Power Distribution and Management

Insurance and Inspection – How to Take Advantage of IIoT Digitized Power

Today’s industrial insurers and testing, inspection and certification (TIC) providers are under increasing competitive pressures to modernize their operations. Both service provider groups face challenges to improve customer engagement and set their services apart from others in the marketplace. Insurers, in particular, also need to boost customers’ levels of risk awareness to improve their own loss ratios. And TIC providers need to consider new business models that move their companies away from being providers of commodity services and toward becoming trusted business partners.

The Industrial Internet of Things (IIoT) offers options that address these bottom-line concerns, with sensor-based solutions that turn traditional power distribution systems into digitized data networks. Using cloud-based analytics, the resulting data can form the building blocks for new business relationships that truly differentiate insurance and TIC service offerings from others in the field.

IIoT

In the first article in this series, I discussed the role electrical systems play in creating fire and other safety hazards – and the ways digitizing power distribution systems can reduce these risks (and lead to new types of insurance products). In the second, I covered the benefits IIoT-connected power also can offer tenants who need to reduce the kinds of business-interruption events their property & casualty insurance might not cover. My third article focused on how data derived from power digitization offers new opportunities to tenants and TIC providers to help improve compliance and risk management efforts. This article will address the ways today’s digitized power technologies can be leveraged to deepen ties with existing customers that can help build new business relationships and create brand advantages.

It’s important to note that this effort to develop digitized power solutions does not need to be a from-the-ground-up exercise – there is no need to go it alone. In fact, developing relationships with technology partners is the fastest and most efficient way to bring IIoT connected power offerings to your insurance and TIC product lineup.

Bottom-line challenges

Today’s property & casualty (P&C) insurers are struggling to boost profitability in the face of high operating costs combined with reduced income during a period of historically low interest rates. The resulting challenges can be seen in the growing gap between the operating costs of best- and least-performing P&C carriers as reported by analysts with the consulting firm McKinsey. Between 2012 and 2017, they say, the gap between top- and bottom-quartile companies widened from 24% to 44%. And, these analysts say, productivity in the industry has remained almost stagnant over the last decade.

The market has been better for TIC providers. The Boston Consulting Group says that industry expanded on average by about 8% annually between 2008 and 2018 – however, these experts say that technology is becoming a much bigger driver for ongoing growth. They call out smart sensors, in particular, as an advance that will have significant impact in industrial and transportation markets. This is seen in the increasing competition traditional TIC providers are seeing from startup and incumbent players who are shifting their business to a more digital focus.

This digital transformation isn’t just a matter of improving internal processes for insurers and TIC providers – it’s also, simply, what their customers are seeking. In its 2019 World Insurance Report, CapGemini noted that 58% of surveyed insurance customers are highly interested in the kind of innovative insurance models that new, digitized technologies enable. And 50% showed a higher likelihood of remaining with a current insurer that provided value-added services – again, a benefit created by the 24/7, always-on data stream of sensor-based monitoring systems.

IIoT’s transformative opportunities

Moving to digitized IIoT insurance products could be transformative for companies now straining to find new ways to grow their businesses. Insurance specialists at Deloitte note that IIoT-style connectivity offers insurers the chance to get away from a business model based primarily on price and to create new relationships based on coverage differentiation and customer service. Under the traditional model, insurers operate from a defensive, reactive posture that spreads risk among a broad customer base and then compensates those customers for losses. With an IIoT approach, however, insurers can be proactive, by teaming with their customers to prevent losses from occurring at all.

Not only does this model address insurers’ bottom-line loss-ratio concerns, it also enables more competitive premium pricing and brand loyalty among customers. Instead of being seen as a necessary evil, an insurance partner could come to be seen as a valued business partner. Today, customers’ major touchpoints with their insurers are primarily when making their monthly or annual premium payments – or when they are forced to prove the validity of a claim when a loss has been experienced. Moving forward, though, sensors combined with cloud analytics can enable such value-adds as app-accessed dashboards and situation-based suggestions targeting ways customers can improve their own operations. Managers who appreciate such ongoing services might be less interested in shopping for lower premiums when their next renewal period comes around.

As an added benefit for both businesses and their insurers, data-enabled services also include options for improving risk awareness in everyday operations. For example, automated alerts can call attention to both dangerous site conditions and such outside hazards as approaching severe weather events. Facility managers can then take action to address potential risks before they occur. Sensor systems also can help managers track operational conditions as part of routine maintenance efforts – for example, by indicating when installed equipment might be reaching the end of its lifespan. This way, what might have been an unexpected interruption can become just another planned parts replacement.

Of course, raising customers’ risk awareness can have a direct, positive impact on an insurer’s bottom line by potentially lowering that company’s loss ratio. Simply put, fewer claims means improved profitability for the insurer. As Dilip Arora, manager of catastrophe underwriting for Aviva Canada, explains, about 40% of industrial losses are due to fire- and water-related damages. IIoT-based initiatives could enable insurers to reduce loss ratios by 10% to 20%, leading to direct increase of their profit by 2 to 4 points.

IIoT-based offerings could be similarly transformational for TIC service providers. By helping to enable 24/7 sensing capabilities they could change how customers relate to their business. Today, TIC companies could be seen as commodity providers of annual inspections required by either their insurer or local jurisdictions. Networked sensors – including those for thermal monitoring, power quality and electricity metering – could support a move into the role of electrical safety coaches and consultants, which could be valuable to industrial customers throughout the year. Additionally, these systems could lay the groundwork for emerging technology offerings that are just beginning to be explored.

Now is the time

The IIoT capabilities I’ve described aren’t some vision of future opportunities – they are available now, for practical, real-world application. Advances over just the last five to 10 years have substantially reduced costs for sensors and data collection, enabling digital insights to penetrate further into facility systems. Sensing have emerged with strong integration of technologies, like MEMS, signal processing, IR and X-Ray cameras embedded in one SoC, combining with AI and edge computing enabling to detect early signal of risk before they become a real risk for the facility and alert. And now wireless capabilities are unlocking even more potential for tracking electrical system conditions and performance on a near real-time basis, versus the once-a-year snapshots traditional infrared inspections provide at a very competitive cost.

Insurers now recognize that to improve their loss ratios, they must change their processes to address risk at the root instead of only responding to its consequences. That means, amongst others, electrical risks need to be addressed before problems occur – dedicated IIoT power offerings can unlock this possibility. TIC providers also need to adapt their business models to remain relevant as digital monitoring becomes more common. As I’ve described IIoT approaches can help enable that transformation. And this is only the beginning of a movement toward even greater digitization as additional technologies mature, including Augmented reality visualization, BIM, the use of digital twins and machine learning.

But, you say, technology development of this sort isn’t a core skillset for your organization? That’s why partnerships with current technology leaders will be critical for insurers and TIC providers during this transformation. Driving these digitized solutions through a third party also helps reduce any potential liability insurers and TIC companies could face through direct implementation.

We also see building an ecosystem of business partners, based on their technology competencies, as the fastest way to get up and running with digitized, innovative power solutions. When evaluating such partnerships, look for both deep capabilities with the related technologies and the ability to bring multiple players together. And, in order to achieve scalability, this ecosystem also needs to offer deployment capabilities that can reach multiple regions, countries and market segments.

Schneider Electric offers both the technology expertise and partner ecosystem required for successful digitized power initiatives require. To learn more about what this could mean for your organization, visit Exchange.se.com. You can also contact your local sales representative to ask about how EcoStruxure Power can help digitally transform Insurance and Inspection.


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