IoT and The Law of Unintended Consequences

As many Internet of Things (IoT) projects move closer to fruition across a range of industries, including insurance, it is worth considering how things will change as a result of connected technologies. Whilst many changes will result in positive new business models and a closer relationship with customers, some will be unpredictable and some may even be dangerous. In short, beware the law of unintended consequence – if it can happen, it probably will.

Take an example of another technology – safety helmets. In 1990, the Australian state of Victoria made safety helmets mandatory for all bicycle riders. While there was a reduction in the number of head injuries, there was also an unintended reduction in the number cyclists and the decrease in exercise caused by reduced cycling was counterproductive in terms of net health. Not what the regulators had intended…

Moving forward to the present day, smart toasters, connected rectal thermometers and fitness collars for dogs are just some of the everday "dumb items" being connected to the web as part of the so-called Internet of Things (IoT). Connected machines and objects in factories offer the potential for a 'fourth industrial revolution', and experts predict more than half of new businesses will run on the IoT by 2020. It is what we do with the information produced by networks of these connected devices that allows us to revolutionise business models. But what else will change as a result of this?

For insurers, all this information means that the operation of ‘connected policies’ is the future, and the present business model is under threat. In fact, with connected insurance receiving 80% of all insurtech funding, it’s clear that this is the next big wave. 

However, what do you do when the solution becomes the problem? Enter the law of the unintended consequence….

In 2012 a teenage driver and his friend were killed 'as he raced home to beat an insurance company-imposed curfew monitored by on-board computer'. A black box had been installed in his car as part of a discounted policy that enables young drivers to receive more affordable car insurance. As part of this, a driving curfew was agreed between the hours of 11pm and 5am, with a £100 penalty for breaking this. The coroner ruled that the curfew was a “very significant factor in his driving”, and hence his death.

As IoT becomes more mainstream within insurance, one of the biggest battles we shall face is around data ownership. Who’s data is it? Who is responsible and who is held accountable?

Let’s say there’s a leak in your loft and your ceiling falls in. Then, when you call the insurance company and they say, “ah yes, we saw that there was a build up of moisture with our connected leak detector device”, your first question will be ‘if you saw that happening then why didn’t you do something about it?’.

For years insurers have been there to pick us up in the event of a catastrophe but now we need them to intervene and act. Where is that line drawn and how do we opt in or out?

If you can see a leak – yes, call the plumber.

If you can see my office being broken in to – yes, call security.

If you can see me speeding – er….hush, don’t tell anyone.

But in the event of an accident, if the data shows that someone was persistently speeding on the street that they had the accident, and yet the insurance company “failed to act” then where do we all stand?

Ultimately we’re not there yet, and insurers’ duty to customers (not to mention the definition of gross negligence in a world of data) will need to evolve in line with technological advances. Nevertheless, interesting times are ahead. Buckle up and hold on tight….we see disruption around the corner!