How vehicle telematics predict the future for home insurance

The purpose of vehicle telematics is very clear. It will reduce, or possibly eliminate, the reliance on arcane rating tools, such as gender, age, marital status, education or even credit score. It also allows for real-time intervention to help avoid future claims and provides transparency to the consumer about why they are being charged the rates they are based on their driving behavior.

One of the common complaints from consumers about their experience with Root, an InsurTech that is growing rapidly in the auto insurance space, is that they did not receive an insurance quote. As Alex Timm, CEO of Root, is often quoted: “In the case of the 10%-15% highest risk drivers, we underwrite out these customers without considering any other variables.” If you have downloaded the Root telematics app, allowed it to monitor you for three weeks, and at the end of it, do not receive a quote, then you know exactly what type of driver you are.

Telematics and big data analysis have helped to determine that the safest drivers have a lifetime value of 3x compared to other drivers to insurers, and that the worst 10% of drivers are not profitable to insurers. These safe drivers can be determined by reviewing a few factors:

1. Those with no or very few claims.
2. Those willing to utilize a high deductible plan and pay for all lower-cost issues out-of-pocket.
3. Those with safe driving habits.
4. Those who are proactive about responding to vehicle maintenance issues.
5. Those willing to be measured by a telematics program and accept recommendations to improve their driving habits.

Telematics allows insurers to capture that data to determine driver profiles and driving behavior. When we translate that to a homeowner’s property policy, the factors are similar:

1. Those with no or very few claims.
2. Those willing to utilize a high deductible plan to only insure against large, unforeseen occurrences.
3. Those with “safe” homeowner habits, locking doors/windows, closing garage doors, keeping home looking nice/neat to the neighborhood, etc.
4. Whether you have installed water softening systems in areas with hard water.
5. Those who are proactive about responding to home maintenance issues.
6. Those willing to be monitored by an IoT program and consider recommendations to improve their home safety, security, general upkeep.

Monitoring home systems

Those who are proactive about responding to property maintenance issues, consistently monitoring water usage, replacing worn HVAC systems, water heaters, batteries in smoke/CO detectors, worn-out appliances and having annual preventive maintenance inspections performed are the types of insureds that all insurers want. The next level up would be those homeowners that have automated sprinkler systems installed, have an automatic water shut-off device installed, have snow load devices installed on the roofs/gutters or hire professionals to perform an annual chimney cleaning, for example.

The statistics speak loudly. If one-in-50 homes has a claim related to water damage or freezing every year, and the average cost of that claim is $10,900, then below is a chart of the annual indemnity payouts for the top 4 homeowner carriers for just these claims:

The National Fire Protection Association reports that about 374,000 homes catch fire annually with an annual price tag of about $8 billion. So with the top three types of highest frequency losses, we have an opportunity to impact over $15 billion per year in annual indemnity payouts. When you think about simple things in the home that happen routinely, having real-time IoT devices that monitor all those items, and if any anomalies are detected, to either provide notification or immediately turn off power to the device or the home are significant strides forward in loss prevention and claim reduction.

This can also be extraordinarily helpful for updating software in appliances and providing real-time analysis of issues. Manufacturers will be able to quickly triage the root cause of issues as well as have an outreach mechanism for those potentially to be affected. If it is something that can be resolved via a simple software update, then that provides for a tremendous savings opportunity versus the potential for a large product recall or ensuing class-action litigation.

Only insurers are well-aware of how frequent dog bite liability claims are made but imagine having connected devices that monitor the dog’s location and with what level of frequency they escape their backyard? With enough data about that situation, you could identify the highest frequency/highest occurrence use cases and systematically update the pricing for those particular risks while providing a lower-cost solution to those who fall into the low-risk categories.

As the technology matures and data is aggregated, the trends will likely be used to help assess home values. How well or poorly was the home maintained? What is the specific expected useful life of the mechanical/electrical equipment, and how should you budget/plan for future repairs?  Third-party warranty companies stand to benefit from this increased vigilance as well, by tweaking their pricing models to better reflect the type of consumer that is buying their product.

In conclusion, the auto market is ahead in the adoption of both technology relevant to your insurance decisions, but the trends directly apply to the homeowner lines of business as well. As we gain additional technological opportunities, they can improve quality of life, reduce risk, and even bring down our insurance costs, all of which are important to the consumers.

Tim Christ is the Vice President of Claimatic, a leading SaaS intelligent decisioning software that serves several P&C insurers. He is the author of two books on insurance, business, and technology, a frequent speaker at industry events, and a frequent contributor to various insurance publications. He can be reached at (210) 632-4571 or tchrist@claimatic.com.  

The opinions expressed here are the author’s own.

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