At the time of this writing, there is still uncertainty regarding Malaysian Airlines Flight 370. However, one interesting aspect of that tragic flight was the surprising revelation that its Rolls-Royce engines periodically transmitted engine performance data via satellite to the Rolls-Royce factory in the United Kingdom. That news was just another indication that machine to machine (M2M) technology is becoming more ubiquitous, and insurance companies should take notice — especially as it pertains to usage-based insurance (UBI) and telematics.
With UBI and telematics, devices located on a vehicle could transmit vehicle operation data (date and time, miles driven, speed, location, maintenance issues and air bag deployment) in real time back to the insurance company or the vehicle owner. That data can be used by insurance companies to provide more accurate rating information.
The use cases for M2M for insurance are largely focused on vehicle risks and not necessarily areas where the technology can provide broad benefits to insurance companies. But, as M2M becomes more widely understood, the use cases for insurance will only be limited by the imagination of technologists and insurance managers. For example, crop insurance is a little arcane when compared to other lines of insurance, but its use M2M technology is transferable to many other types of insurance. Crop Ventures is a company that has developed the capacity to monitor a myriad of data inputs coming from farm equipment such as a tractor or a combine. While the use of GPS is not new with farm equipment, the pairing of GPS with other technologies such as remote sensing, electro-mechanical devices, operating system monitoring and enhanced mapping creates a data platform where devices are reporting data on a continuous basis to a cloud-based application.
Crop insurance is an area where it is difficult to monitor a farmer's activities in relation to crop insurance guidelines and requirements. Documenting the date and time of planting provides proof of when the crop was planted or harvested. Since crop insurance protects against a loss in yield, accurately tracking real-time yield information ensures that claims are supported by the data. In addition to the data that crop insurers value, it is also informative for banks and other agriculture lenders to verify the date and number of acres planted in a certain field, amount of fertilizer used, and other data that is useful to the farmer, the lender and the insurance company.
Yet another area that M2M is emerging in insurance is in loss control. Remote sensing devices connected to pressure vessels such as boilers, water systems, pumps and so on, can sense drops in pressure, leaks, pumps that are going bad or boilers that are operating out of safe tolerance and use that data to alert appropriate management.
Insurance companies that insure construction and other heavy equipment can use the same technology described above for farming, to track construction equipment 24/7. For example, a road grader that is moving at 3am is likely in the process of being stolen. On the other hand, the contractor is able to track the exact number of hours that equipment is operating that becomes the basis of an audit trail for tracking construction costs as well as insurance exposure.
The whole of the technology that fits within M2M is significant, technologically interesting, and highly feasible. The information derived from it fits perfectly into the realm of insurance underwriting, risk assessment, and loss control will very soon begin to influence the panoply of risk assessment and management tools that are in common use today. As is often said, insurance reflects what is happening in society as a whole, and M2M is a reflection of a society that is adaptive of new technologies.
About the author: As Vice President of Strategy at VUE Software, John Sarich serves a senior solutions architect, strategic consultant and business advisor with more than 25 years of insurance industry experience.