State Farm's ADT investment raises its smart home tech game

State Farm's $1.2 billion investment in home security company ADT goes beyond just partnership, giving the insurer a new way to reach customers and leveling up its risk prevention programs, according to insurance industry observers.

"This is a massive move that shows the focus, moving beyond casual partnerships, to distribute insurance products that are embedded into other adjacent services – a trend which is top of mind among innovative insurers," says Kimberly Harris-Ferrante, distinguished vice president analyst at Gartner.

The investment gets State Farm a 15% stake in ADT, plus more influence over how to implement IoT technology, according to Donald Light, director of the North American property and casualty insurance practice at Celent.  

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"It gives [State Farm] a very large inside track for getting the home security safety equipment inside of a home and getting the data from that equipment once it's installed in the home," says Light. ADT partnered with Google in 2020 to tie its services in with the Google Nest home automation system.

ADT gives State Farm entry into homes that it might not get so easily otherwise, Light explains. "Conceptually it's easier for a homeowner to agree to that than to be asked to install something and wonder what data or privacy agreements they have to sign," he says. "ADT and State Farm working together will have a much easier time to deal with that than an insurance company that's not positioned that way."

Insurers' efforts to link with smart home technologies so far have been slow to develop, according to Harris-Ferrante of Celent. "A disjointed ecosystem existed between home sensor companies and IoT providers and home/property insurance," she says. "Many insurers are implementing risk prevention programs but not of this caliber. Most have data analytics programs aimed at exposing risks to consumers to drive behavioral change, such as slower driving or early detection for water leaks. Partnerships are more casual and not a large investment."

In a statement, State Farm said it would build on ADT's partnership with Google by combining "next-generation security, innovative smart home technology and reimagined risk-mitigation capabilities to monitor, detect, help prevent and optimize against homeownership risks," adding that customers will benefit from lower costs, reduced claims and especially smart home security devices aimed to mitigate losses from flooding, fire or burglary.

State Farm's purchase of the stake in ADT puts them ahead of others in relation to how the insurance industry is changing, according to Light. "We're moving slowly towards an era where insurance companies do not just indemnify losses, but offer loss avoidance and loss mitigation, making losses less severe," he says. "That's where the world is going. It has huge implications if your whole economic financial infrastructure is based on paying for losses, as opposed to helping people avoid losses. This is going to speed up the progress towards that evolution."

In the companies' announcement of the investment, Paul Smith, chief operating officer of State Farm, said, "This partnership with ADT gives State Farm the opportunity to provide Smart Home technology that takes us from our 'repair and replace' model to a 'predict and prevent' mindset. These innovations will help us take the next step into the future of home insurance and add more value for our customers."

The companies' efforts will include a $300 million investment by State Farm to support product innovation, technology and marketing work in collaboration with ADT.