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7 September 2018

Munich Re buys relayr for $300mn in IIoT insurance expansion

Major (re)insurance player Munich Re has used its Hartford Steam Boiler (HSB) subsidiary to acquire relayr for $300mn in cash, as the company looks to leverage relayr’s thing-connecting expertise to improve its insurance offerings. relayr had found a nice niche in connecting installed industrial equipment to the internet, and Munich Re can see the value in tapping that data.

Founded in 2013, and based in Berlin, with around 200 staff, relayr may have caught your eye with its chocolate bar shaped developer kit. Since then, it has been quietly carving out its niche. To date, it has some 130 businesses using its software and cloud expertise to connect their equipment, beginning at consultation and going all the way through installation to ongoing monitoring. It had raised nearly $69mn in funding before the acquisition, with its $30mn Series C round closing in February. HSB was a named investor in the Series B round.

“Back in 2016, HSB invested in relayr in an effort to harness the strategically significant business potential offered by IoT. relayr’s end-to-end IoT solutions for the industrial and commercial sectors are an ideal addition to our Group’s capabilities,” said Greg Barats, president and CEO of HSB, and the person responsible for Munich Re’s IoT strategy, in a supporting statement. “HSB has always focused on insurance and technology… relayr will help us to rapidly implement our global strategy to develop new IoT solutions for our clients. Digital transformation in the industrial and commercial sectors offers opportunities for new services and financial applications.”

The gist of the strategy is that relayr’s expertise lets Munich Re better understand how specific machinery and industries work, which in turn, helps it better value the risks it takes as part of its insurance services. Predictive maintenance is the biggest driver here, as the ability to add sensors to monitor equipment and watch out for looming failures can help drastically cut both downtime and repair bills.

Abnormal sensor readings, such as increased vibration or heat, would alert a company to a problem with the equipment that needs attention. Consequently, this should allow the company to schedule a repair at a convenient time, swapping out a drive belt or bearing without causing unplanned downtime at a manufacturing facility for instance. The smaller repair bill is also much easier to tolerate, as when these things fail, they tend to fail in pretty devastating fashion.

Munich Re will also be able to essentially crowd-source data from its many customers, and be able to apply this analytics-provided wisdom to customers that haven’t connected their own equipment. The learnings from one connected paper factory could be fairly reliably transferred to another such contract.

In time, we expect most large insurance contracts to begin mandating some form of IoT connectivity as part of the service, mostly to help the insurer monitor compliance. While this has the potential to be onerous, the insurers could become valuable service providers if they take account of the connectivity side of the business – essentially using something like relayr to provide the predictive maintenance wisdom to the customer as part of that insurance deal.

For the insurers, this could go a very long way to reducing their payouts and exposure, as well as improving their brand’s value. A common problem in the insurance industry is that the customer’s only interactions are when things have gone wrong, and as such, emotions can be quite high. With a monitoring component of the service, the insurer has the opportunity to provide an obviously valuable, and hopefully appreciated, additional service.

What’s more, when the giants in the insurance industry embrace such technologies, it allows them to collectively force the market to change. If all major contracts begin to include such clauses and requirements, then the insurance industry could become one of the biggest drivers of the IoT – especially due to the power of these insurers’ brands.

“IoT is already significantly changing our world and has the potential to disrupt the traditional insurance and reinsurance industry through new business models, services and competitors,” said Torsten Jeworrek, member of Munich Re’s board of management in a statement. “I am truly happy to announce this acquisition, as it supports our strategy to combine our knowledge of risk, data analysis skills and financial strength with the technological expertise of relayr. This is our basis to develop new ideas for tomorrow’s commercial and industrial worlds.”

“We are delighted to strengthen our relationship with Munich Re/HSB to push digitalization in commercial and industrial markets and strive for our mission to help commercial and industrial businesses stay relevant,” said relayr CEO, Josef Brunner. “The unique combination of the companies demonstrates the importance to deliver business outcomes to customers and the need to combine first-class technology and its delivery with powerful financial and insurance offerings. This transaction is a great opportunity to build a global category leader.”