Back in the 17th century of Lloyd’s coffeehouse, a ship set sail for the New World with insurance policies covering the hull and cargo. The task of the underwriters was to evaluate the risk of damage and loss, decide whether or not to accept and insure the risk, and determine how much it would cost to do it. In making these gutsy decisions, the underwriters drew from the experiences of similar ships that had traveled the same route.

Executive Summary

As objects, physical structures and modes of transport get wirelessly connected, answers to questions about liability—and insurance—for those disconnects causing damage are becoming unclear. Instead of allowing coverage confusion and gaps to persist, underwriters say they need to tear down internal walls between product lines specialists and partner with tech companies to posit what-if loss scenarios and develop new products.

For centuries thereafter, the discipline of underwriting did not stray far from these origins. Every time a novel risk emerged like environmental and employment practices liability, the historical data was relatively straightforward. In all cases, a specific party or set of specific actions caused the loss, providing enough clarity to make informed underwriting decisions.

No longer is this the case, as the Internet of Things (IoT) has profoundly altered traditional risk paradigms. In the IoT, everyday objects are connected to the Internet, allowing them to send and receive data, in many cases wirelessly. This year, 6.4 billion connected things will be in use worldwide, up 30 percent from 2015, according to research firm Gartner.

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