The property and casualty insurance industry is taking a closer look at the potential for smart home devices. Observers expect that smart homes will have a similar effect on home insurance that telematics and the connected car did for auto insurance.
Soon, carriers aim to use connected-home technology for claims avoidance, underwriting and improved interactions with homeowners beyond just creating a policy. That’s according to new research from technology-research firm Gartner. And, some insurers are beginning to invest in connected-home companies using their internal venture capital arms.
But there are still obstacles in the way of fully realizing smart homes’ potential. Unlike telematics in auto insurance, there is no set standard yet of how to leverage data insurers collect from households, according to Kimberly Harris-Ferrante, distinguished analyst at Gartner. Customers are also not adopting smart home technology as quickly as the industry would like. As a result, insurers have adopted a wait and see approach as more tech trickles out from incubators and startups.
“This is the future of insurance, but carriers have to figure out the partnership model, how to make use of the data and how to actually get the device in the consumers’ hands,” Harris-Ferrante says.
A Big Insurer’s Game
Only the top insurers—in terms of premiums—are active participants in the market, according to Gartner. Led by Liberty Mutual, Allstate and State Farm, carriers work with vendors in a quid-pro-quo scenario, offering a large client base to suppliers.
In return, insurance companies receive monthly customer data and an inventory of smart devices, including water sensors, automated smoke detectors and burglar alarms.
With recent partnerships with smart-home startups Canary, Notion and August Home, Liberty Mutual is the one of the industry’s biggest contributors so far. Its Smart Home Discount Program offers deductions on premiums to policyholders who opt to install smart home devices. The insurer first ventured into the market with its partnership with Nest Labs in June 2015.
“Monitoring your home is important — not just for personal and property security, but also to detect when there are abnormalities in your home environment, like temperature and humidity fluctuations,” said Chad Lovell, assistant VP & managing director, emerging partnerships and strategic programs, Liberty Mutual. “All of this leads to a smarter and safer home with less worry.”
Admittedly, carriers are thinking long-term about smart home devices as they ponder how to analyze the unstructured data homeowners send over. Market progression has lagged compared to telematics, as a result, according to Gartner.
For insurance companies actively looking to invest in smart homes, finding a vendor whose network works well with all of the different types of sensors in the market also remains a burden.
“There is no consistency in the home market like there was in usage-based insurance,” said Jeffrey Ill, VP of homeowner product at Esurance. “That dongle could be plugged into any car to get a read. But there is no network yet to hang all devices off of and get all the readings you’d want from a home.”
Esurance is currently in talks with a number of vendors, according to Ill. But when it enters the smart home market, it plans to partner with a vendor that offers one universal system for better loss prevention and mitigation, he added.
Vendor Patience is a Virtue
Vendors understand that there is still a lot of work to do. Similar to insurance carriers, vendors aim to change customer perception of home security, according to Notion CEO and co-founder Brett Jurgens, whose company began working with Liberty Mutual and XL Group in June.
A majority of consumers believe home security systems are unnecessary, he explains. That’s why his company, which is based in Denver, is marketing a home security system tailored to provide only the components individual customers want. Notion hopes to convince potential customers that other features, such as temperature detection, water leak sensors and garage door smart locks are equally important.
“Insurance could be the catalyst for the Internet of Things reaching the mass market,” said Jurgens. “It’s not very refined yet, so we are seeing lots of heavy testing up front. Lots of time and patience is needed to work with insurance companies because they have a high bar when it comes to security.”
Only an estimated 7 percent of consumers in mature markets — including the U.S., U.K. and France — have subscribed to a home-monitoring service, according to a recent Gartner survey. The reluctance is best explained by consumers’ opposition to the “Big Brother aspect,” Harris-Ferrante says. “UBI has an on/off switch, but with home telematics it’s all or nothing.” Smart home participants are also looking for another incentive to share data besides monthly discounts on premiums. In most cases, homeowners receive instant savings from insurers by just providing a copy of a basic security system contract.
“Consumers worry about the complication of some of the solutions in the market as well as the privacy and data security of their home,” said John Carter, head of communications at Canary, a startup and smart home partner of State Farm and Liberty Mutual. “Ours is easy to set up. We like to make sure our system is more secure than anything else out there.”
Future of Home Telematics
Gartner predicts the connected home market will grow steadily over the next five years, but won’t fully mature until 2026, contradicting many experts’ two-to-three year projection, the firm says. Slow progression is credited to a general lack of understanding of consumer data and low adoption rates. Fortunately, at a time when insurers are struggling to drive customer loyalty, smart homes provide an extra touch point with policyholders, which can help improve relations.
“Carriers understand they cannot just sell a policy and wait for a claim to come in,” said Harris-Ferrante. “They learned a lot of this from telematics in auto, which is much more advanced.”
Even after the industry sorts through its troubles, the smart home market may be only suitable for Tier 1 insurers to exploit, she concludes.
“For the big guys with a huge number of policies, smart home investments are worth it to build up their analytic strategies. We predict a majority of insurance companies won’t, however, thanks to the high costs of entering the market.”
