Chuck and Grant discuss the technological advances in the smart home and the internet of things and its relation to your security and peace of mind.
Below is a transcript of the episode, modified for your reading pleasure. For more information on the topics discussed in the episode, see the links at the bottom of this post.
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Grant FINLEY: Welcome back to another edition of Your Insurance Connection Podcast. As always, I am Grant Finley, and joined once again today with President of CLH Insurance, Chuck Hembree. Chuck, glad to have you back. How are you?
Chuck HEMBREE: Good morning and happy Friday.
FINLEY: Happy Friday indeed. Well, we talked about it in an earlier episode. Doing an episode on the internet of things and smart home and this is that episode. So without further ado, let's jump into it. I know it's a new thing and it started picking up steam a couple of years ago and people thought it might be a little further along than it actually is already, but I think it's just a matter of time before this thing really takes off. So let's just talk about the biggest concern when it comes to connectivity of all your appliances, and toys, and tools and everything else, which is the security. What's the state of security with the internet of things and the smart home?
HEMBREE: Well this couldn't be more timely. Last Thursday, I was in Columbus, Ohio and I was doing a short lecture on cyber liability before some IT folks who work in insurance. The very next day is when we had the domain server attack through DYN. And we saw exactly what can happen. Thank heavens there wasn't a lot of maliciousness involved, but at the same time, it told us how fragile our infrastructure is with IT and how far we've got to grow. The attack was made by denial of service. So you couldn't get on Twitter, you had problems with Netflix, and a lot of our social media because it was being hounded with incoming messages. Now, where did all those messages come from? The hackers used our baby monitors, our programmable thermostats, sometimes things like our cell phones - all of our smart home devices that we use. All of those were used as little pirates, cyber pirates, to send signals and that's a scary thought. That tells us we're not ready for where we're going. Our technology is getting ahead of our safety. Yet, we can't ignore this because think of all the conveniences we have. I know, I've used it with my Mom. A programmable thermostat because she can't see her thermostat and I can remotely, wherever I am, anywhere, I can change her thermostat for her so she doesn't have to worry about it when she gets cold or too hot. Those are just the beginning of things. We can turn lights on and off. We can start dinners. We can have refrigerators that tell us the contents so we know what we need to go grocery shopping for. We even have available, although it's in its infancy, that when we see the contents of the refrigerator going low, it will automatically order those groceries to be delivered to us so we can be resupplied.
HEMBREE: It's an amazing and fascinating time that we live in.
FINLEY: As a young guy who hates doing laundry -
FINLEY: I thought a wonderful advantage of this would be to throw the load in before you leave for work in the morning, the detergent, the whole nine, and then it's going to take a half hour or whatever to run - you set it for a half hour before you leave work and then when you get home it's done and you switch it over. It's a small step and you're talking about some pretty awesome things and I'm talking about a load of laundry but it's still fascinating. It's amazing where we're going. But, so you touched on it but I want to go back to something you said which was that our technology is getting ahead of our security. Can you dive into that a little bit more?
HEMBREE: Well it's just the face paced - PEW research just did a study that said 52% of us have smart phones and we're doing online banking. And when we're talking about 52% of what? We're talking about tons and tons, thousands - we used to say thousands, it's millions of devices. The typical family of four own 24 connected devices. That's six each! Next year it's supposed to go to 50 devices by 2022. That's just amazing and we're doing more things online. 61% of us bank online and again, 52% of us that have smart phones were doing online banking. So the technology is way up there, but these are simple devices. They're great technological breakthroughs but the technology is really simple. So we built them simple so they're not as expensive, yet we haven't done the back end security that needs to go along with these devices and the new technology that's available to us. Manufacturers are getting us to understand the neatness of these technologies so that we'll buy them and then they're going to address the security. We really need to do this simultaneously.
FINLEY: Right, absolutely. So then how is this changing the insurance industry? I imagine that with this new technology, these new features, censors - it's probably making some pretty big waves in the industry, is it not?
HEMBREE: It is and here's one we can watch develop because it's in its infancy. We've known the cyber threats were there but trying to find the products to respond to all the threats that keep changing and evolving day by day is a daunting challenge for the insurance industry. As good as the industry is in many areas, this is one where we're still scratching our head. What is a proper price? Do we know what the real threats are? Because if you think about how we pay prices for homeowners insurance or any insurance product, it's based on analytics. It's based on history of losses. Well, if that's the case, then how many data points do we have to garner data that's reliable so that we have reliable pricing. We just don't have enough. That is the challenge to the insurance industry today. And can the product evolve with the growing challenges and the new things that keep coming out like ransom-ware, encryption; every time you turn around there's a new threat that must be addressed. So this is an ongoing process.
FINLEY: I thought I've seen some insurance companies partnering with some of these - like a product like Nest or some of these other companies. What is that - can you explain what the partnership looks like or why that's been efficient for both?
HEMBREE: Well the partnership is there - remember we talked about the technology being amazing but it's simple. So, if we can partner with these technology firms and we can understand how they're built then we can also convince them and work with them on reasonable security features that aren't so costly that the normal consumer can't afford them. The reason that partnership is important is if you want insurance for protection to the cyber threats that are out there, and it needs to be affordable, then insurance needs to work with technology to find a security that will allow insurers to safely and reasonably offer products that will first cover and do it at a cost that is reasonable to the consumer.
FINLEY: So if I have a smart home where the thermostat is connected, the refrigerator can tell me what I need to order, the whole nine, and I'm worried about potential damages, a loss, is a homeowners going to cover that? Do I need to get a cyber - how exactly would I be protected in that sphere?
HEMBREE: That's what we need to be working for. The homeowners alone, just like the commercial policy alone, is not sufficient coverage because it covers physical damage. It's not covering electronic data, the digital data and the digital threats we're seeing both in the home and in businesses. So we have to create coverage that can be attached to the homeowner. There are a few products out there but they're not widespread at this point. There needs to be cyber coverage as a basic coverage to homeowners. That's starting to be developed but homeowners aren't really sure because, yes, they see these threats out there but they think that they're either, number one, immune to them, or it's going to attack someone else, not them. That's why last Friday's attack was such a wake-up call because it was using our baby monitors. It was using our security cameras. It was using our things in our home. It invaded our homes.
FINLEY: Yeah. Well, I'm curious then too, obviously we're talking a lot about the physical home, but with the internet of things there's also wearable technology now. I imagine that could be useful in life and health situations. Have you found that there's an insurance benefit to wearable technology?
HEMBREE: Oh absolutely. We already see it now with medical devices that are needed to monitor heart rates and relay that information to doctors, to hospitals so medical care can be up to date, right to the minute and provide quick and accurate treatment, and histories of data so we know how to treat people better for the ailments that they have. We can watch blood pressure. We can watch blood sugar levels. We can do all of those with these wearable devices, which are amazing. And that's just the life aspect of it. We use Fitbits. We use all kinds of other wearables, even clothing itself. There is some clothing we can wear that turns ourselves, as we move around, into a hot spot. We're even seeing things like that in the wearables arena and we need to start to develop the same idea of security with anything else. So, not to a device or particular computer, but to all sensors that through the internet. We need to develop an awareness of vulnerability. Not to be scared of the technology but to be aware so that we're taking precautions. We're enjoying the benefits of this great technology so much that we're not concentrating on its risks.
FINLEY: So final question. I'm going to ask you to put on your Nostradamus hat here. We're in the infancy stages now, like we've talked about, when do you think this thing really takes off? When is the tipping point? Think it's five years away? 10 years away?
HEMBREE: I don't know if I can put the pin point but it will be an event. That's what will do it. Unfortunately, we're just creatures of habit. No matter how much education we have, no matter how much we talk about the dangers that are out there, we, as bad creatures of habit, have to have it happen to us before we wake up and say, "Okay, now I've got to do something." Think about it this way. We knew terrorism was always a threat. We prepared some but we just didn't see it happening to us until September 11 and we saw it affect us in a massive way. And look at the changes in how we consider terrorist activity, terrorist threat and terrorist watching since then. I hope we don't have to learn that way. Smart folks are going to look and say, "What are the small things I can do to lessen the risk of cyber loss? Can I practice good computer hygiene? Can I raise my awareness and put protected firewalls and good software on all of my devices that will lessen risk?" And they'll keep in tune with what's going on. They won't let it run their lives, but they'll keep in tune with it. Those of us who want to experience the event before we'll move, you will someday. There will be such an event and that's what will drive it. Hopefully we can move ahead of that but unfortunately I don't think we've learned enough to do it until there's a major event that causes or forces us to move.
FINLEY: Yeah, that definitely seems to be the way it is where we don't do anything until we're forced to do it. Well hopefully that event won't be on the same scope as a 9/11 but hopefully it will enough to move us in the right direction because I think the possibilities really are pretty fascinating. I'm eager to jump into the whole smart home concept myself.
HEMBREE: I am as well and that's probably the final thing I'd want to say is, we don't run from technology because of its risks. We embrace technology but we do it in a smart way so that we can enjoy all of the fabulous things it brings us. We can use insurance as it develops and keep in tune with that to bring us that peace of mind so we're not living in fear of the catastrophe.
FINLEY: That's well said. I think that will wrap it up then so I want to thank you again for taking some time to join us on the podcast today and I look forward to talking to you again next time.
HEMBREE: Thank you, Grant.
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