How IoT could change the way we think about home insurance
It’s hard to imagine we lived through so many decades without even considering our fridge ought to be connected to our computer, but now (somewhat tongue-in-cheek comments aside) the connected home is increasingly becoming the norm.
The total number of smart home devices – the likes of Amazon Echo or Hive – will grow to 193 million by 2020 globally, according to estimates by Business Insider Intelligence. That’s a massive increase from the 83 million that existed back in 2015.
From dimming the lights with your mobile device to switching off the heating when you’re already halfway to the office, the rise of sensor technology – powered by the internet of things (IoT) – has given us more autonomy over our living spaces more than ever before.
But while this means greater convenience for consumers, for the companies insuring their homes it spells an opportunity to go beyond traditional services and add value in ways they previously couldn’t.
In this post I’m going to explain what exactly that opportunity looks like and how you, as an insurer, can capitalise on it before your competitors do. I’ll also address the not-so-subtle elephant in the room: data security concerns.
The opportunities for insurers…
There are two reasons to pay attention to the increasing number of connected homes across the country:
- You can learn things about your customers and their living environments you couldn’t have dreamed of knowing even five short years ago
- If you provide a service into people’s homes, you already have their attention. What about taking all the data and knowledge you have about people’s home lives, coupling it with your experience and brand strength and using that to diversify into other areas?
Let’s expand on both those points in a little more detail…
1. Learn more about your customers
The way home insurance risk level is determined – aggregating all kinds of information like the level of crime in your area, the materials your home is built from, the likelihood of floods where you live, and so on – naturally involves a certain degree of guesswork.
Yes, you can make a correlation between those elements and the likelihood of somebody making a claim. But that’s all it is. Some people within that risk profile will inevitably be penalised unjustly, whether through pricier premiums or simply being excluded from cover altogether.
If you can gain more information about people via the connected devices in their homes, you can begin to make individual risk assessments based on multiple factors. And those assessments will be based on data, not the judgement of an underwriter or the assumption that the homeowner has provided accurate information, and will therefore be much more accurate.
It’s easy to know that pipes are more likely to burst in winter, for example, but what if you could take data about when the house is occupied and how often the heating or hot water goes on and use that to work out precisely when those pipes are likely to burst (if at all) based on an individual home’s activity?
The motor insurance industry has already explored this idea – using IoT sensors to report on a person’s driving habits and adjust their risk profile accordingly, thus overhauling the previously unfair philosophy that said young people are more likely to crash and should therefore all pay extortionate premiums.
I see no reason why the home insurance market shouldn’t follow suit.
One barrier, of course, is the lack of cost-benefit to consumers. The benefits of adopting IoT technology for motor insurance are immediately obvious. But for many home insurance customers the savings may not outweigh the hassle of installing the sensors in the first place.
One way around this could be a partnership approach. If a customer already has IoT sensors in their home – Hive, for example – there could be an opportunity for insurers to work with those other companies.
Alternatively they could go down the route of approaching landlords, who typically have to pay much higher premiums and therefore stand to benefit more from connected homes than the average consumer.
2. Diversify your products and services
Insurers, more than most types of company, have a huge amount of insight into people’s home lives. With data from connected homes now providing even more information, insurers have an opportunity to cross-sell non-traditional products that might appeal to existing customers.
And if you’re worried consumers wouldn’t feel comfortable buying non-insurance products from an insurance brand, you needn’t be – more than a third (36%) of European customers would buy energy from their insurer, according to our research last year, while 34% would purchase broadband or telephone services, 32% would buy data storage and 30% would happily obtain media services.
But those are just a few examples. The real value will come from creating an integrated set of services for the home – one point of contact for customers that deals with all their needs, with a single payment every month.
As a consumer, why wouldn’t I buy services from a company that already insures me and understands my needs?
Allianz Worldwide Partners provides a perfect example of this – combining service, insurance and technology to create an offering greater than the sum of its parts.
Its fall detector, for instance, combines an accelerometer and pressure sensor with a dedicated algorithm to detect when somebody falls in their home. The device then automatically alerts an operator who calls a neighbour or relative to check on the device’s owner.
Check out the video below to find out more:
This is exactly the kind of innovation I’m talking about – an insurer taking its knowledge of people and their daily lives and using that to provide a different kind of service (but one that is no less useful).
Overcoming security concerns
Hesitation around data privacy and security is perhaps one of the most obvious barrier to achieving what I’ve outlined above.
The first element is the general increase in security risk that comes from people having multiple connected devices their home. When the surface area for attack increases, so does the difficulty in preventing a breach.
And with the EU’s General Data Protection Regulation (GDPR) looming, the penalties for not doing so are about to get much steeper (€20 million or 4% of annual worldwide turnover – whichever is greater).
But this isn’t just about financial penalties – insurers have a moral and ethical responsibility to use their customers’ data in the right way.
And they also need to persuade people to share that data in the first place.
More than two-thirds (67%) of consumers are concerned about the way brands use their data, according to recent research by Gigya.
But our own research found 97% of financial services consumers are happy for their data to be used as long as they get added value in return.
The answer to overcoming security concerns, then, could simply be one of trade-offs.
If you can offer somebody all of their home services – one account, one easy payment, one company to deal with when things go wrong – and wrap all of that up in one insurance policy, that feels like a decent return in exchange for data.
This is the argument insurers have to make, but you’ll only do it by having that vision to look beyond tradition in the first place.
Come see us at our World Tour event in London this July – we’ll be demonstrating our connected home technology.
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