Changing the face of the insurance industry with open source IoT hardware
Adapted from an original article by Maarten Ectors, Legal & General, published 9th September 2017 on LinkedIn.
This month, DesignSpark from RS Components alongside insurance specialists, Legal & General, launched the LeakKiller design challenge. This collaborative open-source hardware competition is open to all designers and asks them to come up with a solution to detect water leakage fast and stop it in its tracks. So, why an open-source challenge?
Maarten Ectors, Chief Digital Officer, Legal & General
Adoption of IoT is slow at the moment for a number of reasons, but probably the main reason is the current cost of hardware. In comparison to their disconnected siblings, IoT devices tend to be significantly more expensive. The extra hardware costs involved only explains this price difference to a small degree. For example, you can buy a water sensor to detect leaks for around £25, but if you were to buy these in volume, the cost drops to around £0.50 each to purchase from a manufacturer in China. Even adding logistics and the costs associated with getting these into the hands of the consumer, this cost should not rise to more than £1-£2 each. It would appear that companies are still trying to use the old Apple model – selling the device as ‘specialist’ and therefore commanding premium prices – when bringing ‘IoT’ devices to market. This may work in the short term while there are limited options in terms of alternative models, however, in the longer term, this is a risky business model with Moore’s Law squarely against them. As we all know, electronics – and processors in particular – tend to get cheaper and faster every year. It is easy to see that a hardware margin of £100 is justified on a PC retailing at £1000; however, a hardware margin of £100 on a £0.50 IoT device is clearly not. You will need extremely high volumes in order to generate a reasonable margin if your IoT device only costs £0.50 – and this makes the threat of companies cutting corners as far as IoT security goes only too real. Without a resolution to this problem, the IoT industry will not be able to grow as forecast.
Like all home insurers, Legal & General pays out for claims each time there is a water leakage in the home. For the average insurer, the number of claims each year is substantial. And the damage is not easy or cheap to resolve, so the average claim size is also substantial. IoT offers a real opportunity to do something to significantly reduce claims and avoid damage to homes, but not with the currently inflated prices of IoT hardware. So, Legal & General have partnered with DesignSpark to search for innovative solutions from its engineering design community, as well as asking some of the smartest innovators from a wide range of industries to come together and collaborate to figure out and build a better model. The LeakKiller design challenge is the first step – what happens if we open-source the IoT hardware? Collectively, can the insurance industry gain access to an inexpensive water leakage solution to avoid the consequences of the escape of water for the majority of customers?
The second step is to find new ways for those in the IoT industry to launch revenue-generating solutions combined with low-cost IoT hardware. Excitingly, Deloitte has accepted the challenge of leading the quest to find solutions.
We know that this is an exceptionally difficult problem to solve and that success is in no way guaranteed. This is exactly why we are collaborating openly and we value great ideas that anyone can bring to the table. We are also happy to accept criticism around our current hypothesis and idea set. What we know for sure is that the IoT industry needs a new revenue model. Consider this: would you buy a ‘smart’ thermostat costing £200, when a standard ‘dumb’ thermostat costs £20? Maybe not, but consider again – what if the smart thermostat cost only £25, or even better, was provided free of charge? Would you behave differently in this scenario? Now, look at it from the business side. It is massively expensive to roll out millions of water sensors – would a £2 cost or £25 cost be preferred? There are clear advantages for business as well as consumers, providing we can find a new business model for the companies that are already designing some amazing IoT hardware. The insurance market is a regulated industry so consumers’ data cannot be used without explicit single purpose approval. For this reason, the current ‘you are the product’ model has already been discarded due to privacy issues.
In summary, as mentioned previously, success is not guaranteed. But, by getting the best brains thinking collectively, we hope to come a long way towards solving this challenge for the benefit of all.