We live in the era of smart gadgets, AI and the Internet Of Things. Technology is not only linking devices, but giving them a certain level of intelligence too. What does all that mean for home insurance? Jay Borkakoti, director of home insurance, UK and Ireland, at LexisNexis Risk Solutions takes an in-depth look at the rapid changes across the home and property insurance sector:
Advance surveillance cameras, smart locks and security systems, leak detection and automatic lighting. Emerging smart home technology is designed to make homes safer – potentially reducing risk and therefore lowering claims costs and frequency. Even voice activated home hubs, with their ability to turn on lights and music can help increase the security of an empty home. Who needs a dog these days?
It’s already been well documented that this smart technology has great potential for the insurance sector. But it is largely just ‘potential’ at this stage, because for the industry to really leverage the risk reduction potential of smart devices they need access to smart device data from across the whole of the market.
The motor insurance industry has already proven the value of behavioural data in Usage Based Insurance. In home insurance, the drivers for change have not been so pressing. But the fact remains that losses through theft, fire and escape of water claims are still a major challenge for the sector. The ABI recently confirmed that losses through escape of water amounted to £483 million. At the same time the sector is coming under increasing scrutiny around pricing and renewal.
Technology is becoming the factor that is most likely to solve some of these challenges, and it is also the reason for so many new entrants in this corner of the market. Technology and the creation of new market segments with the rise of generation rent are making home insurance the new kid on the block for the insurtech sector.
Home insurers are now on the same road the motor insurance sector embarked on eight years ago, to leverage data from connected devices to help determine risk, improve underwriting accuracy, reduce losses and improve the customer experience. The appetite is certainly there – a study we carried out on how digitisation is affecting UK home insurers found that 75% expect smart home technology to have a positive impact on risk mitigation. The challenge is that only a quarter of homes currently have any smart technology installed, leaving the market firmly in the ‘early adopters’ stage.
Breaking down the barriers
Cost is likely to be one of the biggest consumer barriers to take-up of smart home technology, but with more products coming to market, prices are falling.
The other barriers could be concern over data privacy and security. For example, consumers will need to familiarise themselves with device settings so that they can control how their data is stored and by whom.
There have also been concerns about hacking attacks so cyber security has to be a key area of focus for device manufacturers in order to improve consumer confidence in these products.
Of course the insurance industry has a vested interest in manifesting and paying for smart home devices, General Data Protection Regulation (GDPR) compliant Insurance-linked products will obviously be more successful if the industry and device manufacturers join together in communicating the benefits and easing data privacy fears.
Whilst device manufacturers have the responsibility of ensuring the devices are secure, as the market evolves, the lines of responsibility around the data will become more defined and it will reach a point where all parties – consumers, insurers, manufacturers work together to ensure maximum benefit is gained from the data. What we must recognise is that consumers will be the main drivers of this journey – this is their data and their security that must be protected.
In spite of the barriers, smart tech is predicted to take off in a big way in the coming years, with Intel forecasting 200 billion connected devices by 2020 – the equivalent of nearly 25 for every person on the planet. Furthermore, looking globally, in 2025 it is predicted that 10 percent of households will be smart homes.
The smart home data pool is growing
All this new technology will create a raft of extremely valuable data sources, for those insurance providers that are given access to the data. However, to increase that value still further, the data needs to be available to all home insurance providers.
In the same way, the motor insurance industry uses contributory databases to share NCD and policy history data, the home insurance market could benefit hugely from a contributory database of smart home data. A wider view of the market and of an individual customer’s history will help insurance providers to mitigate risk, price more accurately and improve the customer experience.
Given the rising tide of escape of water claims, this could be where the most immediate benefit is seen. Leak detectors can notify an individual of a leak meaning they can stop it sooner, limit the damage and as a result reduce the cost of the claim.
But escape of water is not the only type of loss set to reduce through smart home tech. More of these packages are coming with in-built CCTV and sensitive heat detection monitors that are far more sophisticated than smoke alarms and therefore offer the potential to reduce incidences of theft and fire.
To accelerate adoption, insurers across the whole industry need to be on board, and a shared industry database of smart home data is a vital step in making that a reality. It would help build the scale of home technology available on the market, harnessing data to help insurers improve pricing accuracy and deliver a more personalised service to customers. In fact, in our study 81% of home insurers anticipate that the industry itself will have an impact on the adoption of this smart technology. Almost half of home insurers believe a centralised property database would be very valuable to the home underwriting process, and two thirds stated that they would be willing to contribute if such a database existed. Imagine if that database also held connected home data?
Also consider how voice activated devices could enable consumers to arrange their insurance cover in the future. This would need the right protocols set in place, working in partnership with the device manufacturers so that the consumer – and only the right consumer – has the right to place, amend and cancel cover using voice commands alone. Right now this is purely visionary but it’s all within the realms of possibility.
The industry is working hard to demystify and simplify insurance cover – voice activation, with the right protocols in place, could help this process. But it should be carried out in conjunction with tailored cover, based on customer behaviour, enabled by smart home technology.
Getting ready for the smart home revolution
The smart home revolution is not going to happen overnight, but it will happen soon. The industry needs to spend the coming years getting ready to be able to manage the connected home data which will become available, and convert it into useful insights which will truly benefit both homeowners and the insurance provider.