The Internet of Things (or the IoT) is a real boon for technology bloggers, and it is time Risks of Hazard took a look at it. First, some background: here’s what the IoT is, how it works, why it’s not everywhere yet, its impact on insurance, and how it threatens the insurance industry (!). But there is not much about the IoT and natural catastrophe risk out there yet, presumably because they are not really related…

False. The IoT and natural catastrophe risk assessment have one thing very much in common: the importance of location.

As the IoT penetrates deeper and wider into society, sensors on things will deliver precise location information to the IoT. It will be known where more stuff is, with greater precision. As a result, analytics that are dependent upon knowing where something is will be honed to a much higher resolution and deliver answers that are much more refined.

One such analytic is property risk assessment – assessing the risk of flood, quake, etc. – at a specific building location. The Internet of Things will demand that business transacted on those things is based upon sensed characteristics of the things, including where they are. Insurers will need to underwrite based on precise location information because policy holders will expect their insurance to be based on where their assets are (especially their home).

Location-based underwriting is already common in property risk assessment and underwriting, but so is underwriting based on Zip Codes. As the technology that is driving the IoT expands, insurers will be compelled to improve the location aspect of all their analytics, and few analytics are more sensitive to location than underwriting property, particularly for some perils, like hail and flood.

The Internet of Things will create new business opportunities while transforming existing industries with the immense amount of information that will be available. For location-based risk assessment, the technology already exists – it is the expectations of insurance customers that will be transformed by the IoT.