While the full impact of automated vehicle technology may be decades away, auto insurance carriers are already scrambling to figure out how to deal with the expected decline in premiums as autos become increasingly safe. Industry executives have looked at expanding into the home insurance market to help offset the potential disruption to their personal lines business. Accordingly, many expect the home insurance marketplace to be the next battleground for personal line insurers, especially among carriers seeking households with more assets and attractive underwriting risk.
However, the home insurance market may not be on as safe ground. While most of the industry’s attention has focused on the future of automation technology in automobiles, the disruption automation technology poses to the home – and by extension the home insurance market – through smart home technologies is likely to have an equal or greater impact.
Smart home technologies are already revolutionizing many aspects of home life, from simple comfort features that can now turn lights on and off or access in-home entertainment through a smartphone to smart appliances and even home security systems with built-in emergency support with automatic shutoffs and alerts.
Carriers have taken notice and want in on the action. Insurers see smart home technologies as an opportunity to deepen their relationships with customers, while at the same time improving home coverage options and underwriting. The opportunity supports a trend first highlighted by Bain & Company regarding insurer efforts to expand relationships with insureds through an “ecosystem” of interconnected services. By moving into services beyond insurance, carriers can deepen their customer relationships, increase revenues and reduce costs.
While leading home insurance carriers have begun to venture into these areas, not much research has been done to understand the consumer’s demand for these services – until now. A recent J.D. Power survey revealed that not only is there a market for these types of services, the interest level of among current homeowners is very high. In fact, three quarters of surveyed consumers said they would be interested in home telematics, or devices that provide a real-time stream of data about the condition of their homes.
In an industry that has struggled with low levels of customer engagement, home telematics may offer the opportunity that carriers have been seeking to broaden their relationships with customers. Household product density has always been the “secret-sauce” in a carriers’ retention efforts. Now with the availability of these types of technologies, a race to cross-sell into these new services may become an emerging area of consumer courtship.
The stakes for home insurance carriers are significant as 34% of homeowners surveyed indicate they would likely switch to carriers that offered these type of loss and protection options. The rates among young homeowners are even higher, with 57% of millennials likely to switch.
The impact on underwriting is likely to be equally profound. Home insurance underwriting has traditionally been based in part on good-faith assumptions as self-reported by customers. How long ago did you get your roof replaced? What is the age of your washer and dryer? Do have functioning smoke alarm detectors? Do you have a standard or upgraded kitchen? Most insurers have limited visibility when it comes to the contents or usage within the insureds home which impacts liability.
The Insurance Information Institute has reported that 1 in 15 homes have a claim each year. An increased partnership between insurers and customers through smart home loss prevention technologies could allow carriers an opportunity to bend the risk curve when it comes to home insurance losses. While these technologies are unlikely to prevent all home insurance claims, losses related to water damage, theft, fire and even property damage could benefit from these technologies.
Interestingly, consumers are already pretty far along on the comfort curve when it comes to linking these home automation technologies to their insurance plans. Nearly half (46%) of surveyed consumers would be willing to allow their home insurance company access to smart home sensor technologies in appliances, such as washer and dryers, water heaters to help prevent loss and malfunction. The number is even higher for consumers that already have smart tech in their home, with 56% of those consumers willing to share access.
Further, the availability of these types of home telematics-linked insurance products are moving to market faster than many within the industry anticipate – most notably from insurtech providers. Roost, a well-known home telematics insurtech provider, has already established partnerships with leading carriers such as Desjardins, USAA, Liberty Mutual, Country Financial and ASI among others.
One really interesting example is San Francisco-based Centriq, which has created a platform for homeowners to streamline the maintenance and upkeep of their homes by integrating data appliances (manuals, instructions and troubleshooting), user knowledge (receipts, warranties) and expert knowledge (how to videos, parts and accessories). Another insurtech moving into this space is Cincinnati-based DataRole, which mines municipal permitting data on home construction to understand, for instance, when was the last time a roof was replaced on a home and predict when it may need to be replaced in the future.
While the availability of these types of services and capabilities are becoming increasing common, the ultimate rate of adoption among consumers remains a question mark. A recent study by J.D. Power found that consumer adoption with auto usage-based insurance (UBI) programs remains relatively low. The study found that 42% of personal auto insurance customers in the United States had a UBI program available to them, up from 32% in 2015. However, only 10% of customers are active participants in a UBI program, up from 8% percent in 2015. If auto UBI is an indicator, home telematics will likely face hurdles before becoming common among mass consumers.
However, early indications show both a strong demand among consumers, combined with the emergence of these capabilities, which suggest the rise of home telematics is on the horizon.
