Utility Week

UTILITY Week 16th October 2015

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16 | 16TH - 22ND OCTOBER 2015 | UTILITY WEEK Operations & Assets Analysis T he internet of things (the term describ- ing the integration of a world of 22 bil- lion connected sensors by 2020) is expected to be one of the six drivers of global economic growth over the coming decades as industries, led by manufacturing, rein- vent themselves around the new technology possibilities. So what happens when consumer- facing internet of things applications extend beyond the remote control of thermostats, door sensors and video cameras to play a role in the reinvention of the underlying core industry? Can this pitch utilities against new industries by gradual, almost accidental, scope creep rather than grand strategy? Let's start with a look at the insurance industry. In previous articles I have looked at home emergency and boiler services (Utility Week, 7 August and 11 September), so here let's look at some other insurance categories. The insurance industry has signed up 4.5 million European customers of pay-as- you-drive policies using monitored driver behaviour through connected cars, accord- ing to Berg Insights. Lower risk means lower pricing, which stimulates market growth. The smartest companies at data analytics will have an edge. Next the industry has its sights on rein- venting home insurance and pet policies in a similar way. The biggest source of home policy claims is escaped water, fire, and the. Sensors, controls and data analytics can reduce the claims and the prize is high. According to Insurance Europe, in 2013 EU property pre- miums totalled €89 billion, of which €55 bil- lion was paid in claims. If you know the house is approaching zero degrees tempera- ture you can alert the owner or override the thermostat to protect pipes from bursting. If you have an electronic smoke detector you can call the fire brigade, turn on sprinklers and stop the air conditioner fanning the flames around the home. More Than Insurance has announced plans for a home security service on a two- year contract with free insurance. The biggest driver of pet claims is obesity. If you attached a Fitbit-type monitor to the dog you could reduce the risk by tracking its exercise and heart beat and offering advice. More Than recently launched a package of monthly delivery of healthy dog food, with fitness and geo-location sensor monitoring for a recurring fee that comes with free pet insurance. What More Than appears to be experi- menting with is not only reducing the risk through connectivity solutions but pivoting on the opportunity to innovate a new prod- uct altogether, from which it makes addi- tional margin. Currently these are premium services, but if successful they will be copied by others and further innovated and even- tually taken to mass market. Higher margin can be channelled into lower prices to grow market share of core insurance. There are three reasons I think the con- nected insurance trend is a threat to utilities. First, if the insurance company installs any connected home devices for security, pet monitoring, water or fire protection, it will provide a sticky digital touch-point through which to engage the customer. The customer will not have the appetite for ten different connected home interfaces, so the supplier who is first to market into a home has a first- mover advantage in providing many more devices. Second, extrapolating what More Than does in not just offering discounts to peo- ple with home security services but actually entering the security market, an insurance company may not just offer discount burst pipe protection to people with smart thermo- stats but offer the thermostat too, something utility companies aspire to provide. The ther- mostat would also be useful in the insurance company's desire to increase market share of, and to automate, home emergency cover of boilers (and white goods). Third, once offering a thermostat the insurance company could easily make the small brand jump to add energy monitor- ing and efficiency advice. It could then offer switching services, making £20-40 commis- sion per switch, which would go straight to the bottom line. Regulator policy would facilitate this because Ofgem wants to see 1-2 day supplier switching by 2019. In case this sounds far-fetched, the telecoms industry is further ahead with this sort of scope creep. In the US, the security and telecoms/cable operator sectors have been the main drivers of the connected home, with a reinvention of the security category called "peace of mind", which allows broader use cases including pet monitoring, child wellbeing, nanny cam, burglary protection, automatic remote con- trol of door locks, smart plugs and much more – including smart thermostats. Cable operator Comcast, the market leader, has between 500,000 and 750,000 connected home customers. Early on it prob- ably wasn't clear which devices would be most successful. As it turned out, smart ther- mostats proved popular and Comcast was able to credibly tell all its customers how it could help them cut energy costs. From there the brand stretch into energy was small. Within a few years of launch it had a deal with one utility to offer demand response on Comcast thermostats and a deal with another utility to resell core energy and PV. Comcast is not an isolated example. In Poland most of the telecoms companies, including Orange, offer energy. In Hun- gary, Deutsche Telekom subsidiary Magyar Telekom was the poster child of telecoms expansion into energy until the government interfered with wholesale pricing. The differ- ence is that in Poland and Hungry, telecoms companies have had to make a big bet on energy, whereas Comcast has shown com- panies who might be more circumspect that energy entry can be done by gently pivoting through connected home. We have talked about scope creep by insurance and telecoms companies but it could equally have been retail, entertain- ment, internet giants or start-ups. As other industries reinvent themselves for a digital and connected future, the bread and butter services of utilities will get caught up almost by accident in what others can offer. Susan Furnell is a freelance consultant specialising in connected home technology Working your connections The internet of things will bring about the connected home, but will it be utility companies bundling other products to that home, or third parties reselling utilities? Sue Furnell writes.

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