How Could Technology Change Home Insurance?

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.