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Cars suggest the most fuel-efficient route to work. Wristbands connect to smartphones to monitor our health. Connected home security systems and thermostats allow us remote access to our homes from the road.
The ability for devices all over the world to connect, send and receive data is often referred to as the Internet of Things (IoT). The impact on property insurance particularly in the technology segment will be significant.
50B 50B devices are expected to be connected globally by 2020. World Population Connected Devices Connected Devices per Person 25B 12.5B 6.8B 6.3B 7.2B 7.6B 0.5B 0.08 1.84 3.47 6.58 2003 2010 2015 2020 Source: Cisco IBSG, April 2011
The building blocks of the IoT are: + Processors + Tiny Sensors + Chips MEMs that allow devices to gather information, and connect to the Internet and each other. *MEMs are tiny mirco-electro-mechanical devices and structures.
As the cost to produce these building blocks of the IoT goes down, they become more customizable and the scope of the IoT will grow exponentially. Many of these devices are already commonplace in products and services we use in our day-to-day personal and professional lives.
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1 Occupancies are changing.
Large chip manufacturer to go Fabless* PC manufacturing pioneer exits the market nufacturing pioneer the market Software giant moves into gaming Large chip manufacturer chooses to go Fabless* To stay relevant, companies are evolving and (re)insurers may need to adjust limits, pricing and coverages. *Fabless is the manufacturing of integrated circuits by a specialized third-party contractor at facilities known as Fabs.
Understanding where your insured is in the IoT value chain is critical to understanding the true exposure. Where does a specific occupancy fall in your risk spectrum? Has the operation changed? Is the insured offering new products and services? Is the building still appropriate for the occupancy?
2 Business Income (BI) values are volatile.
$7.1T The global market for IoT solutions will grow from $1.9 trillion in 2013 to $7.1 trillion in 2020. 2020 2013 Source: International Data Corporation (IDC) $1.9T
The technology sector is already among the most volatile industries in terms of revenue and income. Volatility of Returns by Sector (1962 - 2015) 26.6% Technology 22.2% Consumer Discretionary 22.0% Financials 20.5% Energy 20.0% Telecom 19.6% Industrials 19.2% Materials 18.6% Healthcare 17.3% Market Consumer Staples Utilities 16.7% 15.4% Standard deviations of 12-month year-over-year returns and growth rates from 1/31/1962 through 1/31/2015. Equity universe is defined as the top 3,000 U.S. stocks by market capitalization; sectors as defined by the Global Industry Classification Standard (GICS). Source: Haver Analytics, Fidelity Investments, as of January 31, 2015.
For example, new products can rapidly increase a company’s revenues and business income, but existing (seemingly stable) products are becoming obsolete faster and can decrease these amounts just as quickly.
Obtaining accurate Business Income values from the insured and keeping them up to date can be challenging. Contents $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ Building $$$ For example, a technology start-up that signs a major new contract 6 months into the term: $$$ $$$ $$$ $$$ $$$ $$$ Annual BI Initial Statement of Values Real Exposure After 6 Months
3 Accurate underwriting information can be difficult to obtain.
Many technology companies are global, with multiple locations, unique occupancies and values. Each country has a different set of codes and standards: Building Codes Safety Standards Fire Codes Water Supplies At each location... Are you obtaining the correct values? How is the Business Income allocated? Are your rates adequate? Do you understand the occupancy? Have you factored in natural catastrophe exposure?
Accurate information is critical in determining: Capacity Pricing Coverage
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New I T developments will continue at an astounding rate, impacting Property exposures and requiring (re)insurers to keep pace.
Our dedicated Global Technology team continually identifies and monitors trends in technology business. For additional insight into this topic or to discuss reinsurance solutions, contact your local Gen Re representative. Chris Beston +1 213 630 2490 /in/chrisbeston [email protected] @chris_beston © 2016 General Re Corporation | This presentation is intended to provide background information for our clients and professional staff. It is time sensitive and may need to be revised and updated periodically.