Other parts of this series:
Despite the promise of the IIoT, ramping up to become a ‘connected’ organization in the industrial sector presents challenges—it’s a journey. First movers illustrate how industrial players are beginning to take advantage of the IIoT, while the IoT platform strategies of big players like GE, Schneider and Siemens billboard the direction the sector is moving in. What insurance models could be applied to maximize returns—for insurers, industrial sector players, and their customers?
How will the Industrial Internet of Things (IIoT) impact insurance? The potential is significant. Interest is growing among insurers as industrial sector organizations begin to seriously explore and use the IIoT, and digital trends force insurers to move beyond traditional insurance models.
For insurers, the move to connected insurance has already begun. For them, the question is how can they collaborate with industry players, leveraging IIoT data and customer relationships, and extending their reach via the new ecosystems developing around connected products and services.
The answer lies in understanding the extent of the opportunity, for both industrial players and insurers, and what insurance models might fit the needs of customers as use of the IIoT matures.
What will an IIoT-enabled organization look like?
The IIoT provides a new foundation for designing leaner, smarter and more customer-centric businesses. It opens up a world of new opportunities for industrial sector organizations. Combined with analytics, AI, robotics, automation, machine learning and intelligent applications, the IIoT will drive operational efficiency, and enable industrial sector organizations to add value for customers, introduce new products and services, enter new markets and begin the push toward a new state of capability – participation in an outcome-driven pull economy.
How does that translate?
With more data available from millions of connected devices and systems, the IIoT ramps industrial organizations up from merely having standard information about products and services, to accessing information that highlights users’ preferences and behaviors, as well as the condition of equipment, the environment, and more. IIoT-enabled assets can be optimized based on usage, environment and other factors, can be remotely updated, and can provide notifications and alerts as needed.
As the IIoT becomes integrated into enterprise and other systems, it will also enable remote operation of equipment, remote diagnostics and optimization, and predictive maintenance. And, as the IIoT-enabled organization connects to other organizations within a broader ecosystem to provide a more comprehensive solution, the IIoT will help inform end-to-end automation.
In a mature IIoT environment where machine-to-machine communication and learning, and end-to-end automation of manufacturing is envisaged, continuous demand-sensing will enable a response to customer demands and market forces, enabling the connected organization to participate in an outcome-based pull economy—an outcome economy being one in which ecosystems of partners form around customers to deliver a multi-faceted service, or outcome, rather than just a product; and a ‘pull’ economy describing an environment in which production outputs respond more directly and precisely to changing market demand.
So where does insurance fit?
In this new connected environment, there is a glaring opportunity to introduce a new type of insurance solution, one that is continuously informed by comprehensive real-time data on risk, tailored to manage the risk of specific industries and organizations, and highly responsive.
An insurance solution such as this will provide the customer with ongoing risk mitigation measures, dynamically adapting to meet changing risk profiles based on performance data and the behavior of users. Insurance in a connected IIoT world is also likely to be served up differently, via more versatile interfaces and regular touchpoints, and to offer insurance in new forms, such as pay-per-use and small-ticket insurance (also referred to as microinsurance).
However, while the IIoT is on the horizon of every industrial sector CEO, achieving full industrial digitalization will require massive change.
This offers industrial and insurance players a window to strategize.
Add-on insurance for early IIoT movers?
Early movers are focused on the two key IIoT attractions:
- Operational efficiency achieved through automation and more flexible production techniques, which can boost manufacturers’ productivity by as much as 30 percent.
- Predictive maintenance of assets, which can save up to 12 percent over scheduled repairs, reducing overall maintenance costs by up to 30 percent and reducing breakdowns by up to 70 percent.
Examples of early movers include Thames Water and Apache Corporation.
- Thames Water, the largest provider of water and wastewater services in the UK, is using sensors, analytics and real-time data to help the utility company anticipate equipment failures and respond more quickly to critical situations, such as leaks or adverse weather events.
- Apache Corporation, an oil and gas exploration and production company, is using predictive maintenance to avoid unnecessary shutdowns and keep products flowing. It claims that if the global oil industry improved pump performance by even 1 percent, it would increase oil production by half a million barrels a day, earning the industry an additional $19 billion a year.
In these instances, the industrial organization may offer insurance as an add-on service by selling a product or service that comes with an (optional) protection or insurance service. In this case, the manufacturer or industrial organization would own and control the customer interface and may partner with insurers for the development and selling of the insurance solution. Michelin, for example, is helping truck fleet managers reduce fuel consumption and costs and allowing them to pay for tires on a kilometers-driven basis. It would be easy to add a usage-based truck insurance product on top of that offering, paid by the mile.
But there is a further category of industrial sector player that may find a utility insurance model valuable.
Utility insurance model for IIoT service providers?
Big industrial players like General Electric, Schneider and Siemens are setting themselves up as IIoT service providers.
- The IoT is a major pillar of the Schneider Electric business. Its IoT-enabled EcoStruxure architecture and platform is designed to deliver end-to-end IoT- and IIoT-enabled solutions for customers by connecting information technology and operations technology (IT and OT) stacks. In addition to the IIoT, the platform leverages mobility, sensing, cloud, analytics and cybersecurity to deliver connected products, edge control, and apps, analytics and services.
- For General Electric, becoming a digital industrial company is the guideline for its strategic decisions. Predix, GE’s IIoT cloud platform that supports industrial data, operations and services, is a cornerstone of its strategy. Almost 20,000 developers are building on Predix, with approximately 50 partners supporting the platform. GE is building a broad ecosystem to support Predix, collaborating with leading system integrators, independent software and other technology vendors, telcos, and resellers through GE Digital.
- MindSphere is Siemens’ open, cloud-based IoT operating system that lets customers connect machines and physical infrastructure to the digital world, as well as harness big data from billions of intelligent devices to gain insight across their entire business..
In addition, almost every large industrial organization has an IIoT platform that it is offering to partners and customers. Users of these platforms are creating IIoT apps for their own businesses and making them commercially available. There are a number of insurance models that may add value.
- Industrial organizations could create new products and services by leveraging insurance. For example, a company may guarantee a specific service, outcome or service level based on user behavior in response to intelligent product prompts. This may be backed by an insurance company.
- They could create an insurance ‘utility’, partnering with one or more insurers to offer insurance options to their customers.
- They could become service providers to insurers, providing risk scores and other services that help insurers to better price risks for customers.
- They could optimize their own insurance cover by sharing IIoT data from their operations with their insurers, helping these insurers assess and price the organization’s coverage more accurately and dynamically.
Make strategic choices for a digital future
What is clear is that in future, insurance will be provided through a digital ecosystem that is closely interlinked with the services of an industrial player. However, for the IIoT it’s still early days.
There are technology challenges and important hurdles to overcome, particularly in connectivity and security. Not all assets can or need to be connected and intelligent right away. Nonetheless, customers will continue to reach for products and services that create more value for them than those on offer today. To be part of a digital future and to partake of the opportunity it presents to diversify and generate new revenues, insurance and industrial sector companies will need to think strategically.
Stay tuned for my next blog in this series, Rewiring insurance for the IIoT, fora look at how insurance is being impacted by IIoT trends, what it means to deliver connected insurance, and the insurance business models that can be used to leverage opportunities along the entire IIoT value chain.