A look at the barriers that are slowing down the adoption of home telematics
This article was contributed by Pooja Shah, Associate at Avanta Ventures
Despite over two-thirds of U.S. households owning at least one smart home device and the multiple benefits of telematics programs, insurer interest and programs leveraging IoT (Internet of Things) devices have been falling in the last few years.
With the challenges around accessing data and a still-nascent value proposition, on top of high startup costs, home telematics programs have been less attractive during the COVID-19 pandemic of 2020 and 2021 compared to 2019. Twenty-nine percent of insurers have no current interest in launching a home telematics program in 2021 vs. 22% in 2019, according to Novarica Research Council CIO surveys.
According to the same survey, only about a third of the 81 insurers surveyed in 2021 have launched, or are launching, a home telematics program. However, as the value proposition and use cases are further validated, the expectation is that the number will increase, similar to how auto telematics adoption increased once it became clear that driver behavior was the most predictive rating factor.
So what are the barriers that are slowing down adoption?
While the higher costs of home telematics and the other barriers discussed above have slowed adoption, home telematics has the potential to transform both homeowners’ and renters’ insurance more than auto telematics did for auto insurers. IoT devices can potentially impact every aspect of the customer’s life cycle with a carrier while opening new possibilities for adding customer value in nontraditional ways. One example is the ability of home telematics partnerships to help elderly homeowners age in place longer by providing services that monitor the home and offer quicker and automated access to services and security.
While most insurers offer discounts for installing certain sensors and devices, that’s a short-sighted approach to the problem. Discounts alone just reduce the top line. The real challenge and opportunity outside of better underwriting is to identify new services or revenue streams by leveraging the devices and data. One new area of business that IoT devices can positively influence is home warranties. They can often be costly due to the expense of managing, monitoring, and covering the warranties. IoT devices can help reduce those costs. IoT devices can also help insurers help homeowners better secure and monitor their homes and identify gaps in security and ways to reduce their risk.
As data becomes more accessible and novel data emerges, the ability and knowledge of carriers to add new products and services to their portfolios to better serve customers will also grow. It will allow insurers to be more present in the daily life of an insured, rather than appearing only after something has gone wrong.