In this paper we ask, how might pandemic induced factors shape property and casualty insurance in the future? How might insurance respond with new product offerings to better serve the changing needs of their real-estate customers? Or in fact, will real estate owners begin to self-insure?
COVID as an airborne pathogen continues to profoundly impact real estate, evident with low occupancy in commercial properties, stressed retail malls and even temporarily closed hotels and restaurants- absolutely continuing to impact our broader economies. Whilst the Q1 2022 Royal Institution of Chartered Surveyors Commercial Property Survey results point to positive momentum in relation to occupiers and investors, respondents’ outlook remains cautious across multiple economic factors.
In terms of real estate, insurance, and finance markets, this can be described as a complex web of interconnected parties with an influence on the overall economy where real-estate values are showing signs of downward pressure. This is compounded by slower forecasts of lower expected growth in future cash flows due to COVID-19 and remote working patterns.
From an occupancy perspective, people are inside buildings 90% of the time. Indoor air quality is now foundational to healthy sustainable real estate and to support a return to buildings for work and entertainment. Today’s opportunity is to provide peace of mind for occupants, to enable them to feel confident to return as well as to improve productivity and operational efficiencies. Without effective detection, the threat to occupant health and wellbeing is exacerbated due to the failure to measure or contain this airborne virus. We manage what we measure.
From the real-estate perspective, the pandemic has created new types of risks from unoccupied buildings and the uncertain return of tenants, travellers, and consumers alike. Bringing people back in a safe and healthy manner is vitally important on many levels including our human health and wellbeing, business continuity and economic growth.
Traditionally indoor air quality has typically not been covered under insurance products, either property or casualty. Why is it so important now?
Evidence
According to the Building Owners and Managers Association (BOMA International) in North America, 86% of tenants are satisfied with building owners’ response to COVID. However, when one sustainability consulting firm surveyed a set of Canadian millennial tenants (51% of Canada’s office population pre-COVID), the survey reported that 78% of millennials would go back to the office only when they have transparency reporting on the state of indoor air quality!
At our Sense Consortium event in December 2021, we spoke with real-estate owners, building managers and our insurance industry. This event showcased the influencing factors
for real-estate owners and insurance underwriters in their response to the COVID-19 pandemic. These include:
Greater corporate responsibility to provide a healthy safe environment monitored to be free of COVID-19
Enhanced focus on cost containment, not least optimisation of power and water consumption
The need for building managers and owners to collaborate by sharing data insight and
Increased digital adoption to enable transparent & real-time monitoring of building environments.
There are transformational questions that need to be posed and discussed: how might these pandemic induced factors shape property and casualty insurance going forward? How might the insurance industry respond with new product and risk management offerings to better serve the changing needs of their real-estate customers? Or in fact, will real-estate owners begin to self-insure if the insurance industry does not respond quickly enough?
The world of technology continues to evolve at pace and there already exists effective tools to monitor indoor air quality. These include:
Bio-Sensing sensors with real time pathogen detection and efficacy verification for indoor air quality
Response protocols including new types of active air filtration systems that virtually eliminate viruses such as COVID-19
Digital risk engineering with integrated risk management platforms for multi-purpose sensors ingestion and insight linked to building management systems and other machinery or building assets.
These innovative capabilities continue to accelerate within the data economy so why has our insurance industry not responded at the same pace? This harkens us back to a quote by Peter Drucker, “The greatest danger in times of turbulence is not turbulence itself but to act with yesterday’s logic.”
So, what have we learned from the pandemic?
The traditionalists say it’s impossible to underwrite COVID related risks and therefore, real-estate owners should independently increase their enterprise risk management plan and de-risk by other means. This, coupled with the fact that the risks of managing and operating a building that is not healthy and clean are increasing significantly.
At our Sense Consortium events, we have heard from real-estate owners that, in the absence of related insurance products and risk management solutions, they are seeking alternative risk financing and are leveraging digital solutions for real-time monitoring.
Industry innovators (sadly too few!) say this is an opportunity to leverage static (traditional construction, occupancy, protection, exposure (COPE)) and dynamic data to define new types of insurance products and risk management solutions for commercial property owners. Plus, to respond to new risk factors such as COVID. We have learned that for real-estate and insurance innovators this can only be done through deep collaboration and mutual trust. Businesses collaborating are creating opportunities to better manage risks, by using proven technology alongside a very clear (data-driven) risk management strategy…
Industry innovators’ learnings show that the insurance opportunities include:
24/7 monitoring of sensor-enabled buildings (compared to 1 in 10 in-person surveys today)
Shift from reactive to proactive & predictive: detect, notify and action based on data and insights
Reduced frequency & severity of loss
Reduced business interruption
Improved asset maintenance based on data & insights (v repair or replace based on pre-determined maintenance scheduling) further reducing attritional losses
Measurement of air quality including real time pathogen detection enables reduction in energy and carbon intensity
New solutions for indoor air quality risk management and mitigation
Using existing built asset information (Building Information Management (BIM) / Computer-Aided Facility Management (CADFM) & digital twins) to understand where and when issues occur, or predict before it happens
Planned collaboration can only accelerate the development of new types of expertise for both real-estate and insurance to define products and risk management solutions together more appropriate to support the drive for healthy and sustainable buildings using data insights.
Digital Adoption
Industry innovators (sadly too few!) say this is an opportunity to leverage static (traditional construction, occupancy, protection, exposure (COPE)) and dynamic data to define new types of insurance products and risk management solutions for commercial property owners. Plus, to respond to new risk factors such as COVID. We have learned that for real-estate and insurance innovators this can only be done through deep collaboration and mutual trust. Businesses collaborating are creating opportunities to better manage risks, by using proven technology alongside a very clear (data-driven) risk management strategy…
Strategic change alongside data science, underwriting and risk management represents but a few areas of relevant expertise that takes us away from a spreadsheet-based method to one of information sharing and collaboration.
Insurers are leveraging technologies to enhance offerings and competitive differentiation. Features such as chatbots, artificial intelligence, mobile apps, digital twins and online resources have been used to digitize and automate the insurance experience for several years.
Technology is readily available to immediately reduce the risk, reduce loss and business interruption, and improve occupant health, wellbeing, and sustainability.
The business case is clear, IoT and real-time data represent a shared opportunity for insurance and real-estate owners. So why aren’t we seeing the insurance industry establishing a risk mitigation digital adoption programme in collaboration with the real-estate customer, especially when we hear so much of customer centricity and building for the needs of the customer?
According to analysis undertaken by the Sense Consortium, globally nearly 1 in 10
commercial policyholders claim annually. From a value perspective, according to data from the European Public Real Estate Association (EPRA), National Regulators Filings and target carrier analyses, IoT and data science would directly address $60 billion of property losses notably from water, fire, and theft.
We believe insurance companies will significantly benefit by leveraging IoT sensors, real-time data and integrated digital platforms. Data is changing the world in so many other sectors, insurance like real-estate is not immune. We are in an era of transparency and collaboration between real-estate, insurance, multi-vendor digital services and related ecosystems. The benefits are proving to lower risk and lower costs while increasing gross written premiums with new product offerings.
From a consumer perspective, insurance like real-estate and tenants expect all these sensors or technologies to easily integrate with transparent reporting and management. This means the solution must support several different applications. With today’s open integrated risk management building platforms it is now possible to unify once stand-alone proprietary sensors and sub-systems. This enables a roll-up of necessary data into actionable metrics for diverse stakeholders.
Technology suppliers most typically offer one part of the risk solution. Offering an IoT platform typically requires a blend of independent suppliers to deal with each aspect of the hardware, software, distribution, support, and service. None have an end-to-end service approach which is one inhibitor to broader IoT adoption for insurance and real-estate environments. We’ve learned that data integration is more than possible across multi-vendor systems and data models assuming consistent data standardisation. This is only enabling our industry to drive to greater results.
Sharing data and ecosystems to improve loss ratios
Indoor air quality, including pathogen (COVID and influenza) or ammonia detection just like water leak detection, represents an immediate area of opportunity for IoT technology and real-time data to develop new types of data-led risk management solutions based on effective, trusted, and secure data sharing. Insurance companies and real-estate owners share a common goal, prevent costly building damage, adverse occupant impact and unscheduled costs.
For example, we are seeing new insurance solutions emerging in the context of “up-time” or “guarantee” parametric business models: the insurance policy pays out (in a parametric way) when the sensors detect that air quality is below the acceptable defined threshold.
Then what is the response protocol?
A leak detection sensor immediately notifies the operator to close the valves to prevent material water damage. A plumber service call is initiated to fix the water problem while the asset maintenance and management history is digitally captured. With indoor air quality when using an IoT air sensor with bio-sensing we immediately understand the degree of risk. Response protocols may include activation of an advanced air filtration system or opening the air intake to 100% or may include containment. Every customer’s response protocol will have differences for obvious reasons.
Defining these response protocols requires an ecosystem play: if the air or water quality fall below acceptable thresholds based on the sensor data – there must be a remediation service to improve air quality or activate the appropriate filtration system to remediate quickly and effectively back to appropriate threshold levels. Pre-established relationships with mechanical trades or electricians, plumbers, risk managers or data analysts for example to remediate within the acceptably defined response time.
It's another question again where alerts are not responded to and remediation action is not taken, does the insurance policy still pay the claim.
In conclusion
An obvious question...
If integrated IoT sensors and dynamic data can support better outcomes for real-estate owners and insurance where both achieve shared goals; then why aren’t we seeing massive adoption with insurance?
To help answer this question, the Sense Consortium is supporting real-estate owners and the insurance industry to drive the ‘how’ of IoT adoption. The Sense Consortium runs events, provides case studies with tangible results (across environmental, risk and operational metrics), in person tailored workshops via a corporate member scheme and continues to advance adoption of real-time data insight across commercial property.
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