Smart home tech: Greater potential than just policy discounts?

July 21, 2022 6:30 AM

An Apple Inc. iPad, displaying flows of electricity within a Lightsource BP smart home, sits on a work surface in the kitchen of a residential property in Dorking, U.K., on Friday, May 3, 2019. Companies like Lightsource, in which British oil major BP Plc holds a stake, are trialing smart systems in people’s homes that will that will do everything from generating solar power, storing it and managing consumption. Photographer: Chris Ratcliffe/Bloomberg — An Apple Inc. iPad, displaying flows of electricity within a Lightsource BP smart home, sits on a work surface in the kitchen of a residential property in Dorking, U.K., on May 3, 2019

Using smart home technology for security or loss prevention first became a possibility decades ago using radio frequencies and electrical wiring, with an internet-based version in the form of Internet of Things emerging almost 20 years ago. Only in recent years, though, have insurance carriers noticed IoT and partnered with IoT technology providers like SimpliSafe, Notion, Roost and Ting, as well as Lennar, which markets complete home IoT systems covering a variety of functions to homebuyers.

Most often, carriers present the benefits of these partnerships to policyholders in the form of discounts on their policies, in return for the access to information about their homes that this technology provides. Nationwide has partnerships with Notion and Deep Sentinel. Hippo Insurance partners with SimpliSafe, Ring, Notion and Lennar. State Farm partners with Ting. Amica partners with Elexa, Moen and Kangaroo.

“The smart home ecosystem is very complex,” says Adam Kostecki, managing vice president at Amica Mutual Insurance. “There are a lot of suppliers, partners and service providers. It goes beyond just a single device.”

These partnerships to offer discounts are established for losses due to theft and burglary as well as floods and hurricanes. These arrangements are also branching into loss mitigation with technology that can shut off water valves to stop flooding, for example.

“Smart home devices alone are not the solution,” says Kostecki. “Certainly, they allow us to create better experiences around the home, but you’re not going to drive loss mitigation just by sending out free or discounted devices. It requires a programmatic approach that goes beyond technology into education, regular communications, and interactive activities for policyholders to create an ecosystem around loss mitigation.”

However, there is the potential for insurers and smart home security technology providers to do much more together, changing the claims adjustment process, setting standards for home security and storm worthiness, and more.

“The focus for insurers is ‘let’s prevent the losses,’” says Deb Zawisza, senior principal at Aite-Novarica. “It may shift, but rather than leveraging that data to determine fault or liability, the benefit to the carrier is to reduce losses.”

For insurers to access information from smart home devices, carriers would need consent from policyholders and a standard and system for collecting the data, Zawisza notes.

Bringing smart home tech in-house

This doesn’t necessarily mean that carriers haven’t thought about other applications, though. State Farm was granted a patent in June to “populate” a property with smart devices connected to a central control. Under the patent, that central control technology could estimate modifications to a policy and facilitate those changes for both the insurer and the policyholder.

Haden Kirkpatrick, vice president of innovation at State Farm

State Farm has been granted more than 200 patents in the smart home or home telematics space, according to Haden Kirkpatrick, vice president of innovation at State Farm. “Several parallel innovation IP assets (computer vision, aerial imagery, etc.) have placed us in front of helping to design the insurance industry of the future,” he says. “These innovations, broadly, have been used to help us better price and underwrite homeowners’ risk. Until now, the consumer side of the smart home market was not yet ripe for these solutions to be broadly offered to consumers. We are seeing strong signals from consumer research which leads us to believe that consumers are ready for smart home insurance.”

A sensor-based IoT smart home solution as described in State Farm’s patent would produce a lot of data that would need a common data framework for insurers to work with it, explains Ellen Carney, principal analyst for application development and delivery at Forrester Research.

Ellen Carney, principal analyst for application development and delivery at Forrester Research

“It gives you a sense of how they imagine technology could be applied to these really interesting insurance use cases,” she says. “They imagine they will be able to do something with 5G, 6G, Edge [Technologies, a secure web applications integrator], IoT and keeping consumers safer and reducing their claims.”

Collecting data from home sensors does mean “some degree of intrusion on an intimate part of our customers’ lives, how they live in their home and how they take care of it,” Carney observes.

Hypothetically, that could invite regulation or some debate within the insurance industry.

“What do policyholders get in exchange?” Carney says. “When regulators start to say this is something they should be driving and moving forward, for what they can learn in the era of climate change where they could use collected data … to create a picture of winter storms or hurricanes that could be helpful from an underwriting perspective or from a model perspective for carriers. Maybe the data becomes a public good, like highway safety data. Right now, mostly the benefit that's being offered is a discount on policies.”

As it stands, insurers offering discounts for policyholders to install devices aren’t getting the data they collect, according to Carney. “All the insurance carriers are getting is a disconnected benefit of supposedly it will reduce the risk,” she says.

Marketing advantages

Still, insurers can reap ancillary benefits short of claims adjustment. Kate Rojas, vice president of marketing for Notion, points to claims reduction, a slightly different consideration than adjustment. Aside from temperature, open doors and windows and alarm responses, Notion’s sensors detect water leaks. Water damage claims can be reduced by detecting leaks faster or at all.

Kate Rojas, vice president of marketing, Notion

Another benefit for insurers is customer acquisition, according to Rojas. “A lot of our partners use us to drive their customer acquisition efforts to build their customer base,” she says. “By pairing technology with their offering, it sweetens the value for their end customer, the homeowner. They get new customers at a lower cost than they would with traditional marketing efforts.”

Notion sells most of its sensors and systems through partners, according to Rojas, with just 5% direct-to-consumer sales. “We started in 2014 with a prototype going direct to consumers,” she says. “We shifted to a B2B2C model because we found that insurance partners loved our product.”

Nationwide’s partnership with Notion makes sensor packages available to its policyholders for $75, which is “quickly offset by policy discounts,” says Mark Teets, director of personal lines product development at Nationwide. The partnership is growing rapidly and Teets expects more than 1,000% growth in 2022. Nationwide will evaluate how losses presumably decrease under the program.

“Non-weather water losses are the highest frequency loss event that we have as an industry on the homeowner side, at an average cost of those losses of over $11,000,” says Teets. “The loss amounts are a great opportunity in terms of overall impact to mitigate losses, which ultimately translates to better rates for customers.”

Being proactive with policyholders

Nationwide has also helped develop smart home technologies by investing in their makers, including Deep Sentinel, a company founded in 2016 that makes an AI-powered system that works with installed cameras to monitor home security. Deep Sentinel’s system is interactive and voice-activated to be proactive about security.

“That aligned to our mission and vision, which is how do you protect people in ways they couldn't even imagine?” says Brian Anderson, principal at Nationwide Ventures. “What [Deep Sentinel] built could do that – could stop crimes in some cases before they even happen. That's really putting the consumer first. That's putting the member first.”

While the risk of burglary compared to other potential home and property loss claims is relatively small, it carries a heavier weight psychologically for policyholders, according to Anderson. Offering discounts to install monitoring devices, while they can be “tricky economics to model,” could be made up for by retaining those customers, he says.

Insurers see partnerships with smart home technology providers as a way to partner, in turn, with the homeowners who are their policyholders, as Brett Sobol, senior growth initiatives lead at Hippo Insurance, relates.

Brett Sobol, senior growth initiatives lead at Hippo Insurance

“Our smart home program is not about customer adoption,” he says. “It's about building capability across insurance and technology that is going to create a more protected future for homeowners. … It’s our responsibility to get these devices installed and in customers’ hands with as little friction as possible.”

SimpliSafe’s smart home insurance program, for instance, began with Hippo Insurance in March 2020, and now has seven carriers as partners, according to Phil Mark, head of business development at SimpliSafe. “From the insurer standpoint, it’s helping them for both customer acquisition and retention,” he says. “Notably, it’s giving them a vehicle to engage in a deeper manner with their customers and it’s helping mitigate the most common and costly sources of non-catastrophic home insurance claims.”

Insurers consider themselves guides for policyholders. “When customers are presented with areas of opportunity on which they care deeply (sustainability, security, etc.), they have a desire and are willing to act, but they simply may not know what to do,” says Kirkpatrick of State Farm.

One way that an insurer can guide a homeowner is, for example, as Hippo’s Sobol says, “If a water leak is detected, we can say, ‘We know something about your home and we would like you to take action on this. Here is a couple of ways you can do that. You can give one of our experts a phone call to get personalized, one-on-one advice to help mitigate and take care of problems.’

“If we can’t resolve that,” Sobol adds, “we’ll send out a plumber or trades person to resolve that issue. I compare this to things you see in auto, like roadside assistance and crash detection. There is a rich opportunity for homeownership to be way more proactive.”