We bring you an executive summary of a recent AIG white paper on the Internet of Things (IoT), bearing in mind that in five years, there could be 40 to 50 billion devices connected to the internet. AIG is on track to help demystify the IoT and its role as trailblazer in this new revolution that will impact every industry directly.
The IoT is a term first used in 1999. It was refined in 2012 by Rand Europe in its research report to the European Commission as: “The Internet of Things builds out from today’s internet by creating a pervasive and self-organising network of connected, identifiable and addressable physical objects enabling application development in and across key vertical sectors through the use of embedded chips, sensors, actuators and low-cost miniaturisation”.
According to industry analysts, there are between 10 to 20 billion devices connected to the internet today. This ecosystem of connected objects forms the foundation of IoT.
Even though the technology that comprises IoT has been around for years, we are only in its very earliest stages. The number of connected objects today pales in comparison to how many will be connected in just five years. Estimates vary, but the range of connected objects by 2020 will be 40 to 50 billion, and includes everything from cups and pens to homes, cars, and industrial equipment.
A dream world of new opportunities
IoT presents startling new opportunities for businesses, many of which remain obscure to the non-expert. The media chooses to focus its attention on the consumer side of IoT, such as the wearables market. There is little doubt that these products hold a prominent place in the IoT universe, but they remain a niche. Businesses that are not in the consumer market might mistakenly believe that IoT has nothing to offer. Yet the implications that IoT will have on all levels of business operations, no matter the industry, will range from the mundane to the profound.
Problems that have dogged businesses for centuries will dramatically diminish and, in many cases, disappear all together. Matched with other technological developments such as cloud computing, smart grids, nanotechnology and robotics, the world of IoT that we are about to enter presents one giant stride toward an economy of greater efficiency, productivity, safety, and profits.
A driving force
According to a RAND Europe study, by 2020, upper estimates of IoT’s annual global economic potential across all affected sectors range from US$1.4 trillion to $14.4 trillion – or, roughly, the current GDP of the European Union. Indeed, by then, IoT will not be so much an isolated IT segment as the driving force behind much of the world’s economic activity. Rare will be the industry in five years that will not be changed by IoT. Even today few industries have zero to gain from using IoT objects in their processes or products.
There remain, however, several trailblazing industries where IoT has become indispensable to operations. As we’ll see, these industries help shine a light on the promise of IoT in the years to come.
All opportunity, however, comes with some level of risk, and with IoT, the risks are just as important as the rewards. From cyber breaches to shifting questions of property and products liability, businesses cannot afford to enter this new technological world unprepared.
For example, every object that connects with the internet is another entry point through which the cyber-criminals can enter a business’ enterprise system. Equally dangerous, in a world where machines replace humans as the decision-makers and sensors are continually capturing data, serious questions of liability, resulting physical damage and privacy arise.
The attendant risks
Aside from the opportunities, there are serious potential risks of IoT. Even if we cannot say for certain what awaits businesses five years down the road, we can predict the issues that will become important.
An IoT world is one of increasing economic complexity, and the framework that industries as well as governments have adopted to foster growth and competition will not prove suitable in the long run. IoT will impact every country and economy on the planet, even in the developing world, which has historically been denied the benefits of technological progress.
Conclusion
As Dr Shawn DuBravac, Chief Economist at the Consumer Electronics Association in Arlington, Virginia, argues in his best-selling book Digital Destiny: How the New Age of Data Will Transform the Way We Work, Live, and Communicate: “This is not what might happen if we choose this road over another. This is what will happen regardless of which road we take.”
For businesses to fully realise the great potential of IoT, they will need to be prepared for risks that lie ahead. The insurance industry is particularly well-placed to help businesses navigate through this new technology world. Indeed, many of the elements that have converged in IoT have long been used by insurers to better understand risk and improve safety. And as insurance helps businesses adapt, so too will it adapt to improve its core processes and functions.
In the next two instalments, we will bring you the impact of IoT on the various specific sectors of the economy (automative, banking, energy, food, and other sectors, looking at safety, efficiency and data driven decision-making and infrastructures within each sector), ending off in December with an article on the risks attached to IoT and managing these risks effectively.