This article is by Joël Wagner, professor of Actuarial Science at HEC Lausanne, the business school of the University of Lausanne, Switzerland. Joël has led a research project that produced a systematic literature review of over 200 research papers, practitioner studies, and government and insurance companies reports on smart home technology.
Introduction
Smart home technology is expected to have a positive impact on commonly insured household risks. One study by a major insurer predicted a 50% reduction in overall insurance claims. But there are down-sides, including data security issues. That’s why it’s important for key stakeholders, including policymakers and insurers, to understand the risk-related implications.
Currently, risk assessment research on smart homes is mainly based on the disciplines of information security and technology acceptance. Prior to our review there were no existing systematic literature reviews on new risk exposures in smart homes or pre-existing risks such as theft, fire, and water.
Existing research also looks at isolated risks. As a result, risks are overlooked and not managed holistically. These risks are also not assessed with consistent metrics. In addition, a comparison of the results shows that the assessment of risks differs between technical experts and users.
Therefore, the aim of our systematic literature review was to identify several emerging risks, such as cyber security, privacy, and dependence issues, that are specific to smart home households.
We then summarised these risks in an impact table, where they are ranked and indicate how strongly the different risks affect the adoption of smart homes. Finally, the review provides guidance on how to deal with the identified risks in smart homes, including the selection and implementation of appropriate risk management measures.
KEY FINDINGS
New risks
Financial risks: As a starting point, we found that the financial aspects of smart home risks are often overlooked. The security and comfort of smart homes can require high maintenance and repair costs, placing an additional financial burden on the owners, which can lead to the risk of losing financial liquidity. There is also an increased vulnerability to fraud and coercive control due to an over-reliance on the technology.
Cyber security: When it comes to cyber security, human factors and software components are presented as critical sources of risk. Comparing these results with the technology acceptance found in academic research illustrates how the assessment of cyber risk depends on the perspective taken. For example, users rate the importance of cyber security risks lower than information security experts.
Social isolation: In relation to social isolation, our research analysis found that smart home technologies and services may lead to increased technology-human interactions, thereby displacing human-to-human interactions. These considerations are closely related to human detachment and health concerns, which are prominent issues in smart home adoption. In particular, older users of smart home technology may feel detached from human contact.
Risk management
In our systematic literature review, we also summarise what is known about risk evaluation and risk treatment. We identify literature that discusses new forms of insurance enabled by smart homes. Buying insurance is one way of mutualising risks.
According to research by Banks and Bowman in 2018, the assertion that individualisation of actuarial rate making creates opportunities in terms of insurance access is of particular interest for smart homes. Traditionally-rated high-risk households may become attractive risks for insurance companies, thanks to additional shared behavioural data stemming from smart homes.
Appendix
Table 1. Overview of the pre-existing and emerging risks identified in the review.
https://www.mdpi.com/2227-9091/9/6/113
In table 1 we provide a summary of the risks identified in the literature. We also indicate the impact of smart homes on the risks (higher risk “H”, lower risk “L”, unclear affect ”-“. There are three risks that are higher with smart homes, eight that are lower and four where the effect is unclear. Similarly, we indicate how strongly the different risks influence the acceptance of smart homes by lay users (high influence on acceptance “H”, low influence on acceptance “L”, “- “unclear effect). Five risks have a relevant impact on smart home acceptance, five have no impact, and for five others the impact is unclear.
Conclusion
Our review presents an up-to-date picture of the state of research, which needs to be regularly updated as the technology behind smart homes is developing rapidly. It highlights that insurance companies will have an interest in the installation of smart home devices in the future, because the claims will be smaller and therefore the insurance burden will be lower.
When it comes to the technology, some devices can already be installed in existing buildings. But in the case of new homes, they will eventually be integrated into the structure from the outset. This will ultimately transform the risk landscape for insurers.
The focus on information security has led to various risk assessment methodologies for cybersecurity and privacy, with no attempt to assess risks based on an integrated risk metric. This means that smart home risks are not being assessed and prioritised in relation to each other, and are not considered in risk scenarios with multiple risk interrelationships, nor are they quantified in terms of impact or risk treatment options.
The risk assessment methodologies we found fall into several areas: information security, acceptance, risk management frameworks, industry standards and insurance practices.
When it comes to the future impact of smart home devices, an important issue is to better understand how and why people’s perceptions of new technologies are formed. At HEC Lausanne, in collaboration with ZHAW’s Institute for Risk & Insurance, we are currently conducting a long-term survey with the Swiss National Science Foundation. The objective is to find out what people think about smart home technologies.
What will they install? Are they interested in financial support from the government or insurers to upgrade their homes? Will it become the norm for an elderly person with health problems to avoid institutionalisation with the help of smart home devices? Will younger people ask for a discount on their insurance premiums if they live in a smart home? These are all important questions, and this societal change will have to happen over time.
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