Savvy consumers are cozying up to “Internet of Things”, welcoming smart doorbells, access controls and monitors that report incidents. These devices autonomously control parameters, bolster security and delight through optimizing home entertainment. Insurance carriers’ prognosis is that such gadgets can unlock pent-up policyholder satisfaction while simultaneously lowering risk. Market research characterizes the global smart home market as a $78.3 billion market that will grow at 11.6% over next 5 years.
Top consumer motivators for owning smart home devices include increased safety/security (47%), convenience of managing remotely (31%) and reducing energy bills(25%). Top barriers include perceived device cost (58%), lack of perceived need (42%) and privacy concerns (26%). While consumers continue to adopt IoT devices briskly, awareness of smart home insurance programs has been limited.
Insurance was slow to smart housing – partly from the potential new market being seen as narrow and uncertainty in meeting technical standards. Of late, the mass market has been opening up, facilitating simple connections with multiple devices. More insurers have embarked on cooperation approaches, selling integrated products via Google Nest for instance. They offer premium discounts to those who fortify their homes with smart-home devices. Similar to the use of telematics by auto insurers to offer discounts to safe drivers, smart home devices allow home insurers to reduce premiums.
Insurance is not a primary driver of connected home technology adoption. Insurers hence need to partner with distribution channels and device companies. As a binding service in the customer journey, they can prevent accidents and risks, assist in times of repair needs and pay claims proactively before clients are aware of something wrong.
To insurers, three categories have appealed most. The first is water leak detection. The second is smoke detection and fire suppression, and the third is intrusion. Non-weather-related water damage claims from plumbing or appliance issues accounts for ~20 percent of common home claims, making water leak detection a priority. Per American Insurance Association, water leaks in homes resulted in several billion dollars of property loss. Anything insurance carriers can use to mitigate risks for those damages is clearly impactful.
Smart Home technology seems to have exceptional promise, but success hinges on an IoT ecosystem with many stakeholders – technology companies, appliance / sensor manufacturers, security companies and insurance carriers. The common way for carriers to partner is to white label a solution from a device vendor, offering a discount for activating a device in a specified amount of time. In a second approach, carriers provide policyholders a device vendor list to procure from and be eligible for premium discounts. Another prevalent approach is when the insurer, instead of direct premium reduction, gives a percentage reduction off a new water monitoring and control system expecting they can recoup costs over time.
Canary Care, a UK start-up, places sensors in houses that monitor movement, temperature and light to push to a dashboard display. Based on the patterns of behavior detected by sensors, the platform sends notifications to caregivers, modifying the value proposition from reactive to pre-emptive and reducing premiums.
Homies is a peer-to-peer alarm platform from Achmea that allows neighbors to help each other out in case of fire or a burglary. Achmea is attempting to expand its field of interaction to risk prevention, enabling people in neighborhoods during emergencies, increasing quality of life and bringing down damages.
Insurers are not alone in seeking a leading role in smart home ecosystems. To get there, people have to be convinced to let insurers use their data and gain credibility. The starting point is transparency. Consumers need to know why and how their data is used. The interest of the insured and insurer must align. Key recommendations are to resolve data issues, focus on value-added-services and partner with potential disruptors.
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