The Risks and Rewards of Living in a Smart City

The Risks and Rewards of Living in a Smart City image
Like something out of a sci-fi movie, smart cities – the urban centers of the future – are already a reality in many places around the globe.

Tapping into the Internet of Things (IoT), smart cities are using technology and data to do amazing things. As the world continues to migrate to urban areas – nearly 70 percent of the world’s population is projected to be living in one by 2050 – these modern marvels are destined to be the norm.
 
Accommodating the evolving needs of these connected metropolises will require reimagining what’s possible with data, technology and even insurance.


Big Tech Meets Tall Buildings

So exactly what makes a smart city better than a regular one?

According to a 2017 report written and published by Strategy Meets Action (SMA), an independent advisor to insurers, a smart city proactively leverages “connected world technologies to gather, analyze, and act upon real-time data to improve the lives of citizens, enhance mobility; create safer environments; optimize energy consumption and waste management; and contribute to the urban center of the future.”

First explored in Europe, the concept of a smart city has caught fire, with more and more cities around the world developing strategies and implementing emerging technologies to spur the transformation. In 2018, the IESE released the fifth edition of its Cities in Motion Index (CIMI), which measures global cities’ sustainability and quality of life. Of the 165 cities evaluated, the CIMI ranked New York, London and Paris as the three smartest cities on the planet.


Three Hallmarks of a Smart City

Smart cities have well-placed priorities. Near the top are health and well-being. According to the Smart Cities Council, a network of leading companies advised by top universities, laboratories and standards bodies, a truly smart city has three core attributes:

Livability – A clean, safe and healthy environment directly contributes to a higher quality of life. Real-time data and digital technologies are enabling smart cities to reduce stressors like pollution, congestion and crime.

Workability – Driven by the IoT, smart transportation can alleviate the stress caused by traffic congestion, road hazards, fare collection and city parking. Additionally, telecommunications networks offering fiber-optic and cellular connectivity benefit residents both professionally and recreationally.

Sustainability – Tied to livability, a sustainable region has clean air and water, as well as ample green space; limits its greenhouse gas emissions; and is resilient to natural disasters and other extreme weather events.


Smart Tech: The Key to Thriving Cities

Fueled by data, smart cities are utilizing the following to create a higher standard of urban living:

Connected devices: Changing the way we live, IoT-connected devices – from smartphones to app-controlled security systems – are on pace to reach 75 billion worldwide by 2025. By tapping into the IoT, smart cities can track what the city’s population is doing, where they’re spending their time and how they move throughout the city.

Artificial Intelligence (AI): Driven by data, AI applications are touching more and more industries, improving everything from public health to cybersecurity. Popular applications like virtual assistants, chatbots and voice interfaces are benefiting both companies and consumers in a variety of ways.

Big data: Today’s connected devices provide an incredible amount of data. Likewise, valuable data comes from sensors and chips in everything from roads and traffic lights to buildings and people. Smart cities are using this data to spot patterns, gain valuable insights and drive decisions designed to improve key services, from water management to transportation.

Blockchain technology: A database made up of blocks of encrypted information, blockchain is reshaping the way industries – from finance and manufacturing to healthcare and government – do business. Decentralized and impenetrable, blockchain has the potential to create countless smart networks and grids, changing the way cities do everything from distributing data to harnessing energy.

Autonomous vehicles: Driving change for smart cities, autonomous technologies have the ability to cut urban travel time by a third and reduce greenhouse gas emissions by two thirds.

Geospatial technology: Engineers are using this technology to collect and process location-centric data. Geospatial technology makes it possible to generate thematic maps, develop automatic navigation systems and create engineering plans for urban development.

Advanced networks: Using millions of connection points to generate data, smart cities need a high-performing network. Many believe that 5G is the ideal choice. Known for its blazingly fast data rates, a 5G network is able to support up to one million devices per square kilometer.


New Tech Brings New Risks

While smart technologies have the potential to improve people’s lives, these same technologies can introduce smart city residents and businesses to new risks.

Here are some examples:

Cyberattacks: From smartphones to wearable devices, the IoT has sparked an explosion of data, sensitive information that could fall into the hands of hackers and other cyber criminals. The increased connectivity of smart cities – and the ways they are using data – is destined to create new cyber-related risks.
 
Silent cyber: A growing concern for insurance carriers, silent cyber refers to cyber-related claims insurance companies are paying because their insureds’ property and general liability policies did not specifically include – or exclude – cyber-related risks.

Glitch-induced damages and injuries: Glitches or hacking could wreak havoc on data-driven systems and applications, disrupting the operation of autonomous vehicles, sensor-equipped traffic lights and communication networks. If altered, these compromised systems could cause serious property damage or injury.

Overdependence on automated technology: Individuals and businesses that rely too heavily on automation may not react appropriately or quickly enough if the technology should fail. A mistake or hesitation could result in a serious injury to them and others.

Growth-related risks: As the populations of smart cities grow, so do the risks. According to SMA’s smart cities report, if a city’s population grows by 100 percent, human risk factors like crime and traffic accidents increase by roughly 115 percent.


IoT Presents Challenges for Insurers

Few industries are more reliant on data than the insurance industry. Thanks to the IoT, insurance carriers can mine invaluable information about their policyholders ranging from how often they exercise to their speeding and breaking habits when behind the wheel. However, this major industry disruptor has created a myriad of challenges for the insurance industry.

To serve customers in these highly connected cities, insurers will need to:
  1. Tap into emerging tech. As more insurtech startups enter the insurance space, traditional insurers will have to look for ways to stay relevant in the eyes of a new generation of insurance consumers. Leveraging emerging technologies – like augmented reality, real-time data and artificial intelligence – will enable insurers to offer highly customized, customer-centric insurance products and services.
  2. Manage mountains of data. Traditionally data-centric, insurance companies can now tap into newer, bigger data sets from various IoT sources. Two immediate challenges will be figuring out how to process – and analyze – the huge amounts of data that smart cities produce. Having the platforms and expertise to manage, analyze and utilize real-time data will prove invaluable to insurers across the industry.
  3. Safeguard all that data. The data that flows between a connected vehicle, connected home and the insurance company is vulnerable to interception. To combat data breaches and other cyberattacks, insurers will need to invest in IoT data security and fraud protection.


No Easy Answers

As cities become smarter, insurers will have challenging questions to answer, including:
  • To what degree will lower vehicle ownership and autonomous technologies affect the auto and fleet insurance sectors?
  • Will healthier, safer cities lead to plummeting health and life insurance premiums?
  • Will smarter buildings result in a major decrease in property exposures?
  • How will smart safety solutions for manufacturing and other high-risk industries affect workers’ compensation programs?
  • As industries and businesses continue to evolve – and others emerge – how will insurers adapt their coverages and services?
  • What new products and services will personal lines insurers offer to their customers to address data breaches from connected devices?
 
When it comes to smart technology, there is a lot to be excited about. Embracing emerging technologies will prove to be a wise choice for smart cities and the insurers protecting the people and businesses residing within them around the world.

As Vice President of Commercial Specialty at AmTrust Financial Services, Robert Pizarro specializes in management and professional lines. Founded in 1998, AmTrust Financial Services is a multinational property and casualty insurer headquartered in New York City.
 
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