IoT holds claims promise, but barriers remain

Partnerships between insurers and smart home technology systems providers have created a lot of potential for risk reduction, but market observers say a lot more work is needed to go beyond offering discounts to insureds.

The issues include growing varieties of devices, data privacy hurdles, making monitoring and underwriting dynamic, relevance of collected data and earning trust from insureds.  

“Many carriers would say it hasn’t been a home run in terms of huge value for them,” said Doug McElhaney, partner at McKinsey & Company. “You have a growing number of devices and different ecosystems that are developing.”

In homes, everything from appliances to garage door openers to security systems are being connected online, but each of these is being done as “one-offs,” said McElhaney. “You have a carrier that might partner with one of the device makers, and they’re doing something like an incentive for you to install a water leak sensor to get a discount on your policy. It’s typically associated with one type of peril or risk or loss type. Getting that one piece of information is marginally helpful. The real value would be to plug in to that whole network, to know the status of the various devices throughout the house.”

Roost, which launched in 2015 with smoke detection technology, now offers a comprehensive smart hub monitoring fire, water, burglary, theft and home security. It has partnerships with Desjardins Insurance in Canada, and Wisconsin-based Church Mutual Insurance, among others. Roost founder and CEO Roel Peeters said smart home technology has to be made palatable to the insureds.

“If we can get a highly affordable security solution with window door sensors and motion sensors, they will say, ‘Okay, I like that. I want that,'” Peeters said. 

Getting a consistent overall view of information remains a challenge, according to Ellen Carney, principal analyst for application development and delivery at Forrester Research. “We don’t have a gateway of gateways that are monitoring all these different devices we have in our houses,” she said. “Wouldn’t it be wonderful to have a cockpit that lets you see the security or the performance of your home? You don’t have that.”

Claims impact
Insurers could see benefits in adjudicating claims, however, according to Deb Zawisza, senior principal at Aite-Novarica. “Smart home tech is a huge risk mitigation opportunity for insurers,” she said. “Homeowners insurance claims aren’t inexpensive to adjudicate. Preventing claims is the name of the game for insurers. They are willing to provide premium discounts for these devices because it is significantly mitigating risks.”

Automating reporting of losses, which can be done through security and damage monitoring technology, cuts down claims adjustment expenses, Zawisza pointed out. “Insurers get a leg up on managing claim volume, getting adjusters in place,” she said. “We have seen that more in the commercial space, for buildings, and it’s a little different to access data in home devices for claim adjudication, but over time, as there’s more aggregation of that data and it can be mined more easily, carriers will begin to use that data in adjudication.”

One obstacle is that personal property insurance isn’t designed for dynamic monitoring or underwriting, according to McElhaney. “As a carrier, if I could get connected to and otherwise be part of that closed ecosystem and have access to that data, a whole universe of information opens up,” he said. “Historically, the partnerships have been used as distribution partnerships versus any sort of sharing of core data or intelligence.” 

Another obstacle is getting privacy consent from the insureds, according to Carney. “What we see here is a repeat of what we saw in telematics insurance,” she said. “Who will own this data, the power company? ADT? Xfinity? Your insurance company? If I’m giving up something in my privacy, I should at least own the data.”

Data disclosure consent is a “moving target,” added McElhaney. Data privacy concerns could also bring about regulatory hurdles to sharing information between insurtechs and insurers,” he said. Security and monitoring system providers don’t want to alienate their own customers, either, McElhaney observed. “In some cases, if monitoring providers share information with an insurer, the insurer could deem it indicative of a higher risk. Then the monitoring customers will be paying more for insurance. Are the monitoring providers OK with that?”

Conversely, carriers could be getting resistance from their agents when it comes to promoting smart home devices with policy discounts, according to Mark Breading, partner at advisory firm Strategy Meets Action (SMA). “If the main value proposition is, ‘Install this thing, and we’re going to reduce your premium,’ guess what, the agent’s commission is less,” he said. “You have to think of a different way to incent the agents.”

Evolving standards
Some insurtechs and technology companies, such as Roost and Matter, have attempted to tie systems and information together to varying degrees of success. The Connectivity Standards Alliance launched Matter in 2019 with the proposition that connected homes will have less losses and serve as the basis for insurers to develop better products and underwrite more effectively, according to Donald Light, director of the North America property and casualty practice at Celent. 

“Matter should increase the adoption of smart home devices by making it easier to have a single point of control for all devices, including new ones, as they’re being acquired,” Light said. “The easier it is, the more homes will check out those smart home devices. And there will be more opportunities for insurers to get the data and use it for pricing, underwriting and claims.”

For Matter to succeed, or other providers linking technologies and carriers, will require three things, according to Light:

Providing a steady flow of data to insurers about potential or actual risks in a home, or at least from an aggregate of certain types of homes.Making it possible for insurers to respond to losses or potential losses in real-time.Making it possible for insurers to apply advanced analytics to collected data, which will improve pricing, underwriting and claims.

In the end, data is what will drive value of smart home technology partnerships with insurers, says Roost’s Peeters. “Today, insurers underwrite a black box. They don’t know what’s inside. They don’t know what’s happening inside,” he said. “We give a glimpse into that black box and a glimpse that is pertinent and relevant to the perils that they’re underwriting. That’s absolutely a game changer.”
Home insurance will eventually progress on integrating smart home technology with risk and customer service, according to Breading, but it will take years. “It evolves over time. More people install devices, the devices get more sophisticated. The industry understands how to collect and manage the data,” he said. “The analysis of that data and its relationship to claims will get there. In a decade, it will become more standard in the industry or more of an embedded part of homeowners insurance policies.”