into sentient systems. Data can be captured from multiple building networks, such as lighting systems, water, gas, air conditioning and alarm system. This data can then be used to “listen in” on how these systems are performing (see Figure 1).
For example, Amsterdam’s The Edge building – one of the most advanced office buildings in the world – uses Ethernet-powered LED lights that integrate with 30,000 sensors to continuously measure occupancy, movement, lighting levels, humidity and temperature. But even in older, less sophisticated buildings, new technology add-ons open the possibility to access and consolidate data from thousands of different types of devices and from various manufacturers that have been standard over the past 20 years.
This explains why leading institutions across the insurance industry are already developing IoT-powered commercial buildings. The British Insurance Brokers’ Association (BIBA), for instance, found that telematics-based motor insurance policies increased 40% in 2015 alone.
That said, the majority of commercial property insurers have yet to realize the benefits of IoT. This creates significant opportunity for first-movers that quickly transition winning pilots into production.
For commercial tenants, the business consequences stemming from property damage can be far-reaching. For instance, if a warehouse is closed due to water damage, it may be impossible for the occupying business to meet customer orders from an alternative property. Such events can disrupt an entire supply chain. Consequently, the company could suffer untold reputational harm.
This is largely due to disaster that could have been prevented. A recent study of Allianz’s proprietary claims, for example, found that 87% of business interruption resulted from non-natural hazards, with technical or human factors the key cause. As IoT technologies become more sophisticated and “smart” buildings become more prevalent, insurers can help customers to predict and avoid these risks, delivering huge potential savings and boost to goodwill.
Furthermore, captured data can be analyzed and used for a wide range of purposes and to the benefit of all parties, including building owners, individual occupiers, and insurers, among others. Sensors can detect faults in real time, enabling businesses to mitigate risk before it becomes serious. For example, by linking a weather station on the roof to the temperature systems within the building, it is possible to detect in real time if there is a problem with air conditioning, frost protection, or other maintenance equipment. Thus, continuous monitoring of the building’s inner workings make it far easier to see how well the systems are maintained, which allows repairs to be carried out before problems arise.
As the use of IoT in commercial property insurance becomes more commonplace, the relationships between insurers and their clients will evolve to become more collaborative and even valued. Claims, which cost insurers over 5 billion per year, should reduce either in frequency, size of payouts, or both, as insurers are able to help tenants and landlords take preemptive action against potential property damage. Underwriting accuracy should also improve since risk calculations will have access to more accurate and recent data about the operating performance of the building.
For the insured, health, safety, and best-practice regulations will be easier to enforce with the likelihood of risk to personal property, injury, or death diminishing. At the same time, insurers will be able to deliver insights that help tenants and landlords to better influence the costs and quality of the building’s services and systems with other providers. For example, dashboards that show use patterns and occupancy can reportedly reduce energy costs by 30%, according to market research from Gartner.
For the most forward-thinking insurers, even greater commercial opportunities may arise over time. Using their analytical expertise and experience in translating vast volumes of data into actionable insights, insurers could become key partners to key industries such as retail on their journey towards big data profitability. In fact, retail estate businesses such as Westfield of Australia are already investigating how shopping centers might automatically steer shoppers towards real-time offers and other points of interests via smartphone notifications.
Leading market researcher IDC forecasts that worldwide spending on the IoT will nearly double from $698 billion in 2015 to nearly $1.3 trillion in 2019. Simply put, this is an opportunity that commercial insurers cannot afford to miss.
To capture the new revenue on offer, insurers must move fast. But they likely will not capture these opportunities by themselves. They will need to forge partnerships with entities across the data value chain, from IoT manufacturers and cloud platforms, to third-party data providers and technical integrators. By developing these relationships, insurers can become an integral and valuable part of IoT ecosystem while transforming the value they create for the insured.