The smart home and a data underclass by Marc Ambasna-Jones

The internet of everything means connected appliances can generate their own data. Marc Ambasna-Jones asks if insurance companies could use it against us

Domestic appliance manufacturers and technology companies have big plans for our homes. From remote controlled heating devices such as Nest and Hive to intelligent fridges, smart TVs and connected washing machines, our appliances will become smart, automating many of our everyday tasks.

But true to the notion of the internet of everything in which both things and processes are connected, smart devices won?t just eliminate everyday tasks such as supermarket orders, they will also establish new business relationships.

A recent study by Cognizant and the Economist Intelligence Unit on the rise and impact of the smart product economy found that 40% of businesses plan to use smart products to automate customer service operations, while 46% report that smart products are already bringing them information about their customers that was previously not possible or not cost effective to acquire.

Inevitably this sea of personalised data, generated by linking individuals and households with specific products and services has a huge value to businesses. Whether it is promoting product upgrades or extended warranties and insurance deals, consumers will be exposed more than ever before to the sales and marketing machine. While consumers will default to opting out of sharing personal data, discount deals and promises of preferential upgrade treatment will lead to more opt-ins. So what will this mean?

Strategy consultants Roland Berger released a report in March for the insurance industry. It identified how IoT will lead to increased personalisation of products as a result of being able to harvest data from homes and machine use.

Jörg Oliveri del Castillo-Schulz, partner at Roland Berger, says that while the main aim of insurance firms in using this data is to prevent problems and therefore payouts, it is also about personalising insurance products and offers. It?s then ?a question of privacy,? he says, referring to the idea that some consumers will have to opt-in to get deals.

Kevin Roberts, broker director at insurance firm Legal & General admits that this personalisation, although beneficial for many, could also lead to a growing number of people being unable to afford full insurance protection of products. This will, he says, ?create a data underclass and exacerbate the current protection gap?.
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It is this suggestion of data monetisation and a multi-tiered consumer classification system based on data that sets a few alarm bells ringing. With sensors and cameras in homes, office buildings and cars, are consumers in danger of being over-analysed in terms of product use and service requirements? Will there really be a data underclass?

?There is definitely that danger of companies misusing the data that is captured by consumers,? says Patrick Moorhead, president of at IoT analyst Moor Insights and Strategy. ?This is why consumers need to be wary of companies that don?t simplify and externalise their privacy policies.?.

So is there the possibility, then, that insurance companies could use this data through partnerships with vendors to charge higher premiums to anyone that doesn?t connect devices?

?There is a distinct possibility that will happen,? says Moorhead. ?Many consumers will opt in if, let?s say, they can get discounts from other services.?

As more connected devices find their way into homes, the issue of data privacy will become an increasingly complicated one. Companies such as Samsung, LG and Miele are already producing internet-enabled appliances with a focus on the consumer benefit of remote control but also remote diagnostics and maintenance. There are clear benefits for the vendors. A report by McKinsey in June claimed that automation through IoT will create a $300bn (£190bn) value added opportunity and a 2% improvement in gross margin for vendors.

Clearly their ability to crunch the numbers on machine performance and identify areas to improve in terms of components and functionality will help to make better products. It will no doubt augment brand loyalty and it is the brand names that will ultimately provide the access to the consumers. This, says Del Castillo-Schulz, is why so many insurance and warranty firms are creating partnerships with the big consumer appliance companies.
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Mat Fordy, CEO of Cool Components, a supplier of IoT electronics, says that while the potential benefits for both customers and manufacturers are huge, this aspect of IoT must be monitored closely because of its potential to be abused.

?With such power comes responsibility,? he says. ?IoT ?keyholders? have to be tightly restrained on how they use the data, and the uses that they put it to. Trust will be key.?

So, is the service industry trustworthy? Kris Oldland, editor of Field Service News says that IoT will ?flip the service cycle upside down? as direct access to appliances will save consumers money, but is adamant that the majority of service companies are seeing IoT as a mechanism for improving services.

No one would argue with improved services and product longevity but a level of scepticism is understandable as the lines between consumer and service provider blur due to data access.

Jon Carter, UK head of business development for Connected Home at Deutsche Telekom AG agrees: ?IoT must, by default, impact insurers and warranty providers? risk models, and this will optimise the associated costs of providing maintenance and support services?.

As with all big data, it?s not the size that really matters but how it is interpreted and classified. Brian Barnier, an ISACA risk advisor, principal at ValueBridge Advisors and author of The Operational Risk Handbook warns that businesses should not fall into the trap of ?the big data illusion?.

This trap, he says, needs to be worked around in a way that will protect the consumer. IoT will not just be a window on the home and consumer habits, it will be a science of personalisation, where computer tick-boxes get to decide, even more than they do now, on our eligibility for products and services. Surely no one, not even the fast growing IoT industry wants to be responsible for a ?computer says no? culture.