Technology and Home Insurance
Smart home devices include doorbell cameras, automatic thermostats, Wi-Fi
smoke detector batteries, customizable lighting, and movement-activated
surveillance cameras. They allow homeowners to customize their lives and
grow popular with consumers. Water detection devices are slightly less
common but important from an insurance perspective. These sensors may
sound an alarm when water is detected or shut off the main water valve
if an irregular pattern of use is detected.
Homeowners find it normal to use their smartphones to handle all their
"smart" household devices: setting room temperature, changing
lighting, tracking drop-offs, etc. The ability for property insurers to
exploit these Internet of Things ( IoT) devices to collect useful Big
Data information is immense. Gaining previously anonymous real-time data
from home will minimize losses resulting in reimbursement claims. Reducing
both loss incidence (frequency) and damage amount (severity) would lower
insurers' loss costs.
If downward trends in frequency and severity are maintained over time,
this will result in lower actuarial rate indications and, consequently,
lower insured premiums. Unlike autonomous vehicles' existential threat,
people can continue to live in houses, covering them with insurance coverage.
Homeownership patterns have changed since 2008, resulting in lower homeownership
rates. More people rent while the number of homes purchased for investment
is much higher.
Homes are becoming less affordable, interest rates are increasing, mortgages
are more difficult to apply, and student debt delays home buying. For
all these reasons, millennials purchase homes later in life compared to
other generations. Real estate developments aside, the essential business
model of property insurance is still crucial, even if lifestyle choices change.
This differs from car insurance, where technology and social shifts challenge
the whole paradigm for the next 10-30 years. Much of the smart home technologies
that drive market demand are more lifestyle-related, incredibly the latest
"personal assistants" like Google Home or Amazon Alexa.
Amazon recently unveiled a $60 microwave Alexa-controlled that responds
to voice commands. This is just the start of a whole ecosystem of voice-controlled,
internet-enabled gadgets in your living room. IHS Markit forecasts that
the global smart home connected device market will rise from under 100,000
IoT devices in 2016 to over 600,000 in 2021, a 6-fold increase. The most
shift will occur in categories of consumer electronics and lighting & power.
The driving force behind these IoT-enabled devices would be comfort and
lifestyle. However, tools such as doorbell cameras, automatic locks, monitoring
activity in and around the building, water leak detection sensors, and
smoke detector batteries that warn you when they run low all carry potential
benefits insurers and consumers prevent losses.
What Next?
Smart home technology is commonly considered as a collection of home devices.
However, there are increasingly many new technologies that should be considered
in the "smart home" space. Essentially, smart home infrastructure
extensions are introduced outside the home. Citing some examples:
- A hail "pad" similar to a solar panel attached to the roof and
records any hail that may occur (and probably predicts unseen damage)
- Thermal imaging camera (really a computer) tracking surrounding mountains
to detect wildfires approaching.
Since about 50-60% of homeowners' statements are weather-related. That
fraud is a known problem, isn't it a logical leap to see where each
house has a personal weather station outside? Such a system may prove,
among other things:
- Average wind speed, maximum gusts
- Precipitation volume (wet or frozen)
- Degree of hail damage calculated by the number of impacts, distribution
of hailstone size and density, intensity and effects angle
- Wildfire smoke air quality Combined with structural property details, injury,
and damages from extreme weather events can be forecast more rapidly and
accurately.
Insurers could then respond quicker to lose incidents, handle claims proactively
rather than reactively. A personal weather station often offers an opportunity
to check that harm has (or has not) occurred in a specific home, helping
streamline claims processing and prevent paying for false claims.
Smart Investment
Although IoT's potential in property insurance is immense, many challenges
remain. One hurdle is setting up the infrastructure to collect, store,
evaluate, and eventually make sense of the vast amount of data each provides.
Unlike cars with a single, traditional "black box" mounted in
each vehicle, there are countless smart home devices on the market today,
offering all sorts of data streams.
These devices will or won't connect without a smart home hub as bridging
technology combines their data feeds into one coherent system. The task
of developing a complete intelligent home network where each sensor is
linked and aware of the others, all providing the insurance provider structured
and synchronized data, is very high. Another critical question: How can
customers share their home data with their insurance carrier?
While some might be very willing, the concerns about this information are
quite real. This hypothetical business model is similar to the OnStar-like
capabilities telematics can bring. But how much do consumers turn to their
smart home details, advice, and set up insurance carriers? Carriers aiming
to be a smart home supplier would be contrasted with trusted retailers
like Best Buy or Amazon as a go-to source for customers seeking technology
solutions. Instead of their insurance provider, customers will likely
continue to trust tech firms with their smart home systems.
Insurtech, the excitement of intelligent home technology, and its loss-prevention
capabilities exceed fact, which is just getting off the ground. Many insurtech
startups have what seems to be a compelling value proposition but may
fail while attempting to deploy on the scale. I assume that carriers with
the best partner with key vendors to procure, integrate, analyze, and
interpret smart home data can gain a competitive advantage. This is likely
to occur regardless of whether they sell devices themselves.
Any carrier seeking success in this arena must use data from devices previously
built by homeowners, contractors, or third parties. Indeed, smart home
devices' exponential proliferation would outstrip any carrier's
ability to deploy its own devices. To evaluate and interpret data from
devices you don't monitor, you must be able to:
- Incorporate data from devices into a single platform of some kind
- Combine that data with real claims and exposure data to allow pricing and
risk selection.
Alexa Selling Insurance
The advent of voice-activated assistants like Google Home, Amazon Alexa,
and Apple's Siri enables insurers to hold an insurance conversation
in a customer's home rather than an agent's office. Several U.S.
insurers have also rolled out simple functionality that offers search
results when seeking auto insurance quotes.
As technology advances, interaction with these devices will be more interactive.
These conversations are likely to be quick to start, including calling
for an agent to send the customer a call back at a suitable time. Over
time, it could be stable enough to complete a policy application, include
a quote, or make policy changes. It may also be able to report an allegation
and verify one 's status.
What are the advantages for early adopters of this new technology? Companies
will be in channels where their consumers spend more and more time starting.
By 2020, Gartner expects 30% of web searching will be done without a computer,
and Google estimates that 50% of searches will be done by voice. Such
inquiries will provide leads for agents and help them spend more time
communicating with consumers than on administrative transactions such
as demanding auto ID cards or checking the balance.
Consumers in the insurance sector often use different outlets. They sometimes
start searching online and consult a quote aggregation tool before reviewing
one or more firms in detail. They usually call or visit an agent's
office to close the deal. The carrier's presence in these voice-activated
platforms would be essential to drive brand recognition, revenue, support,
and customer loyalty. Companies have an early market advantage over their
rivals. Finally, these voice-activated networks stay available 24/7/365,
unlike an insurance agent's office.
Best Buy
Smart home solutions are rising faster than the industry's ability
to collect data and make sense. Unlike the auto side's S-curve disruption
potential, there's more space to travel at a calculated pace and learn
along with the smart home tech. Although IoT devices do not pose the same
existential danger as driverless cars, they may affect home insurance.
Any substantial reduction in preventable losses, although great for customers,
can result in a drop in carriers' premiums (revenues).
Auto sensors need to be replaced after an accident (which has led to a
17% rise in auto repair cost over the past decade). By comparison, in
a failure case, IoT sensors are much less likely to be impaired. My personal
opinion is that smart home technology would help the industry even more
than other technological developments. The Consumer Technology Association
reports that 29 million smart home devices were delivered with total sales
of $3.5 billion (57 percent improvement over 2016).
Gartner predicts that by 2020, 25 billion IoT-connected devices will exist,
with the smart home market valued at $43 billion. Carriers must embrace
smart home technology to reap long-term dividends. The ability to challenge
the conventional, reactive business model is too high to ignore. Imagine
a world where insurance plans are digitally attached to car and home and
can sense when a loss happens and instantly report a claim. Much better,
imagine a future where these systems avoid first-place defeat.
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