Real-time monitoring essential to commercial risk management

A revolution in data is enabling insurers to predict risk precisely, empowered by businesses’ digital footprint gathered from property and operational monitoring systems. Insurers can also use the technology to identify trends and help clients prevent accident “events”, reducing the frequency and severity of claims.

Sensors linked to the internet of things enable information to be drawn from within organisations and workplaces, then fed into businesses’ and insurers’ risk management systems. The technology works by sensing everything from air conditioning, heat, water and electricity, to movement of workers and the operation of lorries, planes and ships. Underwriters can then analyse risk continuously, predict events and understand the cause of claims.

Insurer Zurich and several of its large clients are among those highly advanced in this area. The opportunities are immense; in property alone, 31 per cent of the insurer’s UK claims are around water leakage, 19 per cent accidental damage or loss, 12 per cent storm damage and 6 per cent fire or explosion.

Developments in monitoring could help prevent hugely costly and sometimes dangerous situations resulting from faulty electrical cabling, burst water pipes and contractors not following safety guidelines when dealing with “hot work”, any maintenance or construction producing a spark, flame or heat. Monitoring can already help client businesses take action before an accident happens and eventually there is even the opportunity for insurers’ underwriting to be automated based on machine analysis of the constant data.

To this end, Zurich is conducting a pilot for commercial building telematics, capturing data from infrastructure networks. Among the organisations signed up are universities, real estate owners and shopping centre managers. The aim is primarily to inform the businesses in real time how their buildings and activities are operating. Ultimately, the output will also be shared with Zurich’s underwriting processes in real time to enhance the understanding of dangers and improve risk management. Zurich can also learn about clients’ needs.

Real-time monitoring data will prove to be a crucial competitive differentiator for firms in the industry

“We’re looking for actionable risk insights, where we know through monitoring that the customer is able to take immediate steps,” says David Roberts, group relationship leader at Zurich Insurance UK. “Whether it’s a machine heating up or moving too much, a flow of water or an electrical fault, these things are all starting to connect and create a digital risk profile that can be measured.”

Although monitoring and related analysis are still at an early stage of evolution, Zurich is expecting to see hugely impactful changes to risk management, including much more streamlined service offerings. Mr Roberts explains: “We could effectively tear up 32 lines of business and only have one insured response that says ‘we will put our capital at risk against your exact digital footprint shown today’.”

Meanwhile businesses “will see a better return on investment in terms of how they manage risks”, he says. Generating more data on building use and physical infrastructure will fundamentally improve how businesses present risks to insurers, increase operational efficiency and reduce dangers.

But while the benefits of increased data creation and sensor usage within workplaces could be helpful both to businesses and the insurance industry, there remains a degree of concern about the potential ramifications. These worries are “principally around data security and who is using the data and for what”, Mr Roberts says, with businesses not always eager to share information until they see the benefits in action.

“There have been user-experience lessons through this; situations where people are saying ‘we’re not prepared to share’, and they’ve had to take each test point and prove that everything’s secure and delivers benefit,” he says. “So we have to demonstrate to them that if their business is better managed, then this differentiation brings them something back from Zurich, which they wouldn’t have had before.”

Benefits include better insurance pricing for firms that consistently operate with low-risk, tailored advice on how to reduce risk further and real-time information on emerging dangers so they can prevent accidents.

The monitoring also helps eliminate any discrepancies or errors between the risk information that businesses present to insurers and the reality. “Insurers can use the power of the internet of things to understand the business risk on a continual basis, which has to benefit not only those who manage the risk, but also those who underwrite it,” Mr Roberts says.

An important aim of Zurich’s work is to “get the data talking” and move towards the integration of its own and clients’ risk management systems. “If the customer is feeding in richer, more accurate risk management information, it makes sense that this should be going directly into our platform and straight to the underwriter’s desktop,” he says. This makes processes much more agile, streamlined and transparent.

It is assessing the most effective real-time data interfaces between insurers and clients, potentially including the use of secure, distributed ledger technology, such as blockchain, to share the information. Zurich has an advantage in this space given its investment in B3i, the industry’s blockchain initiative that has broker and client support.

Greater risk management demands are expected to be placed on businesses and insurers in the coming years as the scope of data creation continues to grow. But for Zurich, the upside is that the changes are opening up these important opportunities for the industry to change fundamentally its ways of working.

Real-time monitoring data will prove to be a crucial competitive differentiator for firms in the industry. Mr Roberts concludes: “Digital risk has myriad advantages from an insurer’s point of view, but for the traditional underwriters, if they don’t go into their own eco-systems and look at the monitoring available, they could get left behind.”

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