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With Internet of Things, Can�t �Hide in the Herd�

Connected devices have the potential to fundamentally change the risk pooling nature of insurance.

The Internet of Things has the potential to fundamentally change the nature of society by increasing personalization of everything, according to Chris Taylor, who runs the Successful Workplace website and works as a marketing executive for the software company TIBCO. For industries that are focused on making decisions at scale -- like insurance -- the disruptive potential of such a shift reaches deep into the business, he says.

“Traditionally for insurance, the past was the only indicator of the future, the only available data was claim data, and you could pick out some demographic details to add,” Taylor tells us. “There was no personalization of the data. The best you could do was group analyze then draw broad conclusions.”

The risk-pooling concept that defines the insurance business, based on broader kinds of information like demographics and driving records, is threatened by obsolescence due to the new sources of data that the Internet of Things makes available, Taylor explains.

“People who had misfortune or poor skills could ‘hide in the herd.’ I think that’s a big change that we have to be careful about. All the detailed data is going to force [insurers] to make tough decisions. I’ll be interested in seeing if governments step in to maintain the herd protection.”

[Read about why insurers are looking for more data from their customers' connected cars.]

That’s because the regulatory framework around insurance and a lot of assumptions about how the economy works in general aren’t based on the high level of personalization offered by the Internet of Things, Taylor notes. The scale of personalization and one-to-one connection between customer and company is unprecedented -- and even the squeakiest-clean prospects risk overexposure.

“There’s the concept of the ‘database of ruin’ -- that there’s enough data to connect all of us to something embarrassing,” Taylor warns. “How we can regulate an economy built on non-personalization? It’s fine when individuals are moving data around, but machines don’t care.”

Taylor will chair the Internet of Things Summit at Interop New York later this month. Sessions will explore the impact of this emerging technology on industries of all kinds -- and the IT staff that supports it.

“People talk about the data flow, but it’s a lot more than just that. Software allowed us to perform things at scale -- now it can take that scale down to the person. How much do you cost the business that provides you services? There’s power in seeing each individual thing.”

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio

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