The global connected home market is big and getting bigger. By 2016, it is expected to reach $235 billion, with the largest revenue-generating segments including home security ($110 billion), smart utilities ($33 billion) and home entertainment ($68 billion). Connectivity is popping up everywhere, from smart refrigerators that can monitor food consumption to smart carpets that provide notification of unauthorized entry.
For insurers, the connected home can provide value in the form of new insurance models and products—based on deeper insight into the customer's needs—and a higher level of customer satisfaction derived from dynamic risk monitoring and improved claims handling. The connected home also creates opportunities for insurers to lower costs and improve operational efficiency; insurers can leverage data from connected home devices to assess and mitigate risk, increase pricing sophistication, and offer new products, all of which help drive operational efficiency and top-line growth.
However, insurers seeking to deliver value in the connected home market must deal with a complex ecosystem with multiple participants. These include utility companies, home security providers, telecoms companies, and Internet giants such as Google, all seeking to establish positions. The key to success is in finding the right market entry point as well as the right value proposition for customers.
The connected home represents a significant opportunity for insurers in a number of areas, including:
- Better risk management and risk mitigation, through claims avoidance and better claims handling
- Better underwriting, based on increased data flows and a keener understanding of risk factors and behavioral elements
- New product offerings, including value- added services delivered in partnership with other providers
- Closer customer relationships, as a result of more frequent and personalized interactions.
Other potential benefits include creation of a stronger supply chain, with a better ability for insurers to offer discounts to customers (based in part on a better understanding and capture of home contents) and connections to a reliable replacement and repair network.
Achieving these improvements, however, will not be easy. Connected home technology is evolving rapidly, as are marketplace dynamics. Insurers that gain a competitive advantage through offerings related to the connected home will need to do more than find the right partners. These insurers will also need to tackle challenges presented by large inflows of new data; by customer indifference to or lack of understanding of new offerings; by regulatory and privacy concerns; and by the "need for speed" in getting new and desirable products to market quickly and efficiently. These challenges will largely be dictated by the strategies carriers choose to enter the connected home market.
Carriers are in the early stages of exploring the connected home market and, in most cases, need to decide what strategy to take and where and how to enter this market. They may consider partnering with companies that already have applicable technologies, or coming to market with their own version of technology under a "white label."
Take the case of a fairly basic connected home offering: safety and security. New wireless and machine-to-machine (M2M) capabilities allow for remote monitoring of the home and remote activation of home alarm systems, locks, indoor/ outdoor lighting, smoke alarms, water leak detection devices and even doorbells.
At the entry level, the property and casualty insurer can partner with the security provider by offering policy discounts to customers who install and maintain such systems, or by offering discounts on the system installation itself.
At a more sophisticated level, the insurer—either in partnership with a security provider, or on its own initiative—can offer a data recorder to be installed in the home to track temperature, humidity, wind speed and mechanical vibrations as they affect the house. At least one insurer has already filed a patent for such a home sensor system.
The customer can benefit, not only from lowered premiums resulting from better risk monitoring and quicker action in case of an adverse event, but from increased security and peace of mind. The insurer, in turn, gains a better ability to price the policy and an opportunity to mitigate risk and reduce claims losses. With the average claim for a residential fire at $35,000, the opportunity for claims reduction can be significant.
Beyond loss reduction and better customer relationships, however, some of the biggest opportunities for insurers may be in the development of new products, including offerings that go beyond insurance. In the second part of this article, we will look at these opportunities – at also at the capabilities insurers need to have in place to convert these opportunities into better margins and profitable growth.
Cindy De Armond is a managing director in Accenture Property and Casualty Practice and leads the Policy Business Service in North America.
John V. Mulhall is a managing director in Accenture's Insurance Strategy practice, and leads the Product and Underwriting Strategy practice globally.
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