More IoT devices, but homeowners' insurance adoption still lags potential

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Internet-connected smart devices are dramatically impacting the whole home insurance environment. Consumers are welcoming to their residences the "Internet of Things, " comprising anything from smart doorbells and access controls to sophisticated monitoring equipment that automatically reports incidents. These devices can now control heating and cooling equipment, providing external and internal security through access control and exterior monitoring, and optimizing home entertainment. Video surveillance cameras and smart locks protect homes from intrusion and give homeowners peace of mind when they’re away from home. Lighting and HVAC controls make homes more comfortable, and smart kitchen devices increase meal preparation easier and more convenient. Insurance carriers believe these monitoring and incident reporting devices could hold the key to increased homeowner policyholder satisfaction and loyalty, lower risk, reduced premiums and growth.

Research from Markets and Markets predicts that the size of the global smart home market will grow from USD 78.3 billion in 2020 to USD 135.3 billion by 2025 at a CAGR of 11.6 percent over the five-year period. The growth, according to the research, is in part due to the general population’s growing concern about home safety, security and convenience. The COVID-19 pandemic is expected to cause smart home product sales to fall by as much as 10 percent in the 2020 fiscal year, in part due to supply chain disruption in China, but sales in the Americas are expected to see higher growth than in other countries.

Customer Acceptance is Increasing
As home technologies mature and data privacy and security concerns are addressed, consumers are becoming increasingly accepting of smart technologies and welcome the benefits. IoT devices are saving on energy costs, helping homeowners feel more comfortable and secure in their homes and allowing them to enjoy instantaneous access to information and an assortment of home entertainment equipment. IoT is also providing P&C insurers with an opportunity to offer premium discounts to policyholders who install various monitoring and safety devices. In the same way the use of telematics enables auto insurers to offer discounts to safe drivers, smart home devices allow home insurers to reduce premiums for policyholders that install and run various home monitoring devices. The data transmitted from smart devices is a treasure-trove for insurance organizations. In addition to leveraging the data to deepen customer engagement, carriers can use the data to improve risk management, rating systems and as a basis for new product offerings.

As an added benefit, insurers with connected home programs can connect with customers more frequently with their insureds in new and beneficial ways, increasing customer satisfaction, driving loyalty and creating in-roads to cross-sell and up-sell offers. Policyholders typically don’t interact with their home insurer after the onboarding process unless they want to make a change to their policy or information, to pay their premium, or in the event of a claim. However, according to a report from Aite Group, U.S. Home Insurance: Get Connected to Build Customer Loyalty, carriers looking for additional points of contact can leverage the connected device ecosystem and consumers’ increasing receptiveness to new technologies to build personalized advice programs that can increase engagement and retention. And carrier opportunities grow as more and more consumers welcome connected devices into their homes.

But there’s a disconnect between the types of devices homeowners are interested in, and those that have potential for insurance organizations. “One of the biggest disconnects I can see right now, is that consumers are drawn to devices like Google Assistant and Amazon Alexa because they’re cool and do neat things,” says Greg Donaldson, senior analyst with Aite Group’s P&C insurance practice and the report’s author. “The more consumers interact with them, the more comfortable they get with the technology. It’s like a gateway tech for the other stuff. The problem is that insurers don’t have a value for that data right now. So while customers are expressing interest in the technology, they don’t yet have it because they want to spend their money on the cool stuff and insurance companies want the nerdy stuff.”

There are three categories of technology that interest insurers right now, Donaldson explains. The first is water leak detection. The second category is smoke detection and fire suppression, and the third is intrusion. Insurers are very interested in water leak detection technology, and for good reason. Non-weather-related water damage claims from plumbing or appliance issues accounts for about 20 percent of common home claims, according to data from The Travelers. Anything insurance carriers can use to mitigate risks for those damages is huge. “But how do insurance carriers get consumers to be interested in the devices that are important to them? That’s the million-dollar question,” Donaldson explains. “While consumers indicated that they could be willing to share data if they didn’t have to buy the device, they’re not so interested in how much water they’re using and monitoring the flow. Insurers can’t afford to buy the devices for everyone, but what is it worth to an insurer that buys and professionally installs a monitoring device that shuts off water if it detects a probably leak in an insured’s home and prevents all water loss?”

Three Approaches
There are three ways insurers are partnering with vendors on different offerings. One is a straight-up partnership where an insurer partners with a device maker and they white label a solution. A policyholder might have to install and activate a device within 30 days and the insurer gives a discount on homeowners’ insurance for a specified amount of time. The second is not a partnership but more of a cataloguing. The insurer identifies which vendors have the devices and accumulates data from multiple vendors. The carrier then provides policyholders with a list of the vendors and if they have the devices in their home, they are eligible for a discount on their premium.

The third approach blends the first two. The insurer partners with the vendor, but instead of a straight premium reduction, policyholders can get a 20 percent discount off a new water monitoring and control system with the understanding that they can recoup the costs over three years with insurer discounts. This approach is a harder sell.

Insurers and vendors are getting creative with their solutions and partnership models. Roost Home Telematics, has an arrangement with its insurer clients to supply a select group of policyholders with free smart water leak and freeze detectors that trigger smart phone alerts when there is a change in the environment surrounding the sensors. Policyholders with high-value properties or who have had water damage claims in the past are among those who receive the sensors. Roost only supplies its equipment and services to insurance organizations and not directly to consumers.

Other insurers are partnering with vendors in unique ways. Selective Insurance has launched a more comprehensive, end-to-end smart home and security solution for its customers. Selective developed Smart Secure(sm) in-house and uses Alarm.com products and services.

“Our partnership with alarm.com gives homeowners the ability to control the technology from anywhere with the legacy monitoring systems we’re used to seeing in high-end alarm systems,” explains Allen Anderson, Selective’s senior vice president and chief underwriting officer, personal lines.

Smart Solutions allows policyholders to choose smart technology equipment for interactive security and energy management, allowing package customization. Selective offers different levels of bundled packages of equipment, depending on home size but policyholders can add cameras or customize by adding more cameras and sensors for additional windows and doors, for instance.

“We built out the basic packages first to help the customer along as to what the market has available, and including what most people tend to purchase. However, they can buy whatever is available on the alarm.com site,” says Shelly Gallagher, vice presidents, personal lines underwriting.

The insurer designed a premium discount program for Smart Secure(sm) depending on equipment installed, with more discounts depending on the number and capabilities of the equipment policyholders choose. “You may receive a discount for a video doorbell, for instance, but the discount will be greater if you have a reporting system to alert and summon authorities as well as other discounts for things like water shut-off valves,” Anderson notes. “And the beauty of this system is that the customer doesn’t need to tell what they’ve done. Alarm.com tells us what’s installed and we automatically apply the discount.” Equipment can be either professionally or DIY installed.

Selective is technically a reseller of the Alarm.com products, but Selective doesn’t profit from alarm.com equipment sales and doesn’t take a cut of the monitoring fee. Customers don’t interact with Alarm.com, but deal with dedicated Smart Secure(sm) representatives.

Selective launched the program to its customers in early June in New Jersey, South Carolina and Tennessee with plans to roll out the flood portion of the program to all of its states within the next year. “This is a relatively new project for us, so we wanted to limit the number of states at first so we can understand the demand and take-up rate, and so we can make sure our processes are in place before we do a full rollout,” says Anderson. The insurer will collect data to understand customer demand and see if there are gaps in their offerings.

Many carriers are looking into smart home technology right now, and Aite’s Donaldson cautions them to give their plans time to work. “Some insurers tried it and it didn’t work quickly so they gave up too fast, and I think that’s a huge mistake,” he points out. “Based on what I’ve learned from talking to consumers, it feels like we’re getting close to where we were with telematics three or four years ago, where everybody needs to have it.”

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