Insurance IoT is a new way of thinking about the activity of assessing, managing and transferring risks that fits with a world that is going to be more and more hyperconnected.

Personal auto is the most mature area in terms of using IoT data (see related textbox, “Read More About Insurance IoT,” Reference 1).However, for each line of business and across all geographies, some successful IoT-based insurance pioneers are emerging. Their concrete experiences confirm the relevancy of the IoT opportunity for the insurance sector and demonstrate the feasibility of the IoT paradigm in any insurance domain.

One success story in using this approach in commercial insurance is Church Mutual Insurance Company, S.I., the employer of one of the authors of this article (Russ). Church Mutual offers specialized insurance for religious organizations of all denominations, public and private K-12 schools, colleges and universities, senior living facilities, secular and non-secular camps and conference centers, and nonprofit and human services organizations throughout the United States. Through a multiyear innovation journey supported by strong C-level commitment, the company has proceeded step by step to build robust evidence about the ROI of its risk mitigation investment and entered into the scaling phase.

First, a Definition

“The Internet of Things (IoT) is the network of physical objects accessed through the Internet. These objects contain embedded technology to interact with internal states or the external environment. In other words, when objects can sense and communicate, it changes how and where decisions are made, and who makes them,” wrote IoT expert Professor Ahmed Banafa in a 2015 article. (“Internet of Things (IoT): The Third Wave” by Ahmed Banafa, Jan. 26, 2015, Retrieved from OpenMind BBVA)

These changes make the “connected things” smarter than traditional, disconnected physical objects in that they can be enabled to take certain actions based on the conditions they are sensing. Real-time risk mitigation actions are the kinds of smart actions enabled by IoT applications.

Even though the value of IoT has not yet been broadly perceived by the stakeholders and the analysts, many insurers around the world are looking for these real-time actions to provide additional peace of mind to insureds and are currently struggling with its execution (textbox references 2 and 3). “Commercial lines are more advanced in rolling out these technologies,” said Jad Ariss, The Geneva Association’s managing director, commenting on a key takeaway of a Geneva Association research report, “From Risk Transfer to Risk Prevention—How the Internet of Things is reshaping business models in insurance,” co-authored by one of the authors of this article (Carbone).

An Early Innovator

Church Mutual has been a pioneer, having begun to explore IoT-based risk mitigation solutions several years ago. It started with a focus on the causes of loss frequency from water perils: freezing pipes and water leakage. Customers, worship centers and related organizations in the United States receive a risk mitigation solution, including two sensors for temperature and water leakage.

The wireless sensors monitor ambient temperature and the presence of water. Based on the data, different algorithm-based warnings are generated and sent to the policyholder, who can evaluate them and respond. When there is no response, an automated call goes to the contact person at the client site. When there is still no reaction, Church Mutual’s call center contacts the policyholder’s emergency contact. This means that a very quick escalation ladder is implemented in the alert system for preventing losses.

The company started its first pilots with a few connected properties in 2014 to test the feasibility of a risk mitigation solution. In the following years, the approach was refined by running pilots on a few hundred facilities and collecting evidence about the effectiveness of the prevention services and barriers in the execution in the field.

The service was only offered to customers where the company was expecting the greater risk mitigation benefits. Church Mutual was not providing the sensor kit to customers where constraints were present, such as when the size of a building is too big to be covered by the sensors.

After 2016, Church Mutual saw progressively more robust evidence of a solid business case for its investment in sensor technology at policy level and increasing returns on investment of this risk prevention approach across its portfolio, ramping up its go-to-market strategy to a level of over 5,000 connected properties by the end of 2018.

The insurer does not give any premium discount for implementing its risk mitigation program, but it does provide the sensor kit, monitoring and alerting for free. Worship centers are typically staffed only a few days per week, and a water escape can take several days to discover without such a program. So, clients perceive a value in this service offered by Church Mutual. The program also provides additional opportunities for the risk control team to connect with customers when multiple alerts are seen over a shorter period of time indicating a more chronic issue to be corrected.

Since 2019, the focus has been on scaling the connected portfolio. Today, the sensors are installed in over 10,000 insured properties. Scaling to this level has required continuous refinement of the overall customer journey related to installing the kits. A high level of touchpoints and communication are employed through the following steps:

• First, the suitable accounts for the sensor kit are identified.
• Then, the information is sent to the tech partner (currently Roost). They contact the customer, explain the service and sensors, how to install it within a certain time frame, and send the sensor kit.
• Multiple messages keep the customer informed of tracking information and expected delivery date to ensure the kit is installed quickly after receipt.
• Roost can monitor when a sensor becomes active. If not, the company contacts the customer again through a series of texts, emails and calls. If there is still no progress, the account manager of Church Mutual contacts the customer again.
• If it is still not installed, Church Mutual sends a return bag for the kit.

The success rate of this structured approach is that 70-80 percent of sensor recipients install it within the given time frame. The remaining recipients take longer, and only 2 percent do not install the sensors at all.

Return on Investment

IoT isn’t cheap. On top of investments in digital transformation—the broad set of capabilities necessary to manage the initiative—there are costs for each connected customer, from the hardware and installation amortization to running costs to use the IoT data. Focusing on the risk prevention approaches, these costs can be seen as additional loss adjustment expenses, and they must be compared to the expected reduction of the losses. Even if the unit IoT costs are decreasing, building a sustainable business case is the biggest challenge for any IoT insurance innovation journey, based on the research of the IoT Insurance Observatory.

Risk Prevention Economics

Source: IoT Insurance Observatory

Church Mutual is one of the first commercial insurers that has been able to build a sustainable business case at a portfolio level and to achieve a positive ROI. Its claims savings has been three-times the incurred costs over the life of the program: $10.3 million in spending since October 2016 compared with about $45.5 million in savings through May 31, 2021.

Innovation Continues

As penetration of the program has increased throughout Church Mutual’s customer base, the company is finding additional innovations that can be enabled via the platform. For example, the company launched an Armed Intruder Emergency Service with a novel IoT device called PULL FOR POLICE. When the device is pulled from its sleeve, it creates a specific signal that’s relayed through the 24/7 monitoring service to local authorities. The unique signal identifies an in-progress armed attack at the specific location.

While the ultimate use of the device is during an attack, the service also includes additional features to help organizations train on appropriate armed intruder response options. While fire drills are a common practice for many organizations, drills for responding to armed attacks are not. Therefore, the Armed Intruder Emergency Service pairs a test button on the device with regular notifications through a smartphone application to remind organizations to complete a drill every six months. Pushing the TEST button on the device during a drill simulates pulling the tab and notifying authorities. A test message is sent to the monitoring center as well as to those listed as emergency contacts in the app itself.

During the chaos of an armed attack, dialing 911 and relaying the necessary information can take up to three minutes. Every minute of delay could enable the attacker to claim additional lives. The Armed Intruder Emergency Service with the PULL FOR POLICE device reduces that time to seconds, helping local police respond more quickly and improving overall survival rates.

Lessons Learned

This case history of Church Mutual provides three main lessons for any insurance player looking to explore using IoT. First, it is not enough to add a connected device; it is fundamental to develop a vision about the usage of IoT data. Second, it is necessary to define a strategy about what to connect and how your business will benefit from the connection with “these things.” The third key element is the creation of an effective go-to-market plan, and it has to be supported by a strong reason for adopting this innovation offered to the policyholders.

Mastering IoT and engaging policyholders in risk prevention is an achievable target for any insurance company, but it will require clear vision and a multiyear commitment (textbox reference 4).