When people think about the internet of things (IoT), they often think about smart appliances, lights that turn on and off with a smart speaker and thermostats you can control from an app on your smartphone. Today there are billions of connected devices (an average of 10 per household in the U.S.), and beyond just improving convenience, they are also enhancing the way companies and carriers provide services to homeowners.
Smart home trends of consumers installing more monitoring devices have the potential to improve risk assessment capabilities. Combining IoT and insurance can lead to better products and services that improve safety and quality of life within homes and properties. The challenge for carriers is making sure consumers understand how IoT-based smart home insurance can achieve all of that.
What Has Driven Auto Telematics Adoption
To understand this, insurance carriers can start by looking at a similar technology that's already been successful in their industry: auto telematics. Telematics devices have completely transformed the automotive insurance industry. It began after global positioning systems (GPS) became widely available to consumers in the 1990s. By the early 2000s, companies were using GPS technology in fleet management to monitor vehicles on the road. Next, delivery companies like UPS adopted the technology to monitor their drivers, leading to significant improvements in deliveries, fuel savings and other revenue benefits.
In the mid-2010s, insurance carriers adopted telematics as a way to monitor driver behaviors like average speeds, miles traveled and braking. Safer drivers — those who are likely to cost the insurance company less — get lower insurance rates.
Auto insurance providers have engaged in a years-long campaign to educate customers on the benefits of these technologies. Today, about 70% of consumers who have the option to use auto telematics say they will opt in because the benefits are clear, according to Kelly Hernandez of Nationwide Insurance. Safe driving that you can promote with a telematics device saves you money. Consumers weigh that against other risks, such as a lack of privacy and the potential that they might not be driving as safely as they thought.
As home IoT technologies improve, the next logical step is to bring these benefits to the homeowners insurance market, in a similar way as with auto telematics.
IoT Smart Home Insurance Complexity Has Carriers Playing Catch-Up
Even as smart home technologies and IoT-connected devices continue to advance, many carriers are playing catch-up in figuring out how to convince consumers that it’s a beneficial option.
A key finding in a 2020 consumer survey by the Insurance Information Institute (III) was that most homeowners still aren’t exactly clear about what their insurance policy covers. They choose a homeowners insurance policy to mitigate risks from major events, such as natural disasters. Beyond coverage for those things, homeowners had only a limited understanding of their coverage.
However, a significant number of homeowners also have smart devices designed to protect their homes. Sensors and monitoring devices provide peace of mind or offer improved protection for home occupants. About 20% of homeowners buy these devices to protect pets, says Hernandez.
But what most consumers don’t think about when they get these devices is how they could help with insurance. For carriers, this presents an opportunity, but it’s not entirely straightforward. With so many devices:
- There is a lot to monitor, and you may need advanced tools to aggregate all the data.
- There is a risk for false positives, like smoke alarms going off without a fire.
- Consumers may also be concerned about their privacy with devices that monitor them at home.
Despite these challenges, Hernandez notes that 64% of homeowners would be interested in participating in a smart home telematics program using their internet-connected devices if there was a clear benefit or discount.
How Insurance Carriers Can Shape Consumer Understanding of Risk
Insurance carriers and their agents play an important role in communicating the benefits of smart home devices to improve insurance coverage and protection. Consumers already know that these smart devices can enhance comfort and convenience, but they haven’t made the connection yet about how the same devices can help increase safety and reduce risks like fire, flooding, burglary and other home damage.
Agents must help consumers understand how these devices can help them prevent the most common issues that lead to homeowners' claims, including:
- Water damage
- Fire
- Theft
Home IoT devices can monitor for early signs of these issues and alert homeowners before they become a major issue or damage the home beyond repair. Knowing they left a window open before going out of town or that a water heater is leaking in the basement helps homeowners be proactive in protecting their homes.
Unfortunately, many carriers and their agents don’t feel entirely comfortable pitching the benefits of smart home devices. There are also logistical questions related to smart home devices and carrier discount policies, such as whether consumers will keep devices running at all times, and what happens when they want to upgrade or replace existing devices. Carriers must have clear answers to these questions to help agents navigate this new opportunity, and they must work with their technology partners to help enable customers through co-marketing efforts such as trainings, webinars, case studies, and more.
Improved Risk Assessment Is Here — For Carriers Who Want It
The good news for insurance carriers is that we have all the technology available to implement effective home risk assessment and monitoring. To take advantage of these technologies, carriers must have a clear plan to adopt and sell these technologies to consumers, scaling their programs as they grow.
Learn more about the ways that IoT-driven smart home insurance can improve risk assessment to benefit both consumers and carriers.
