The Internet of Things is driving a sharp increase in all kinds of sensors producing data that flows into the cloud.
These devices offer new possibilities for greater convenience and safety for consumers, but they're also creating valuable data that can lead to important new insights for insurers.
In the property and contents insurance market, the rise of the smart home represents a major opportunity to engage with policyholders, prevent and mitigate risks, and collect useful data.
Consider that 51% of U.S. households with broadband internet find the idea of an IoT device that alerts them to smoke and fire highly appealing, and 41% feel the same way about devices that warn about water leaks, according to Parks Associates. The beauty of these devices is that they don't just protect people and alert them to emergencies when they're at home – they can also warn about a fire or a leak when they're at work via their smartphones.
Engaging customers and boosting retention
The idea of discounted premiums in return for home monitoring has been around for decades in the shape of security systems. But the new wave of smoke and water sensors are much cheaper, easier to install, and can be monitored by the homeowner. The earlier a homeowner is alerted to an event, the better the chances of minimizing the damage, which means less disruption for them and fewer and less serious claims for insurers.
This isn't just about the claims impact, though, it's also a golden opportunity to engage with customers and present them with something tangible when they purchase a policy. As Bain & Company points out, it can be difficult for insurers to build loyalty because they will generally have fewer interactions with customers than, say a retail bank, so they must fight to get closer to customers. Smart home devices lead to more interactions, but they also create a sense of value and innovation that can boost customer loyalty.
Getting customers to think about fire safety and the potential risk of water leaks is an important first step towards changing behavior. There's also scope to automate responses, so that a water leak, for example, might trigger an automatic valve shut-off, preventing damage instead of just mitigating loss. In the future, with sophisticated analysis of varied sensor data, it may be possible to dispatch service personnel to investigate likely issues before they can develop.
The information available from smart home devices can allow insurers to provide products to each individuals homeowner's needs. (Photo: Shutterstock)
Harvesting valuable data
Another vital consideration with smart home devices is the valuable data that they create. Individual sensors and systems can show broad patterns, but when different sensor data is combined, there's scope to get a granular view of exactly what coverage different households need. Smart home telematics could lead towards tailored insurance products that are based on individual risk profiles.
"We believe that with IoT, you will be able to start focusing on prevention and mitigation and bring that down to the individual home, the individual homeowner, the individual occupancy of that home, the individual characteristics of that home," explained Roel Peeters, CEO of Roost, at the recent Property Innovation Summit. "Not only do that once at time of underwriting, but do that on a continuous basis."
Gaining access to this data can prove expensive and fraught with difficulties, unless you establish a relationship that includes data collection from the outset. By offering water sensors or smoke detectors with new insurance policies, carriers can get in on the ground floor and use the data they collect to innovate new products and improve services.
It's important that insurers seize on the invitation now, because soliciting customers after they've already installed their own smart home systems will not be easy. Working with manufacturers and service providers to drive these new innovations is also a great opportunity for carriers to steer the direction they take and bring their considerable experience to bear.
The bottom line for insurers
There were 80 million smart home devices delivered worldwide last year, up from 47 million in 2015. A compound annual growth rate of 60 percent will take us to 477 million devices by 2020, according to IHS Markit. This is an unprecedented opportunity for P&C insurers to build new bridges with their customers.
The initial investment offers returns on multiple fronts for insurers. First, there's a reduction in the number and severity of claims because emergencies are discovered earlier than before. Second, there is greater customer engagement because policyholders are receiving something tangible along with their policy, increasing satisfaction and in turn boosting retention. Finally, all that data informs actuarial pricing models and ensures solid underwriting that's profitable.
Joel Makhluf is a vice president at Enservio and the director of the Property Innovation Summit, the insurance industry's premier thought leadership conference. Enservio is a leading provider of contents claim management software, payments solutions, inventory and valuation services for property insurers. Contact him at jmakhluf@enservio.com.
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