Other parts of this series:
The potential of connected products and services is immense. As the Internet of Things (IoT) continues to expand, the IoT-driven change we are seeing in business-to-consumer sectors like media, retail and financial services is becoming increasingly visible in the industrial sector. As adoption of the Industrial IoT (IIoT) matures, it will revolutionize the industrial sector. It’s also going to open up a huge opportunity for insurers—and for collaboration with insurers—to offer custom-made protection services to customers in a more connected world.
The most conservative independent estimates place spending on the IIoT worldwide at $20 billion in 2012, with this expected to reach $500 billion by 2020. Predictions of the value created by the IIoT range as high as a $15 trillion boost to global GDP by 2030. Who will benefit?
Industry analysis and research by Accenture Strategy indicates that more than 80 percent of future IoT vendor/supplier revenue will go toward the software services that ride on top of IoT connectivity. The industries that will capture the most value from IoT are insurance (26 percent), manufacturing (20 percent), and banking and securities (14 percent). The race is thus on to provide targeted IoT—and IIoT—services for each of these industries. IIoT offers a wide scope for solution innovation.
The IIoT brings asset and system performance data together with other big data (e.g., weather, market pricing, and supply chain data), and extends the reach of this data via the Internet, providing data owners and users with an enhanced ability to directly control the physical within the industrial world—factories, infrastructure, machines. This results in smarter decisions up and down the value chain and, eventually, organizations that are able to respond agilely to the demands of a pull economy—a potential future economy that responds to changing needs of value chain participants rather than to the predefined contexts that govern our present ‘push’ economy.
How does insurance fit? Four ways.
First—the asset angle
With the integration of IIoT capabilities into products and supply chains, intelligent product lifecycle management—from production, through commissioning and maintenance, to recycling of the product—becomes possible, potentially extending the life, reliability and usefulness of products.
For example, data from sensors embedded in key operational assets (a chiller, conveyer belt, plant equipment) will broadcast the condition of in-service assets, driving pre-emptive maintenance. This opens the possibility for the product provider to guarantee reliability for the useful lifetime of the product, and to influence or prompt user behavior. For insurers, this kind of performance, usage or asset data may contribute to risk calculations or scoring, and faster claims handling. It will also assist them to offer additional risk mitigation services.
Second—the systems advantage
As insurance customers’ operational technology (OT) and IT systems become more ‘connected’, the smart assets within these systems can be used intelligently within broader customer systems to optimize outcomes and manage risk. Thus, instead of just focusing on managing plant assets and their components, an operations manager on a factory floor can begin to respond more intelligently to multiple inputs from IT and OT systems, anticipating and course-correcting for larger at-risk outcomes, like meeting production quotas.
Another example? At a connected mining operation, inputs from predictive asset maintenance systems and from connected worker- and fleet-management systems can guide pre-emptive risk mitigation to prevent business interruption – i.e., a connected worker may confirm the condition of ailing plant equipment and a connected fleet management system may dispatch a replacement. This suggests an insurance solution that is informed by multiple integrated systems that work together to mitigate risk—something an ecosystem of partners may work together to develop, or an insurer may prompt. We call this a smart protection platform.
Third—the automation advantage
A third opportunity for integrating insurance solutions comes with automation and the introduction of machine learning. With IT/OT integration—the merger of enterprise IT and the operations technology (OT) that monitors and controls field equipment and production processes—smarter prompts will drive more complex, high-value decisions.
These decisions may incorporate machine-to-machine learning, machine-to-human communications, and automation; and they may be governed by operational, safety and other KPIs, as well as revenue, customer, supply chain and ecosystem drivers. The claims and risk management experience of insurers can greatly help to optimize insurance services and protection, potentially enabling the automated addition of insurance covers if certain triggers are pulled or KPI thresholds are reached.
Fourth—the ecosystem opportunity
A fourth dimension of opportunity for insurance comes with the interplay of the various IIoT-driven elements within the larger digital ecosystems of partners (e.g., the plant equipment, fleet system and connected worker system providers) that are forming around customers to create solutions that drive outcomes. Selective joining up of the systems of ecosystem players could benefit all stakeholders. It will also open opportunities for the development of new products and services around risk management and insurance.
For industry players, it could open up a marketplace for information on the preferences, usage, behaviors, and conditions of users, equipment, environment, and more. It is also likely to open a marketplace for apps (app stores). With interoperable products and shared user profiles, preferences and behavioral patterns across assets, organizations could offer outcome-based services and remote operation, diagnostic and optimization services across multiple assets.
One example is Allianz, which has partnered with Bayer AG and a number of German farm-equipment makers to form a consortium called 365FarmNet. They have established a marketplace for agricultural information where growers can buy GPS, diagnostic, crop, fertilizer and other data from any consortium member; download it to their computers and farm equipment; and use it to take action, such as drawing up crop plans for the coming planting season and calculating their insurance requirements.
Using a utility business model, an insurance provider may create a relationship with a large industrial ecosystem orchestrator, redefining insurance within the context of the ecosystem, and using analytics and claims data to introduce value-added services. For both the ecosystem orchestrator and insurer there is a multiplier – the relationship is leveraged for customers and the insurer gains access to new customers through the creation of an ‘affinity’ business.
New symbiotic relationships will form
Each of these scenarios offers clear opportunities to add value, insure outcomes and tailor behaviors to mitigate operational or output risks. It opens considerable opportunity for collaboration between product manufacturers, insurers and their respective customers – the opportunity to tailor insurance to meet very specific needs, offer customers more options and potentially lower insurance premiums and, most importantly, the opportunity to prevent a claim.
With collective data from customers and multiple insurance partners, the industrial organization expands its products business into a services business and into insurance services. Everyone benefits:
- With stats on asset or system usage and performance from the industrial-sector company, customer insurance decisions are more informed.
- Through linkage to an insurer, or multiple insurers, the customer has access to a wider range of insurance options.
- The industrial organization can negotiate on its customer’s behalf, sharing data with the insurer to enable better risk management.
- The industrial organization may conveniently deliver insurance through its service platform.
- The insurer gains value through increased service sales.
- The insurer, through access to customer and usage data, can mitigate risks and keep insurance premiums low.
New insurance models
I envisage multiple new ‘connected’ insurance models emerging. They will be driven by industrial sector players looking at increasing customer value, providing product differentiation, and entering new, related markets. New insurance models will also be driven by insurers looking to expand their product portfolio and cater to players in a more connected, outcome-driven environment.
Look for my next blogs for deeper insight into the journey to new IIoT insurance models for insurers and industrial sector players and a look at how insurers are rewiring insurance for the IIoT.