Smart Home Technology Poses New Opportunities and Challenges for Insurers

The smart home market is a mess, according to a new report from Aite, an independent research and advisory firm. The Smart Home: Opportunities for Insurers, written by Gwenn Bézard, co-founder and research director, said insurers should care about the smart home device market. That’s because while technology will lead to safer homes, it could also shrink the renters and homeowners risk pool. Facing the prospect of losing their competitive advantage, insurers have the opportunity to create new policyholder services and products – making them more attractive and valuable to customers.

Between November 2015 and February 2016 Aite Group held discussions with smart home technology vendors, P&C, health and life insurers, venture capital firms, IoT and insurance tech vendors.

Currently, connected home device adoption is still relatively low in the U.S, the research company found. Privacy, cost and user friendliness concerns are the main reasons for the low adoption rate. The most used devices in the home today are smoke and carbon monoxide detectors. Despite current consumer reluctance, it’s expected that the convenience associated with the devices will eventually hook consumers.

Interesting challenges for insurers will arise, according to the report. These include differences in what an insurer wants versus what a consumer wants. An example offered is that while an insurer may be interested in reducing water leak claims, a consumer may be more interested in the entertainment aspect of a connected home.

Connected smart homes may spark new behaviors, like allowing a repair person inside while the owner is absent. As a result, insurers will need to think outside the box when it comes to creating new products and services.

Another challenge is in execution, the report noted. For example, a partnership with a vendor may go nowhere or an insurer’s reputation may be dragged down by an unreliable vendor. There’s also concern over who will provider aftermarket support. According to Bézard, the home security marketplace is already overcrowded and would be difficult to enter. There is also the potential liability risk for insurers who choose specific devices and recommend them to consumers.

So far, insurers have adopted various strategies linked to smart home devices. These include acting as a promotional partner for smart home vendors, acting as a data and promotional partner, offering a unique smart home solution and offering discounts across several products.

The Aite report highlighted how AXA piloted its own smart home product coupled with a branded app in France. AXA’s La Maison Connectée (The Connected Home) offers four services: check-in, housesitting, urgent repairs and administrative assistance. The company offers the services a la carte by the week, weekend, month or yearly activation via the “My AXA” app. The company allows consumers to choose among several technology partners.

“U.S. insurers remain for the most part on the sidelines of the smart-home market,” says research director of Aite Group’s Insurance practice, Gwenn Bezard. “The savviest insurers have an opportunity to jump in with both feet and differentiate in a meaningful way by focusing on making it easier for consumers to buy peace of mind and convenience.”

The report highlighted a few insurers that have partnered with smart home technology companies to provide discounts to policyholders who use the vendor’s products.

Last year, Wis.-based American Family Insurance announced the Proactive Home Protection discount to encourage the use of smart home devices like smart thermostats, water leak detectors and security systems.

“American Family wants to not only help customers recover from accidents and tragedies, we want to partner with them to take a more proactive role in protecting the things they value,” said Julie Schaubroeck, American Family Insurance product and field marketing director. “By using these devices, they are demonstrating a commitment to potentially preventing these damaging events, and we want to reward them for practicing these safe habits.”

The company partnered with Microsoft Corp. last year to launch a business accelerator for home automation startups. The goal, according to the insurer, is to create advancements that lead to safer and smarter homes.

Those who use smart home devices will be eligible for the Proactive Home Protection five percent discount on their homeowners, renters or condo policies. The discount is currently available in all 19 operating states.

One of the Midwest insurer’s partners, Ring, offers a financial guarantee on policyholder insurance deductibles if a home is burglarized after they have purchased and installed the Ring Video Doorbell.

2015 was also the year that Liberty Mutual started to reward customers for installing Nest Protect, a smoke and carbon monoxide alarm. The company’s Smart Home Verified Discount program allows policyholders to electronically share information relating to smart home device function. Nest Safety Rewards allows customers to share information with the manufacturer that can then be shared with the insurer. Nest will tell Liberty Mutual once a month if the batteries are charged, its sensors are working and its Wi-Fi connection is good.

“These technologies provide the opportunity for consumers to reduce the chance of harm to their family and home by detecting events that trigger alerts on their smart-phones, wherever they may be,” said Michael Robon, senior vice president and Property Product Manager, Liberty Mutual Insurance. “We believe customers seeking to monitor their homes with devices like Nest Protect demonstrate responsible behavior. As a result, we will be offering these customers reduced pricing on their home insurance policy. This not only provides better value for our customers, but also enables us to better understand how different technologies may reduce risk for our customers.”

The Liberty Mutual Smart Home program began on June 22, 2015 in six states: Illinois, Kentucky, Pennsylvania, Alabama, Maine and Wisconsin. More states are to be added this year.