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Home Is Where the Smart Is

Smart home telematics promise to change the way the insurance industry provides value to consumers—and can help fight the idea that insurance is a commodity.
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Today, 15 billion “smart” devices use wireless technology to talk to us and each other, according to Intel. This Internet of Things (IoT) is expanding rapidly: Intel projects that by 2020, it will consist of 200 billion devices. That’s approximately 26 smart objects for every human being in the world.

Accenture reports that 44% of insurers expect connected devices to drive revenues over the next three years, while more than 60% have already launched or piloted solutions that incorporate connected devices. And although the insurance world’s foray into telematics has so far focused mainly on auto, the home is the next frontier for insurance organizations to make their mark.

From water and air quality sensors to smart thermostats, alarm systems, door locks and video monitoring equipment, “all sorts of electronics can be installed in the home which a carrier can have a role in,” says John Lucker, advisory principal at Deloitte & Tousche and Global Advanced Analytics Market Leader. “But it requires the carrier to develop a broader story than just ‘We just sell insurance.’”

“What gets commoditized is policy and coverage,” agrees Stephanie- Trunzo, chief operations officer, chief digital officer and partner at PointSource, a digital transformation firm. “Home telematics is going to give insurance organizations the ability to differentiate based on data, value and knowledge.”

Why Smart Home?

Jessica Groopman, research director and principal analyst with Harbor Research, says smart home telematics span three categories: energy management; convenience, health and comfort; and safety and protection.

“As insurance companies are providing benefits across all three of those areas—tangible value, whether it’s in the form of safety, cost savings, energy efficiency or just a notable difference in convenience—that becomes interesting to consumers,” explains Groopman, who heads research strategy and specializes in consumer-side IoT.

Trunzo believes the most immediate opportunities for insurers lie in “things that avoid creating a claims process cycle”—smart devices that enable them to step in before a homeowner experiences a loss, -shifting the focus from reactionary services to risk mitigation and loss prevention.

“It’s all about monitoring the system not only when there’s a problem, but for preventive care as well,” Trunzo says. “You’re giving homeowners the ability to take better care of the systems in the first place.”

That’s the inherent value of the smart home: Homeowners want to avoid loss. “They don’t want water in their house, they don’t want their floors ripped up, they don’t want the inconvenience,” Lucker says.

“At the end of the day, it’s great that if there is water damage, the company is going to step in and pay,” agrees Gwenn Bézard, Aite Group cofounder, research director and insurance practice leader. “But in the first place, it would be better to not have to go through the headache. The ideal scenario is there is no claim.”

If a heater breaks down, for example, pipes may freeze in the middle of winter while a homeowner is on vacation. “When you come back, you may have a flood because the pipes burst,” Bézard points out—but not if the insurance company notices first with the help of a smart thermostat. “The insurance company could be more part of the solution, helping with monitoring and dispatching a technician if something’s wrong.”

And smart home telematics improve the insurance experience in another key area, as well: Because they track real-time behavior, they provide a clearer foundation for pricing and underwriting standards.

“Let’s be honest—insurers are probably not best known for providing a ton of transparency into the rating, underwriting and pricing variables they use,” says Drew Doleski, product leader - IoT, connected home at Verisk Insurance Solutions. “An IoT-driven structure is a big step forward in terms of transparency.”

Beyond Commodity

At a time when debate is swirling about commoditization of personal lines insurance, smart home telematics present an opportunity for insurance companies and agencies to increase their value proposition beyond the traditional scope.

“In an industry where customers have now been trained that the only thing they should care about is price, that’s a very difficult place for an agent to be,” Lucker says. “As price goes lower and lower, that means the only way for agents to maintain growth is to sell more. But they’re being asked to sell more in an essentially static market—or, in some cases, a declining market.”

Compared to auto insurance, where customers might be more likely to leave their needs in digital hands, most consumers want a human face on their home insurance. “One of the things that’s unique about the home is that it’s our home,” Groopman says. “It’s one of our most intimate realms. If you have an issue in the home, that’s going to be something that feels very vulnerable. And that’s not the time when you’re going to want to particularly depend on a dashboard.”

Groopman anticipates that smart home telematics could help agents transition from a sales role “to really a product experience or service experience role—both for ongoing experience for customer support and what happens when things go terribly wrong.”

Smart home telematics, then, give agents a forward-thinking platform on which to “build their relationship and show value to the policyholder by recommending a fix,” Trunzo explains. “That helps the agent create a tighter relationship and show more value to their customers. It helps the policyholder, and it certainly helps the insurance company, because they’re going to keep the cost of claims down that way.”

This win-win-win is why companies like Allstate, Liberty Mutual and State Farm are already investing heavily in smart home telematics: All three have partnered with Iris by Lowe’s, a smart home management system, to deliver related products and services to their customers.

“Your home is most likely the most valuable asset you have, so we see it as helping our customers better protect the major investment of their life,” says Justin Herndon, media relations manager at Allstate. “We’re trying to transition what people expect from a typical insurance company, because it’s not just about protection and paying your premium every six months or a year.”

Expanding the Ecosystem

Moving forward, the value of smart home telematics will extend beyond the insurer/agent/insured relationship. While the first stage centers on the consumer, the second wave will revolve around creating a business-to-business ecosystem.

Consider a hailstorm that damages a particular area. A roofing supply company could pay attention to weather information, notice where there’s been a hailstorm, use a drone to collect information about the damage, estimate which supplies are necessary and report back to the insurer.

“Then, the insurance company’s working with their ecosystem of suppliers and contractors network to respond,” Trunzo predicts. “Now, you can leverage all this exact same kind of thinking to create much more intelligence in the supply chain of all the people who are involved.”

If an insurance company builds a solid supply chain and network of partnerships while maintaining a strong relationship with the homeowner through the sensors that give them first notice of loss, “they can then help ensure they’re getting the best price on fixes or contract work or materials,” Trunzo explains. “That’s another way to really differentiate: When something bad does happen and you need to activate this policy, we’re helping you save as much money as possible not just on the policy itself, but on anything you need to pay out of pocket as well.”

Lucker says it’s an opportunity for insurance companies and agencies to become trusted resources for information rather than just a source of reimbursement when things go south. “If I’m looking for an exterminator, it would be great to be able to go to my insurance company and say, ‘Who do you recommend?’” he points out. “Better yet, if I use this exterminator and they send the insurance company a report that says ‘John’s house is bug-free,’ maybe you give me a discount because that discount would be less than the average loss of a bug event.”

Herndon says Allstate has similar plans. “We want customers to look at our agents as not just somebody you occasionally look to for a home review,” he explains. “We want them to be able to depend on them for advice, too. It’s not just about selling insurance anymore. It’s about protecting and making life easier.”

“IoT is going to enable more than just interoperability across devices—it’s really going to enable interoperability across industries,” Doleski agrees. “That’s a really unique opportunity for insurers to deliver those differentiated value propositions and services. Maybe it’s just helping people live smarter, or maybe it’s saying, ‘If you change these behaviors, we can help you reduce your energy bill’—something that’s historically outside the scope of what insurance does.”

Jacquelyn Connelly is IA senior editor.

‘The Creepiness Factor’

As the Internet of Things (IoT) continues permeating all areas of human interaction, one of the biggest hurdles businesses will face is what Gwenn Bézard, Aite Group cofounder, research director and insurance practice leader, calls “the creepiness factor”: consumer unease with companies collecting private information about their lives.

“A lot of the concern comes from distrust and a lack of transparency about what is being used and why,” points out Stephanie Trunzo, chief operations officer, chief digital officer and partner at PointSource, a digital transformation firm. “Perception is set by expectations.”

According to John Lucker, advisory principal at Deloitte & Tousche and Global Advanced Analytics Market Leader, “all the research shows that customers tend to not worry about these things as much if they believe the value equation is in their favor—if they’re getting more for that sacrifice of privacy than they’re giving up in the information they’re generating.”

Privacy concerns, then, will fall away if organizations capitalize on one thing in particular: consent. “So much of this comes back to the user’s ability to choose,” explains Jessica Groopman, research director and principal analyst with Harbor Research. “The ability to communicate how consumer data is being used, sold, shared and given to third parties becomes central to consumers actually understanding what it is they are giving away.”

“It’s only creepy when I haven’t consented to use my information to do something within my policy,” agrees Drew Doleski, product leader - IoT, connected home at Verisk Insurance Solutions. “How we get to the point in the home where everybody’s feeling super comfortable with this—that’s an industry-wide challenge, but the indicators are there. This is the future.” —J.C.

Tuesday, June 2, 2020
Personal Lines