At a glance
- The smart city is moving rapidly from concept to reality
- Many of the innovations that are enabling the growth of the smart city could also have implications for insurance
- We look at the potential benefits for customers and the challenges ahead
It is five years since the UK Government published a report exploring the potential opportunities and challenges for smart cities. Today, the reality of a truly ‘smart city’ is edging ever closer, thanks to innovations as diverse as driverless cars, water leak detection systems and facial recognition technology.
Most people will be familiar with the concept of the ‘smart home’, where connected devices such as smart alarms and smart thermostats are able to collect and share data with each other as part of the Internet of Things (IoT), in order to make homes safer, more efficient and more comfortable.
The smart city is one where digital technologies work together in a similar way, but on a much larger scale, with vast networks of sensors collecting real-time data, and artificial intelligence systems interpreting and analysing this data in order to drive improvements to infrastructure.
Examples of smart city innovations include smart traffic light systems that can decide how long lights should stay on green by using underground sensors to detect how many vehicles are on the road. There are also flood warning systems that use sensors placed near rivers and streams to detect rising water levels.
Increasing urbanisation is a key driver of the smart city. According to a UN report, two-thirds of the world’s population will be living in cities by 2030, which will increase the strain on space and resources, and lead to more demand for innovative solutions to infrastructure challenges.
Benefits of smart city technologies
City centre congestion is one infrastructure challenge that smart technologies can help to address – whether through smart traffic light systems, apps that can inform motorists of the availability of nearby parking spaces, or broader innovations, such as driverless cars and shared autonomous vehicle fleets.
However, smart technologies could also help to make urban life more pleasurable. Take shopping, for example. It is predicted that within three years, most retailers will know when a particular customer is in one of their stores, and will be able to personalise that individual’s shopping experience, for example by sending offers or promotions to their phone, based on their previous purchasing history.
“As connected cities develop and become more efficient, people entering these environments for work or leisure will find the experience far more pleasurable than a non-connected city,” says David Roberts, Global Relationship Leader, Zurich. These environments will be safer too, says David. “Criminals will know that the risk of being caught will increase considerably in the smart city.”
Facial recognition technology, for example, is already being used in crime prevention. In China, police recently used this technology to identify and arrest a wanted criminal among 60,000 people attending a pop concert.
How smart city innovations could affect insurance
While IoT innovations are empowering the smart city, they are also enabling insurers to provide much more personalised insurance propositions, that better reflect the specific risks customers may be facing at a particular moment in time.
For example, some travel insurers offer apps which allow customers to receive destination-specific travel assistance and guidance, provided they are willing to share their location via their phone. Zurich has recently acquired the travel assistance business, Cover-More, to expand its services in this area.
Used in this way, connected technology can also enable a more personalised approach to pricing insurance.
David says: “If you know when and where a customer is travelling, you can price that risk accordingly, and it also means the customer doesn’t have to be charged for insurance they’re not using – i.e. when they’re at home.”
In a similar way, connected technologies could also affect how other lines of insurance are priced.
“When pricing home insurance, the differentiator used to be a customer’s postcode,” says David. “Now, it could be a grading based on data from their smart heating system, their smart water monitoring system and so on.”
Data-sharing concerns in the age of the smart city
Creating personalised insurance propositions depends on customers being willing to share their personal data. At the same time, public scrutiny of the way in which organisations handle personal data has never been greater, which presents potential challenges for the insurance industry.
David says: “The landscape has changed in the last few years. People have realised their data has value – and so they need to be convinced that sharing their data will benefit them.
“If you take what happened with Cambridge Analytica and Facebook, the real issue there was that people’s data was used in a way they hadn’t expected it to be used, and in a way they didn’t personally benefit from.
“What organisations have to do is be able to demonstrate to their customers how they will get a better experience by sharing their data. As an insurer, this means being able to show our customers how we can make the process of buying insurance far more personal, and far more straightforward.”
To discuss any aspect of this article further, please speak to your local Zurich contact.