Should your Insurer get your Smart Home Data?

Are you still considering of buying your first smart home device? Is it still too expensive? Do you still struggle to decide what to get?

Nobody less than the insurance industry might now come to help!

The smart home industry is still in the early phase of the adoption game. Users are still struggling with spending $200 for a smart thermostat to multiple times the price for a smart bulb — with SmartHomeBlog you can actually win a Philips Hue for free.
 However the insurance industry has identified home automation as one of they key growth drivers for the coming years. 45% of insurance companies think so.

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The initial concepts to engage with the Smart Home industry are very much focused on creating partnerships with the home automation makers. Very much to the benefit of the makers and consumers. Now you get discounts either on your tariff or on buying smart security devices. Sounds great, doesn’t it. But what about the perils of this trend? What about security? What about the future impact on home insurance prices?

Looking at this trend I feel that we are only at the beginning of a game changer for insurance companies and consumers. Knowing the insurers I doubt that in the long-run the consumers will reap all the benefits of this trend.

So what’s in for the insurers?

According to the FBI in 2014 over 8.3m property crimes have been recorded in the US alone. In many cases this lead to claims to the insurers. Similarly a significant damage resulted from fire protection insurance. Every straw that will reduce this number has a huge finial benefit for the industry. Smart homes gadgets and security systems could help to reduce this number.

However, the insured do not help. According to a survey in the UK some 76 percent of Brits admit they ignore burglar alarms solutions. A similarly high number could be expected for the US as well.

So the insurance industry decided to ramp up the game. According to a study of Accenture already 17% of insurance companies launched or were about to launch products that leveraged the smart home technologies. This compares to only 5% in 2014 and documents the fast pick up in relevance to the industry.

Current focus is on collaboration

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In this first wave the insurers decided to mainly focus on providing incentives to install the smart home security systems. At the forefront are large insurers like e.g. Zurich. They recently entered into an agreement with smart home producer Cocoon. This offers their clients a 10% discount off their home insurance contracts in a case they buy a smart alarm system for Cocoon. These systems are cutting-edge as they also register inaudible vibrations in the air through infrasound technology.

Liberty Mutual is pursuing a similar collaboration but in a different market segment. They teamed up with Nest will give away the Nest fire alarm system ($99) for customers who switch from other providers. In addition they offer a 20% discount in their new smart home tariff.

However so far the industry leaders have shine away of using the smart home data in their underwriting definition.

The next step is collection and farming your data

The utilization of these smart home technologies offer significant upside. According to a study from Towers Watson the industry experts expect that these technologies will ease the pressure on the loss ratios (86%). Primarily they should lead to lower loss claims. 60% of the respondents expect even a decrease by 16% which would be huge for the industry.
 Game changer will be the ability to farm the data to identify risk patterns. This in turn allows for a more educated decision on pricing and underwriting. They might even lead to much more tailored home and fire protection products.
 But it’s is not only the loss ratio. Also the operating costs will be positively impacted. Fraud detection and claims management can be automated based on the data your home provides.

However, this all comes at a price.

Data security becomes ever more important

With the sheer amount of data your future smart home will produce it will be crucial to understand what will and can be shared with your insurance company. So far the Zurich’s and Liberty Mutuals only know if you have bought a home security system or if at all whether the battery of you fire alarm is still working. But in future they might incentivize the consumers to share more valuable information.

This raises critical questions around consumer protection (which the regulator will be very worried about) and the security of your data. Luckily on the last point we can expect an extreme focus from the insurance companies. After all client data have always been the most valuable and best protected asset of the insurance companies.
 However, the smart home industry has to do a lot of catch-up with regard to data security.

A recent study from Symantec painted a very bleak picture with regard to this point. More collaboration between and insurers and smart home makers will surely be required.
 Until further progress has been made this might certainly hamper the product innovation of insurers in this regard.

So where are we heading?

A good outlook to of the not too distant future offers the insurer USAA. The US insurer patented a device which will record sensitive information about temperature, humidity, vibrations, water pressure as well as the electricity voltage. They plan to use this data for predicting future damages. Ultimately a win win situation if the models work properly and you overcome the concerns about sharing data with your insurer.
 So expect that in a few years time your insurer will let you know ahead of time via your Amazon Echo that a fire will break out in your house.

Let me know what your take on this is. Would you be willing to share your data?


Originally published at Smarthomeblog.eu.

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