An Industry Slow to Change
The Internet of Things (IoT) is a global network of physical assets attached to and embedded with smart sensors capable of communicating to each other via the internet. Ranging from household objects, to sophisticated industrial tools, IoT permits efficient collection and exchange of data(1). Already an integral part of modern life, IoT is predicted to grow to a staggering 75.44 billion devices worldwide by 2025(2) continually monitoring risk, environmental and operational data. Yet despite this, IoT has only been marginally adopted across the commercial property and insurance industries.
This reluctance to adopt new technology is not uncharacteristic, having a notorious reputation of being slow to change. In recent years, there has been an increase in government legislation enforcing the monitoring of ESG metrics, for example, the Local Law of 2019 implemented in New York City (Local Law 97 Advisory Board Report (nyc.gov)). Combined with pressure from stakeholders, the TCFD (Task Force on Climate-related Financial Disclosures), and a public emphasis on personal responsibility, industries are being pushed to integrate ESG-conscious investments, and business decisions into everyday workflows. However, that old-school reluctance to change has once again reared its head. In 2020, it was found that 17% of global insurance companies had no intention to create an ESG policy(3). Similarly, ESG investment is considered a risk, rather than a profitable business opportunity, with only 24% of insurers considering sustainability factors when identifying potential investments(4).
According to a survey by BlackRock, 53% of insurers cited concerns about “poor quality and availability of ESG data and analytics”, as their biggest barrier to adopting ESG investment(5). Opportunely, IoT is an on-hand, cost-effective stone for the two birds of poor data quality and availability.
How can IoT Improve ESG Data Collection and Reporting?
The ability of IoT devices to communicate enforces accurate and streamlined collection and reporting of ESG metrics:
Sensors automatically monitor ESG-relevant statistics like carbon use, energy efficiency, water quality/usage, waste management and more
Smart alerts can notify companies when parameters deviate from the optimal zone, consolidating the generation of an ESG-focused sustainability model
Data can be automatically documented into ready-made reports, reducing human work and error(5)
Data can be protected using next-gen cybersecurity, improving protection of client data(2).
Reports are generated immediately without the need for data accumulation, thereby streamlining ESG projection modelling and promoting rapid industry growth(6)
Custom analytics can be designed for each company, allowing for prediction of personalised process issues to detect impending deposition failures. This could prevent future ESG associated losses(7).
The capability of IoT for data collection and analytics permits users to put ESG optimisation at the forefront of their business model. The flexibility of internet-enabled technology means that reporting is built directly into the company assets, smart electronics, and even the office buildings themselves. For example, real-time occupancy monitoring permits the modulation of energy consumption by limiting energy use in unoccupied spaces5. In addition, IoT is constantly improving; as technology advances so does IoT. This means accurate data collection will only become more available. Internet data storage permits a comprehensive view of all ESG-related processes and their dependencies across the entire organisation(6). This may help cut costs, while simultaneously generating a good company morale among employees.
How does Improved ESG Reporting Benefit the Commercial Property and Insurance Industry?
Improved ESG reporting permits a more sustainable, economic, and productive industry:
Generating better access to and sustainable use of resources
Building stronger communities within the workforce
ESG metrics impact employees on a social level, thus greater ESG consideration, enabled by improved reporting, boosts morale making the company attractive to potential partners/talent
Increases safety in the workplace mitigating accidents and lawsuits
Easily identify and design solutions for on-going regulatory issues(8)
Helps to ensure compliance with legal occupation requirements(9)
Improve investment by meeting stakeholder specification
IoT is designed to tackle the concerns identified in the BlackRock survey – ESG reporting becomes accessible to anyone with an internet connection! Ben Lukett (managing director at Aviva) says that the “growth of IoT with the idea of ubiquitous connected sensors will increase the amount and quality of data”(2). Given that ESG investment is of critical importance to stakeholders, these tools also confer a significant competitive advantage. Rapid generation of acute ESG data, enabled by IoT, can help commercial insurers proactively protect their investments from a risk perspective(8). For a market that operates by mitigating risks this should be a no-brainer.
Consistency in ESG Data Collection and Reporting
With such a diverse range of connected IoT devices, apprehension about the consistency of data collection and reporting across devices must be managed. This can be effectively achieved by the implementation of standards. Standards ensure all devices are speaking the same language creating effective interoperability between them. Much like the British Standard Institutions ensures that manufacturers can be confident that every product produced is acceptable. Standards enforce devices to collect and report data in the same way against a strict set of rules. Standards are also nothing new to the internet industry. Different forms of Wi-Fi must adhere to the rules defined in their standard, allowing the different types of devices connected to that Wi-Fi to function, despite varying manufacturers and internal cores. Standards within the IoT would enforce consistent ESG data collection and reporting.
What are the Advantages of IoT Beyond ESG Reporting?
Of course ESG reporting is not everything, and for an industry to adopt such a radical change in their conduct of work, additional advantages should be present. Fortunately, IoT contains capabilities that may radicalise the entire commercial insurance process.
Better management and assessment of commercial risks. For example, a car renting company could use IoT sensors to directly collect data from vehicles - such as customer driving behaviour - to better evaluate risks. Insurers can then generate policies better tailored to their clients’ needs; increasingly accurate risk models result in more equitable premiums(6)
Transform the underwriting process. Real-time data collection could become part of risk assessment, while digital-drive operations may allow underwriters to minimise costs and maximise revenue(2)
Support claims adjusters with enhanced, automated data collection and analytics. Commonly commercial lines employ large numbers of people to evaluate and adjudicate claims. This process can cost as much as 6-10% of premiums and last for as long as several months. This not only negatively impacts customer satisfaction, but can dampen the efficiency of the company as a collective. IoT offers faster, more accurate data collection. The lack of human dependency is especially useful in dangerous situations such as flood or fire scenes, in which initial images/measurements can be done via machine
On a personal level, IoT adds peace of mind for employees when returning to offices. Such as facilitating assessment of pathogen risks and social distancing. Which in the post-covid era cannot be understated in importance
IoT was designed to provide companies with a level of granularity that allows monitoring of industry logistics supply chains in ways that previously could not be comprehended. Through the use of smart sensors and internet-enable communication, IoT can contribute to ESG measurement and reporting in innovative ways. IoT transforms ESG reporting into an accessible task that requires minimal human activity, and directly tackles expressed concerns of data quality, collection, and analytics. The increasing pressure for ESG reporting – and additional benefits - could be the trojan horse that forces commercial property and insurance companies to adopt the IoT for once and for all!
2: Monostyrska, K., (2020) IoT Impacts to the Insurance Industry: Benefits & Examples (diceus.com)
3: Statista., (2022) Investors with an ESG policy worldwide 2020 | Statista
4: abrdn., (2021) What drives ESG in insurance? | ASI | abrdn
5: Vernon, E., (2021) ESG and IoT: a match made in heaven? | Metrikus
6: Embroker., (2022) IoT Insurance & the Commercial Insurance Industry | Embroker
7: Viniak, V., (2022) How IoT helps environmental, social and governance goals | TechTarget 8: B2B Tech Talk, Ingram., (2020) The intersection of IoT and ESG (ingrammicro.com
9: Foresolutions., (2021) ESG & IoT - The Perfect Partnership? (foresolutions.co.uk)
10: Taglioni, G., (2021) The Power of the Internet of Things in Commercial Insurance (bcg.com)