Smart home telematics and the opportunity for insurers

Smart home programs, particularly those that leverage telematics to fulfill a strategy for data-enabled safety and advice, hold great potential for P&C insurance providers, from reducing the frequency and severity of claims to strengthening policyholder engagement and brand affinity.

Getting better acquainted

Telematics is loosely defined as “the long-distance transmission of computerized information.” It is leading a transformation of the insurance industry as increasing numbers and types of devices become connected, and their data more easily tracked.

The real-time relay of information between assets and humans through connected devices allows insurance services to embed features spanning the value chain, from predictive analytics to enhancing the customer experience with greater digitization of existing products. Carriers also can offer new products such as user-based policies that meet emerging customer needs.

The first advent of telematics was in fleet tracking, where custom sensors were placed in commercial vehicles. This was just the beginning. The exponential growth of inexpensive ‘smart’ connected and embedded devices with the Internet-of-Things (IoT), sometimes called the 4^th industrial revolution, has broadened telematics use cases dramatically.

Insurance implications

In health and life insurance, the use of data from wearable devices can reduce risk and adjust pricing for policyholders who exhibit healthier or more active lifestyles. In automotive insurance, the growing adoption of vehicular telematics extends beyond commercial fleets into personal auto, with either mobile-enabled tracking devices or purpose-built smart phone apps identifying unsafe vehicle performance or risky driving behavior, often with the help of sophisticated machine learning techniques. In some cases, the value to the driver extends to tips and real-time feedback, roadside assistance, and streamlined claims processing.

Smart home programs represent the next frontier for telematics. Beyond technology as the evident enabler of this forward momentum, the rapid adoption of connected devices in the typical American home paired with the open approach homeowners have toward data sharing are creating alignment for improved and novel insurance services.

Smart Home technology is moving quickly into mainstream adoption with some industry analysts predicting most North American homes having at least one smart home system by 2021. Voice assistant technology from Google, Amazon and Samsung, whether embedded in smart speakers or smart phones, are becoming increasingly popular and are further encouraging comfort with data sharing, especially when something of intrinsic personal value is offered in exchange.

Smart home telematics

In addition to the fairer policy rates, emergency intervention and advice that’s enabled in vehicular telematics, smart home telematics offers three more benefits for insurers.

No. 1: Holistic and contextualized view of the property

When homeowners build smart homes, they do not stop at one device. What may start with a connected thermostat designed to save power (and money) can lead to smart lights, connected cameras and safety sensors that can be accessed from anywhere for convenience and peace of mind. These devices and sensors create a hybrid system, and the homeowner aspires, often with some degree of challenge, to obtain a complete and accurate understanding of what is happening in their property.

While peril-specific devices such as smoke detectors and leak sensors are effective at detecting a specific symptom, they lack context on their own. For example, a leak alert in the kitchen of an occupied premise during dinner time may not be cause for alarm, whereas leak alert with outside and inside temperatures reading below freezing at a property that hasn’t been occupied in weeks is likely a burst pipe that requires urgent intervention to reduce damage and contain a claim.

A whole-home view that spans data obtained from a combination of devices and ties that data to additional sources such as weather reports, property characteristics and even historical patterns of utility use can serve as the foundation for insights that can inform a deep understanding of both the property and the policyholder, especially when that data is harvested in real time.

This deep understanding can support finer customer segmentation for products and programs, shorten time to First Notice of Loss, and foster additional strategies to lower loss ratios such as early warning systems and early quicker deployment of repair services.

No. 2: Frequent and visible value throughout the policy term

The ability to delight policyholders with personalized messaging and services is not inherent in annual policy renewals or claims processing, and the potential for automation to cause greater depersonalization of the insurer-insured relationship is a significant concern for the industry.

Smart home telematics present a way to enrich the customer relationship in a nuanced and frequent manner, especially on mobile. In exchange for participating in Smart Home programs where device data streams are used to detect situations of interest, policyholders can be provided tips and offers from their provider that are relevant to their property, living habits and interests. Those brand-bearing digital touch-points culminate in safer and more efficient living, improved preservation of insured assets and better perception of value by the policyholder.

No. 3: Reduced claim frequency, contained claim severity, and accelerated claim settlement

While continuous personalized recommendations to the homeowner informed by smart home telematics can encourage property maintenance and other peril-preventative behaviors, real-time generation of contextual insights can also allow policyholders and insurance providers to gain a better grasp of a situation if and when a peril does occur.

Smart home programs have the potential to alert family or neighbors and even dispatch a trusted tradesperson to contain damage. The faster a peril event is addressed, the more any potential impact and resulting claims are contained for everyone’s benefit.

Similarly, Smart home telematics can be embedded into modern claims processing approaches including automation, data capture of supporting images or video, and other methods to expedite claims processing and control fraud. Timely detection of a home’s state before, during, and after incidents works towards the common goals of both insured and the insurer.

The next frontier

There are several areas of entry to smart home programs. These include deploying peril-specific devices, contextualizing them with in-place systems customers have acquired, offering discounts for popular devices, and embedding the beginnings of smart home data integration into existing claims-based apps.

Whichever path taken, the insurer needs to bear in mind that there is value in the data, and the power of the data-driven insights to reinforce their customer relationships only exists if the insurer’s brand is front and center from a position of value. A phased program approach that delivers insights, recurring policyholder engagement and a holistic perspective will yield operational, financial and strategic benefits.

David Sussman is CEO of Plasmatic Technologies, which provides a device-agnostic smart home telematics platform. He can be reached by sending email to david@plasmatic.ai.

These opinions are the author’s own.

See also: Top 10 smart home technologies for homeowners over 50