At a glance
- Nearly half (45%) of SMEs will be using connected devices during 2015
- From smart burglar alarms to sensors that can detect when machinery is at risk of breakdown, these devices have the potential to transform the way SMEs do business
- Brokers can help their SME customers understand the benefits and dangers of using connected devices
New technologies are constantly emerging that allow everyday objects to connect to each other and become part of the Internet of Things (IoT).
It is reported that nearly five billion connected devices are now in use worldwide, and this is predicted to rise to 25 billion by 2020, with more than eight billion of these devices expected to be used by businesses. Some experts predict nearly half (45%) of SMEs will be using connected devices during 2015.
While connected devices can expose SMEs to additional cyber risks, they also offer wide-ranging rewards. Three key benefits for SMEs are security and risk management, efficiency, and impact on insurance.
The Internet of Things (IoT) is the term used for the development of everyday objects or “things” that have network connectivity, allowing them to send and receive data.
1. Security and risk management
Zurich’s latest SME Risk Index found one in six (16%) SMEs are using smart devices to monitor their business premises remotely, or expect to do so in the next 12 months.
Smart security cameras can learn a user’s normal movements and send notifications to their smart phone if anything out of the ordinary is detected.
Smart burglar alarms use motion detectors to identify intruders, and at the same time as triggering an alarm, can automatically call or text the user’s phone. Some security systems give users the option of switching on lights or music, or opening blinds, to spook intruders rather than setting off an alarm.
Connected devices can also protect property against other threats. For example, wireless humidity sensors can detect water leaks and identify the likely source of the problem.
Some connected devices can allow for automation of tasks, while others can intelligently programme themselves to increase efficiency.
For example, Google’s Nest Thermostat will learn what temperature the user prefers at different times of the day, and within a week can be left to adjust automatically. This removes the need for human input, freeing up time for revenue-generating activities. It can also achieve a more efficient heating schedule, generating energy savings.
Manufacturing businesses are expected to become key beneficiaries of the IoT over the next five years, for example through devices that can detect whether a piece of machinery is operating correctly, or whether an item has been shipped to the correct destination.
3. Impact on insurance
Helen Jales, Head of Strategic Propositions at Zurich, believes “the real benefit of this technology is that it’s shifting risk from detection and control to prediction and prevention”.
She says: “Taking the example of a humidity detector, data showing the early signs of a water leak could be automatically shared with the SME’s broker or insurer. Action could then be taken to inform their customer, or even to mitigate the issue and prevent a loss ever occurring.”
Helen says that brokers and insurers should work together to create propositions that take advantage of the IoT for the benefit of customers. This could include tailored risk advice and personalised premiums for customers who can prove they present a better risk.
Denial of Service (DoS) attacks occur when cyber criminals bombard their victims’ networks with so much unwanted traffic that their machines or systems cease to function. Traditionally, malware-infected PCs have been used to launch such attacks, however cyber security experts say the Internet of Things (IoT) could be a soft target for attackers, because IoT devices are always online and do not always have strong risk management features.
SMEs must be aware connected devices could increase their exposure to cyber risk, including denial-of-service attacks (see box out), and theft of data.
The more connected devices there are in use, the more entry points exist for hackers, and the greater the number of functions a hacker might be able to control.
For example, if a hacker was able to access a security camera, they could monitor office movements, while gaining control of warehouse devices could give them access to sensitive customer or company data.
Brokers should ensure they are advising their SME customers on how best to manage the cyber risks associated with IoT, for example by only buying devices from reputable manufacturers, and installing the latest security software updates as they become available.
Technology for the future
Brokers should follow the growth of IoT carefully, but also be ready to discuss with customers how they currently use connected devices, how they could potentially use such devices in the future, and what they would expect in return for sharing their data.
“The more insurers and brokers can put themselves in a position of trust and expertise in customers’ minds, the better the position they will be in,” adds Helen.
For more information please speak with your local Zurich contact.