Sensors can do much more than just detect faulty water pipes at an early stage. Integrated into data-based platforms, they become the foundation for entire ecosystems. In this blog post, you will learn how insurance companies can use this approach to optimise their own processes and generate added value for their customers.
More than half of all Germans have already been victims of water damage. Once the water starts leaking, it can quickly make an entire apartment uninhabitable and cause damage worth hundreds of thousands of euros. This is exasperating for the apartment residents and expensive for their insurance companies.
The Internet of Things (IoT) can help prevent or at least minimise this type of damage. But the potential of this new technology extends far beyond just that. As the integration of various IoT-enabled devices progresses, insurers can create entire data-driven ecosystems that enable them to offer new services and expand their business model.
Basically, the way the Internet of Things is used can be divided into four levels with different degrees of maturity:
Level 1: Using and networking sensors
The first stage is about collecting data with some initial IoT sensors. In order to prevent water damage, one or more sensors are fitted at a critically sensitive point in the water pipe. It is already the case today that when you buy such devices, for example on Amazon, you are also offered insurance against water damage at a lower premium. Even if the direct benefit for the insurer is still limited at this stage, it can introduce the customer to the world of the Internet of Things and lay the foundation for further expansion.
An example of such a water safety system is Sense Guard from Grohe. In Germany, the insurer HDI is offering its customers the system at a discounted installation price – and also gives a discount on residential buildings insurance. With good reason: if the Sense Guard sensors detect a burst pipe, the water supply is automatically shut off. Customers also receive a message on their mobile phones. The insurer Provinzial Rheinland, with its network of tradespeople, even helps with the installation of the Sense Guard; Axa offers its customers a ten percent discount on the installation of a similar system.
Level 2: Acquiring knowledge
Even at the second level, IoT applications that deliver further added value for insurers and customers alike are now possible. The aim is to expand the sensor network and to draw initial conclusions on the basis of the data collected. For example, if you install a second sensor at a different location in the water supply, you can determine whether the flow rate is the same at both locations. If it is not, this indicates a malfunction or even a leak. Insurers can use this collected data to improve their product offerings or reduce their loss ratios.
The insurer Munich Re is already moving in this direction in a current project. It equipped a construction site in Munich with 25 multifunction sensors for monitoring against water damage. These register not only water data but also air humidity and ambient temperature and transmit them to Munich Re's IoT platform. If the values are critical, the insurance company informs the construction site management and thus prevents damage. The sensors installed in this way can later form the basis for a comprehensive leakage monitoring system, and the information they provide can be further enriched with data from other sources such as washing machines.
Level 3: The emergence of IoT platforms
In addition to offering customer discounts, insurers can also integrate the sensor data into their own systems. In addition to its prevention role, this would also allow operational processes such as the claims process to be more efficient. If the data from the sensors indicate a leak, there may be no need for expensive on-site investigations. If, on the other hand, the data do not show any discrepancies, this could be an indication of attempted insurance fraud.
When IoT and the data sets it generates are integrated into their own IT systems and processes, the question for insurers is who should run these platforms. Larger companies would have the resources to do this themselves. In the medium term, however, medium-sized and smaller insurers may be more likely to outsource this task to a specialised start-up or to the hardware manufacturers.
This happens because in the third stage of using IoT, complexity grows: sensor data from various devices is collected and bundled on a central platform. In the example of a bathroom, this would mean that the washing machine is also integrated into the IoT. Data on water consumption, for example, can be gathered – and additional sources of error in the water supply can be identified.
Level 4: An ecosystem for (corporate) customers
In the fourth usage stage of the Internet of Things, data is no longer uploaded to one single central platform. More often, the networking of individual IoT clouds – the water sensors cloud, washing machine cloud, indoor environment cloud – and their data platforms creates an entire IoT ecosystem. When combined, the data on the various platforms create the possibility of taking completely new approaches. Given access (e.g. via APIs) to the water-sensor data from public utilities and to private consumption data, it becomes possible, for example, to determine where leaks in the water network are located, or where water is being discharged without permission. This not only prevents damage, but also reduces water consumption.
Insurance companies thus have the opportunity to minimise risks and further simplify claims processes. They can also offer their customers (whether businesses or end users) new services: preventive maintenance, protection against water theft, or an overview of electricity and water consumption, to name a few examples. Thanks to the Internet of Things, insurance companies will be able to enter whole new worlds in the future.
Mastering different dimensions
The Internet of Things offers great potential for insurers, as demonstrated by the example of water damage. The path to becoming a player in this exciting market is less convoluted than it sometimes seems at first glance. Nevertheless, among other decisions, insurance companies need to identify which business case makes sense for them and which services they will provide themselves or buy in. A structured approach and a realistic assessment of which of the four IoT levels you are currently at, or would like to be at, are the key to success.
In our next blog, we will describe what is needed to implement an IoT project and how to overcome the biggest challenges.