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«The Internet of Things: Evolution or Revolution? Part 1 in a Series Forewords by: Shawn DuBravac, Ph.D. Chief Economist, Consumer Technology ...»

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The Internet of Things:

Evolution or Revolution?

Part 1 in a Series

Forewords by:

Shawn DuBravac, Ph.D.

Chief Economist, Consumer Technology Association (CTA); New York Times Best-Selling Author, “Digital

Destiny: How the New Age of Data Will Transform the Way We Work, Live, and Communicate”

Carlo Ratti, Ph.D.

Director, MIT SENSEable City Lab and designer of the Future Food District at the 2015 Milan Expo Acknowledgements The following paper has been made possible thanks to an innovative partnership with the Consumer Technology Association (CTA)® and its Chief Economist, and New York Times Best-Selling Author, Dr. Shawn DuBravac.

We would also like to thank the following subject matter

experts from AIG for their valuable contributions to this report:

David Bassi Lex Baugh Nicolas Berg Julien Combeau Jason Kelly Erik Nikodem Garin Pace Matthew Power and Joe Trotti Table of Contents FOREWORDS

EXECUTIVE SUMMARY

WHAT IS THE “INTERNET OF THINGS”?........... 6 A NEW ECONOMIC AGE

IoT RISKS

THE STATE OF PLAY OF IoT IN EUROPE,

THE UNITED STATES AND ASIA

CONCLUSION

CITATIONS

Forewords Dr. Shawn DuBravac It’s safe to say that we are at the start of another industrial revolution.

is Chief Economist at the Consumer The rise of the connected objects known as the “Internet of Things” Technology Association and author (IoT) will rival past technological marvels, such as the printing press, of the New York Times bestseller the steam engine, and electricity. From the developed world to the “Digital Destiny: How the New developing world, every corner of the planet will experience profound Age of Data Will Transform the economic resurgence. Even more remarkable is the speed with which Way We Work, Live, and Communicate.” this change will happen. A decade ago there were about 500 million devices connected to the Internet. Today, there are 10 to 20 billion.

In five years, there could be 40 to 50 billion.

Unlike previous industrial revolutions, however, we see this one coming. IoT is not one earth-shattering invention, like the cotton gin. Industries won’t be caught unaware by a better mousetrap that renders their manufacturing systems and products obsolete. In fact,

–  –  –

Indeed, there is another technological revolution looming, but it’s far simpler and at the same time potentially more ground-breaking than any single device. It is a data-driven revolution that could do away with many inefficiencies, hassles, dangers, and unsafe practices of modern life. The global insurance industry promises to play a vital role at the center of this technological revolution.

Call it the “Internet of Things” or “Internet of Everything”, the transformation deals with the steady but inexorable rise of connected and sensorized objects – in short the online digitization of our physical world. Autonomous objects can constantly acquire, analyze, and transmit reams of data captured from their surroundings. In turn, economies, cities, businesses, and people will respond to this flow of information - opening an unprecedented array of opportunities.

The Internet of Things is giving rise to pervasive digital networks within the physical space the networked lifeblood of the “smart city.” Not just a network of municipal services, such as electricity and water, truly “smart” cities combine elements from all urban stake-holders, including citizens, government and business. And, once again, a broad spectrum of implementation models is emerging in different parts of the world.

In the United States, the general idea of smart urban space has been central to the current generation of successful start-ups. Design itself has a positive impact on revolutionizing most aspects of urban life – from commuting to energy consumption to personal health. These new initiatives are receiving eager support from venture capital funds.

In South America, Asia, and Europe, all levels of government are identifying the potential benefits of building “smart” cities, and are working to unlock significant investment in that area. Rio de Janeiro is building capacity at its “Smart Operations” center; Singapore is about to embark on an ambitious “Smart Nation” effort; the European Union’s Horizon 2020 program has earmarked €15 billion in 2014-2016 – a significant commitment of resources to the idea of smart cities, especially at a time of fiscal constraints.

The future will show how the different models outlined above will play out. In the meanwhile, there is no doubt that the global insurance industry has the potential to play a major role. How will we assess risks associated with the largely uncharted territory of the Internet of Things? How can we understand challenges that could spark fundamental shifts in the responsibility for and management of risks we already know today? That’s where insurers can lead – not only for the sake of their industry, but to provide guidance to other industries, governments and, above all, citizens.

Executive Summary According to industry analysts, there are between 10 to 20 billion things connected to the Internet today. This ecosystem of connected objects forms the foundation of “Internet of Things” (IoT). Even though the technology that comprises IoT has been around for years, we’re 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.





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 aren’t 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.

According to a RAND Europe study, by 2020 upper estimates of IoT’s annual global economic potential across all affected sectors range from $1.4 trillion (about €1.09 trillion) to $14.4 trillion (about €1 trillion) – or, roughly, the current GDP of the European Union.

1.2 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.

It is the purpose of this white paper series to inform readers of the opportunities as well as the potential risks of IoT. Even if we can’t 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.

As Dr. Shawn DuBravac, the chief economist at the Consumer Technology Association in Arlington, Va., 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 realize the great potential of Internet of Things, they will need to be prepared for risks that lie ahead. The insurance industry is particularly well placed to help businesses navigate 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.

What is the “Internet of Things”?

The term “Internet of Things” is not new. It was coined as early as 1999 by British technology pioneer Kevin Ashton, who was then working as an assistant brand manager

at Procter & Gamble. In 2007, Ashton expanded on his phrase in an article:

“If we had computers that knew everything there was to know about things – using data they gathered without any help from us – we would be able to track and count every thing, and greatly reduce waste, loss, and cost. We would know when things needed replacing, repairing, or recalling, and whether they were fresh or past their best.

“We need to empower computers with their own means of gathering information, so they can see, hear and smell the world for themselves, in all its random glory. RFID and sensor technology enable computers to observe, identify and understand the world – without the limitations of human-entered data i.” Later, in 2012, Rand Europe would seek to further define the “Internet of Things” in a

research report to the European Commission. The report said:

“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 miniaturisationii.” Both Ashton’s and RAND’s definitions are true. Yet RAND’s version takes Ashton’s original concept of “empowered computers” and extends it to include “physical objects.” In other words, the “Internet of Things” doesn’t primarily rely on computers to exist. Rather, every object, even the human body, can become a part of IoT if equipped with certain electronic parts. Those parts certainly vary depending on the function the object is to perform, but they fall into two broad categories: 1.) the object must be able to capture data, usually through sensors; and 2.) the object must be able to transmit that data to someplace else through the Internet. A sensor and a connection, therefore, are the two primary electronic “parts” of an IoT object.

–  –  –

The other development goes back even further than mobile technology: sensors. Yet the high cost of sensors for most of the 20th century limited their use in anything but top-of-the-line products. In the early 1990s, solid state image sensors cost $20 to $25. By the end of the decade they sold for $5. What followed was a huge increase in the digital camera market.

Indeed, other sensors, such as those found in your typical smartphone, have followed a similar trajectory in terms of power and cost. In 2007, for example, accelerometers measuring a single axis of motion cost around $7. Today’s accelerometers measuring six axis of motion costs less than $0.50.

–  –  –

2.0 1.5 1.0 0.5

–  –  –

Of course today’s smartphone would be anything but “smart” if not for the array of sensors embedded in each device. Today’s smartphones are equipped with between five and nine

sensors, depending on the model. These include:

–  –  –

Fifteen years ago the inclusion of one, much less nine, of these sensors would raise the cost of a product beyond the means of the average consumer. Today, the cost of all these sensors adds up to under $5.00, with the cheapest sensors costing as little as $0.07v.

Yet sensors do more than enable neat features on our mobile phones. In fact, they are the critical ingredient that “turns on” IoT. By continually capturing data on its surroundings, a sensor replaces the human as the primary way a computer receives data. And because sensors can capture data at speeds and in quantities that no human could ever match, they have led to the phenomenon called Big Data – or the acquisition and analysis of extremely large data sets.

What is this data? It’s everything and anything that surrounds us. More practically, the data that today’s sensors are able to acquire – that humans cannot – are revolutionizing the economy and business processes. Indeed, car manufacturers all over the world are using sensors not just in their cars, but also in their manufacturing plants, where they assist autonomous machines as well as improve safety among auto workers.

Other factors that have contributed to IoT, particularly in a business and industrial setting, include cost-effective cloud storage and the rise of data analytics which allow organizations to manage and extract information from massive amounts of datavi. But we’re never too far from the principle players. It is a sensor which captures the data and mobile connectivity which transmits the data to another device or to the cloud.



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