Outsmarting Ourselves? Smart Tech and its Impact on Insurance

This article was a writing submission from Emily Peters for the 2018 International Conference’s writing competition; it received 3rd place and was published in Business Today’s 50th Anniversary Magazine.

The concept that was once science fiction - using your smartphone to turn on your lights and start your coffee maker - is now as easy as a swipe to the left. The Internet of Things is embedding computing technology into non-traditional objects. These objects, commonly referred to under the umbrella of “Smart Tech,” range from everyday appliances such as toasters to components in medical equipment. The growing number of objects that are being embedded with computing devices has grown and, in turn, so has our interest in how far this technology will go.

At a glance, certain industries will be directly affected by the consumer demand for this technology. These are manufacturing markets for commodities such as stoves, refrigerators, washers and dryers, and furnaces. However, industries that do not deal directly with technology will also face pressure and change.

One of these affected industries is insurance. Insurance is a monetary precaution to protect items from unforeseen or uncontrollable events. A major component of what we are protected from is human error. We purchase car insurance to protect us from liabilities that result from accidents caused by reckless driving or spur of the moment mistakes. We purchase home insurance to protect against damage caused by fire or storms as well as human error, such as overfilling a kitchen sink, putting bubble bath in a Jacuzzi bathtub, or not regularly examining appliances to address faults in a timely manner.

How is insurance linked to the Internet of Things? Smart tech will minimize human and equipment error, in part thanks to data algorithms. Human involvement can be tainted by exhaustion, illness, distraction, or lack of knowledge . Smart tech eliminates those risks by removing human involvement from the equation. Additionally, an appliance equipped with smart tech will include self-regulated software updates and timed maintenance, minimizing equipment failure. As our surroundings become “smarter,” the damage caused by human or appliance flaws will decrease.

So, let’s say we minimize damage by having our washing machine notify us when it is leaking or our toaster tell us when our toast is burning. However, what happens if our dishwasher or toaster computing software is hacked? As we increase our use of software, we simultaneously increase the potential for someone to infiltrate our daily lives. In 2017, the Amazon product “Alexa”–a home program which links all key home features from lights to heating–was reported to turn itself on and “maniacally laugh.” Alexa is a user prompted system, so for many users, it was very disturbing to hear it come alive. This incident raised the question of how secure Alexa’s network truly is. A similar issue arose in 2017, with the Mirai botnet malware exploited errors within the smart home network. The key aspect that allowed the hackers to gain access was customers’ weak authorization passwords. Though the hacking did not cause issues for the home owners, it brought attention to the ease at which external parties can gain access to a person’s private space.

The Harvard Business Review has noted that society must change their frame of mind from “user interaction problems” to “device and system interaction problems.” Beyond educating people on cyber safety, corporations need to start implementing backup plans and protection. By employing cyber privacy insurance, companies can be protected from liability for data breaches, property exposures, fraud, and extortion. Tech E&O (tech errors and omissions insurance) is an example of insurance designed specifically for providers of the technology. A field where Tech E&O insurance will be used is in the area of self-driving cars. Around 94% of the time, when an accident occurs, the fault is due to human error. In line with self-driving cars, there will not be any direct element of human error. Because of this, companies that manufacture self-driving cars will assume all liability, and will need insurance to back them in case of failure.

Due to smart tech, the most traditional claims on insurance policies are becoming less frequent.

Is technology already disrupting the insurance field? In fact, it is. Deloitte noted that the present technology in cars (sensors and reversing cameras) has reduced human error. Therefore, due to smart tech, the most traditional claims on insurance policies are becoming less frequent. It noted that in the future insurers could incentivize their services by including non-vehicle-related service options, environmental monitoring, and traffic alert systems.

The Internet of Things’ advancement is impressing the Millennial generation as well as posing a threat to traditional workflow.

Although the realm of fully enabled smart home environments and self-driving vehicles is decades away, many companies, from toaster manufactures to insurance companies, are needing to address the many issues brought about by technology. Just as the introduction of the internet impressed our parents’ generation, the Internet of Things’ advancement is impressing the Millennial generation as well as posing a threat to traditional workflow. As we advance in technology, if we are not careful, we will trade human risks for newer and potentially more dangerous risks. Therefore, cybersecurity, privacy, and corporate liability will change the insurance field for good.

Emily Peters was born in Lancaster England, raised in Bermuda, and moved to Canada in 2013. She completed the International Baccalaureate Diploma program in high school with strong participation in the DECA Case competitions; reaching the Canadian Provincials in 2016 and 2017. This experience spurred her interest in business and case analysis which she continues to pursue. Emily currently attends McGill University’s Desautels Faculty of Management where she is studying for a B.Comm in Global Strategic and Sustainable Management. This summer she is expanding her interests onward through a corporate services internship at a not-for profit foundation in the health sector.