Insurance Companies Set Sights on Connected Home Solutions
Arguably, mainstream consumers are yet to fully grasp the value of certain aspects of the connected home, thus possibly keeping its proliferation to lower than expected growth. However, there is a clear indication that some service providers are beginning to see certain benefits from offering their customers connected hubs and devices.
One strong instance of this is insurance companies who are beginning to reward smart home device owners with discounts and incentives. Although still not widely practiced and still in its infancy, examples of this have been around for some years and this practice is becoming a trend. As is often the case, leading the way has been North America, where the connected home market is more developed than in any other country in the world.
Most pioneering companies that are building new insurance models around connected home devices operate in the U.S., such as: American Family, State Farm, Travelers, Pure Insurance or Liberty Mutual. But some European companies, such as startup Neos in the UK and established insurance giant AXA in France are already testing out similar programs among their customers. That leads us to the burning question: What is there for insurance companies to gain from connected living solutions?
1. Risk mitigation and claim reduction
The main and clearest benefit is fewer claim filings which (considering that the average claim for a residential fire is over $35,000) may render significant savings for the insurance company. Both the homeowner and the insurance company benefit from the use of connected home technologies, since they help avoid accidents and prevent property-loss. Some examples of how a “smart” system can achieve this are:
- A smart thermostat can prevent the water pipes from freezing,
- Flood damage can be prevented by automatically shutting off the water as soon as a flood is detected by a water leak sensor
- An intelligent smoke detector can detect a fire at its early stages, avoiding or minimizing losses.
Given that smart technologies help decrease the risk factors a house can experience over time, it is logical to lower insurance prices for those customers who own these types of devices. According to Accenture, 78% of customers would be willing to share personal information with their insurer in return for benefits such as lower premiums or quicker claims settlement.
2. Competitive differentiator and customer loyalty
By partnering with connected home and smart security providers, insurers can offer new value-added services that will help them differentiate themselves from competitors while building tighter relationships with their customers.
Adopting a more proactive role in helping prevent risks and property losses will make their offering more attractive to homeowners and renters alike, while helping to change the negative view that is usually associated with insurance companies. Also, they will gain a better understanding of their customers’ behavior and their risk factors, which will result in better claims handling.
Notwithstanding to obvious benefits, the use of IoT and the connected home services in the insurance industry is still a nascent trend. and therefore there are many questions yet to be resolved. Those regarding data privacy, strategy and execution. Partnership models with brands, vendors and service providers as well as finding the right market entry point.
As Aite Group puts it, ‘insurers that don’t develop a value proposition around the connected home will be forced to give steeper discounts to reflect the lower risks without generating any strategic benefits. Savvy insurers that adapt to the new dynamic have a historic opportunity to become far more relevant than they are today.’ Although at present only some pioneering insurance companies are offering these type of discounts, the trend will probably become more widespread as connected home solutions reach the mass market, something which has been estimated to be going to happen in 2019. Research by Accenture shows that 45 percent of all insurers believe that connected home devices will be a driver for revenue growth in the next three years. In the meantime, insurance companies have plenty of time to do their research, plan and test accordingly, and catch up to the latest business model.
In words of technology writer Stacey Higginbotham, ‘for insurance firms, the decision to back these startups can range from helping to prevent losses, which can boost profits, and helping make the insurer a more positive and proactive presence in people’s lives’.
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