When Smart Products Turn Dumb

Smart products combine a physical product with embedded software technology. This allows them to be more self-aware, self-organized and adaptive. Smart products are filled with intelligence, sensors and communication abilities.  And they’re currently flooding the consumer market at approximately 5.5 million products a day.

An estimated 6.4 billion products are currently in the marketplace. Projections have 20 billion devices connected to the internet by 2020.

The whole point of smart products is operational improvements in efficiency, performance, safety and more. However, once smart products are online, they immediately become vulnerable to cyber threats that could compromise the owners’ privacy and security.

Why Smart Products are Vulnerable

• Inferior Product Design:  Many of the products evaluated don’t have even basic security integrated into the final products.  Many fail to distinguish security functions from other functions.
• Non-secure Communication Protocols:  Products used in the home are usually using Wi-Fi, Bluetooth or Near Field Communications on local home networks. This leaves them susceptible to hacking from external sources.
• Inadequate Passwords and Authentication Procedures:  Consumers consistently make themselves vulnerable with weak passwords, reusing passwords, and sharing passwords. And cyber criminals are quite adept at breaking through two-factor authentications.
• Failure to Update and Patch Existing Software:  The longer a product is in the marketplace, the more likely it’s technology will  be surpassed by current technology. As a result, manufacturers put less emphasis on maintaining and updating the old technology.
• Lack of Understanding by the Consumer: Consumers often lack the knowledge to properly install the products. This is true for maintaining safety protocols to protect products from hackers. When given a choice between two or more products, consumers simply lack the knowledge to determine which is the more secure.
• Software Bugs: A typical device contains hundreds of thousands of lines of code. For example, a car’s navigation and radio system requires 200 million lines of code. Programmers make an estimated 10 to 50 errors in every 1000 lines of code.

Smart Devices and Product Liability

Smart devices comprise a wide range of consumer devices such as TVs, appliances, toys, wearables, and home security. We also find them in medical, aviation, city and weather-related products. In fact, I challenge you to find a consumer or commercial product where interactive software is not being used.

Unfortunately, no governmental oversight regulations currently exist for smart products.  For now, it appears one of the best deterrents for manufactures and suppliers of smart products will be the potential costs of Product Liability lawsuits.

Product Liability is based on strict liability – manufacturing, design and instruction/warning defect. This means the injured party or plaintiff must only prove that the product involved was the approximate cause of the bodily injury or property damage to win the lawsuit. Just think of the endless possibilities – home security, traffic lights, air traffic control, and pacemakers are just a few examples.

Therefore, It appears insurance companies will have the immediate burden of determining which smart products represent good risks and likely want to make sure the new products coming into the U.S. market have a minimum level of security to be insurable.