Smart Homes: A Game-Changer for Property & Casualty Insurers
The impact of smart homes is prompting property and casualty insurers to stand up and take notice as they grapple with the challenges of keeping customers close and remaining profitable in the age of digital.
Since the beginning of this century, consumers have recognized the value and security of smart homes, as well as the convenience of managing and monitoring appliances and devices at any time, from anywhere. Now, with technologies like nearfield communications (NFC), wearables, smartphones, Wi-Fi and Bluetooth pervading the marketplace, smart homes have become more attractive and economical.
Today’s smart-home systems range from simple stand-alone sensors to appliances and devices equipped with self-learning and artificial-intelligence capabilities – all connected and controlled through the Internet of Things (IoT).
Not surprisingly, the utility and interconnectivity afforded by smart homes has sparked the interest of a large number of players — from device manufacturers, service and integration- framework providers, to homeowners who are actively engaged in facilitating smart-home environments.
Opportunities for Carriers
Now, thanks to the new wave of digital sensors and devices, carriers can join the growing ranks of companies that are reaping the rewards of the smart-home market. By tapping into the potential of smart homes, property and casualty insurers can dramatically alter the way they operate, and in doing so significantly enrich customers’ digital experiences.
Technological advancements and economies of scale in video, image and data analytics are enabling carriers to get on board and change the way they sell and serve homeowners insurance products – providing them with the ability to:
Better understand risks, exposures and hazards.
Refine pricing accuracy through granular segmentation.
Prevent and mitigate losses through targeted initiatives.
Enhance claim adjudication through causality determination.
At the same time, carriers must address a number of concerns:
Privacy and security. Insurers will have to confront issues related to the access and use of smart-home data, including cyber-theft, and educate consumers about the measures they can take to protect that information.
Controlling adoption costs. Insureds may incur significant costs to convert to smart devices – compelling carriers to share some of those expenditures, or demonstrate how they can be recouped over time.
Premium increases. Carriers need to emphasize that by leveraging data for accurate pricing and loss prevention, they would not hit customers with premium increases over time, but calculate premiums that are commensurate with risks.
Interconnectivity and data standardization. Insurers will need to partner with all stakeholders to obtain and analyze smart-home data through common connectivity standards.
Once the challenges around privacy, data security and standardization are overcome, we expect more carriers to participate in the smart homes market. Early movers with the right partnerships, the right infrastructure and the right tools and techniques will gain considerable advantage over others. Although carriers have not reached the stage where they can capture and analyze the data from smart-home devices, the possibility might not be far away.
Now is the time for insurers to start thinking, strategizing and preparing for the evolution of smart homes. We recommend a three-phase adoption process that carriers should follow:
Examine. Carriers need to study the smart-home ecosystem and develop a viable go-to-market strategy. Regulatory filings, a robust business case and an implementation roadmap based on pilot findings are critical components.
Enter. From there, carriers need to define and implement the target operating model by introducing smart homes as part of their digital strategy.
Enhance. Last but not least, carriers need to continually monitor the state of their smart homes strategy, design an appropriate change-management framework, and develop and roll out educational material for prospects and the insured.
The increasing technological intensity of business is driving significant acceptance of the IoT in general and smart homes in particular. Underpinning this trend is an information-rich ecosystem that carriers can leverage for risk-selection, pricing and loss-control initiatives. Commercially, this approach presents opportunities for reducing loss-related costs, as well as developing product and service innovations that can support and improve customer retention and acquisition.
We believe that the maturity level of the smart homes marketplace will evolve, and that investments made today will pay off down the road. Early adoption will be key, and insurers that best convey the benefits to their customers now will win in the long run.