By the year 2015, the global annual rate of data creation will double to a projected 5.6 zettabytes from 2.8 zettabytes in 2012, according to an analysis by IDC Go-to-Market Services, a market intelligence and advisory firm. And, much of that increase will be driven by the expanding number and sophistication of sensors and nearly ubiquitous connectivity in consumer goods, a phenomenon we now refer to as the internet of things.

Insurance telematics represents just part of the first wave of the internet of things (IOT), says Mark Breading, a partner at insurance research and consulting firm Strategy Meets Action. He describes the IOT as a multidimensional trend that could affect all aspects of insurance.

"Telematics is the proxy for how insurance approaches the internet of things, because essentially what telematics does is marry communications with IT," Breading says. The combination of real-time data collection from remote sources, wireless connectivity and analytics could affect virtually every aspect of insurance, including what is insured and how, as well as pricing and service, he adds.

Immediate opportunities to apply the technology and methodology are numerous, but include inland marine, for example, where understanding an object's location, status and environment could be hugely valuable for insurers and insureds. Insurers that cover fleets or industrial machinery also could benefit from real-time monitoring of performance, wear and tear and environmental conditions for pricing and collaborative loss control, Breading says.

Today, the Climate Corporation combines environmental sensors, predictive analytics and other technologies to create what is essentially automated crop insurance. Sensors collect and report environmental details, including soil, temperature and rainfall readings, to automatically offer customized instructions on maximizing crop yields to customers. Should that data indicate reduced yields based on heat or drought for example, the insurer pays to cover the predicted loss without customers even having to file for a claim.

Other insurers reportedly are piloting programs in partnership with home alarm companies, combining environmental sensors with home security systems to create what Breading describes as a fledgling homeowners' insurance telematics program. "You get a better view of the real-time risks. It's not just that you understand the risks better and give them a better price. You can understand that the furnace has blown out and the pipes are starting to freeze, for example. And you can take action against that."

The internet of things has significant hurdles to clear, but could prove totally disruptive to all segments of the insurance industry, says Michael Boyle, CEO of Perseus Technical Strategies, an insurance consultancy. "The insurance industry is going to change so dramatically in the next 15 to 20 years, it could rip people's heads off," Boyle says, but not until insurance regulators catch up with the new possibilities available for data gathering, especially in the realms of life and medical insurance.

"There is quite a bit more data that is gathered today than is legitimately allowed to be used for underwriting, unless people want to self-submit," Boyle says. Life insurance applicants are questioned about family medical histories, including cancer, heart disease and age-of-death for primary relatives, but newly available genetic data, for example, cannot legally be used life underwriting, for example.

Now, wearable technologies that track a person's location, activity levels and personal vital signs, such as the Fitbit, Nike Fuel and Jawbone wristbands, for example, are collecting and publishing data that could be used in the underwriting process. And at least one insurance company, Allstate, currently offers discounted medical insurance to employees who wear a Fitbit and achieve certain metrics, Boyle says.

"There is a definitive, proven link that has been shown between how much money is well spent on wellness programs and the reduction in claims costs on the medical side, which results in a reduction of premiums in the long term," Boyle says.

While ability to create data currently far outstrips our ability to analyze it - most organizations analyze less than 5 percent of the data available to them, Boyle says - it likely will lead to many innovations, including innovations in analytics. And the uptake of IOT, Boyle says, will look like that of microprocessors and disk drives, where capabilities increased geometrically as costs decreased.

"Big data today is driven by query-based processing, so to get a good answer, you have to know a good question to ask," Boyle says. However, the further proliferation of data resulting from the IOT could, for example, promote the use of algorithms to detect and drive correlations, he says.

The lack of data standards could reasonably be expected to slow the rate of adoption of the IOT as a source of underwriting data, but not likely for long. For example, in the wearable technology space, Seraphim Sense Ltd. has launched Angel, an open-source wristband that includes a series of different sensors and arrays designed to be reconfigured by developers to write software and apps. "They are crowdsourcing their applications development and they are publishing the standard," Boyle says. "The purpose is to open up the internet of things to a wider variety of people."


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