IoT devices are beginning to turn the tide
During a time when almost 70% of U.S. households own at least one smart home device and nearly 20% owning several, it is clear that IoT technologies play a role in helping consumers manage, protect, and efficiently run their homes via mobile applications.
The current market landscape is proving that smart home startups are disrupting and transforming almost all aspects of the traditional home. Smart devices offer insurers an opportunity to expand their value proposition to policyholders by providing data for insurance pricing and underwriting insights. Services like home security, accident prevention and detection, and catastrophe response are creating the possibility to open up new revenue streams outside of directly writing insurance.
As smart home devices continue to become more prolific, we expect them to have an even greater influence on home insurance pricing algorithms and underwriting guidelines. While episodic catastrophes such as wildfires and hurricanes have significant impact on industry loss trends, many homeowners claims come from incidents that are quite predictable and potentially avoidable if sensed early enough by smart home devices. Nearly 20% of home claims are a result of non-weather related water damage. AM Best’s review estimates smart leak detectors and water shutoff devices can reduce non-weather water losses by up to 93%. Startups like Notion, recently acquired by Comcast, Roost, and Flo offer devices that help detect and prevent water damage in the home. Their impact is undeniable. Let’s take Flow for example. In a recent study, homes with Flo’s Smart Water Shutoff saw a 96% decrease in water claim events and a 72% decrease in claim severity. Homes without Flo’s Smart Water Shutoff experienced a 10% increase in insurance claims and a 1% increase in claim severity.
Innovative partnerships have formed as well. Insurers such as Farmers, American Family, Chubb, Liberty Mutual, Nationwide, Progressive, and Travelers have all partnered with Flo to offer discounts on home insurance when smart water devices are installed.
It may not make business sense for an insurer to solely offer an insurance discount in conjunction with a smart home device if the unit economics are not profitable. Device hardware, implementation, and recurring service costs can be expensive and may not justify a discount. The implementation and hardware for Flo’s water shutoff devices can cost as much as $800.
However, smart home devices enable insurers to expand their value proposition by providing new risk mitigation and response services to customers, while also adding to and diversifying their own revenue streams. Some insurance companies will want to own the smart home platform and even build devices under their brand in order to capture the fee streams themselves. Alternatively, they may choose to offer new services on the platforms of other device manufacturers like Amazon Alexa. InsurTech companies like Hippo have built their entire business model around the integration of connected devices within the home.
Data collected from smart home devices, such as structural status, wind speed, availability of electricity, and presence of water will be used to offer a more effective catastrophe response. Quick responses to catastrophes are critical to loss mitigation and with the increased adoption of smart devices a private network may be more effective than a public network. State Farm has patented the use of a network of sensors to identify and trigger a response to catastrophic natural disasters. State Farm’s patent reflects the trend of insurance companies looking to involve themselves in the smart home and wider IoT ecosystem to provide value-added services.
Earlier this year, Nationwide Ventures invested over $16M in Deep Sentinel, an enhanced home security system combining AI and live human guards. Deep Sentinel’s mission is to prevent false alarms and ineffective after-the-fact crime alerts by responding to crime in real time before damage is done. Deep Sentinel’s three-camera home starter kit has a one-time cost of $699 for equipment and $100 per month for the security service. It remains to be seen what this partnership with Nationwide will look like; however, it is possible Nationwide could take a cut of Deep Sentinel’s servicing fee in exchange for product distribution. If Deep Sentinel proves that its 30 second response time actually reduces claim frequency and severity, most obviously related to theft, Nationwide may consider offering a discount on homeowners insurance policies for policyholders with Deep Sentinel security installed.
Companies have the opportunity to deliver new products and services adjacent to insurance, offering consumers a greater value proposition. RapidSOS, an Avanta Ventures portfolio company, connects devices directly to 911 call centers. Cove, a smart home security system, recently announced its partnership with RapidSOS, stating RapidSOS reduces emergency response time by nearly half. What if other smart home devices, such as water leak detectors and fire alarms, not only detected accidents such as water leaks or fire, but automatically notified emergency responders and insurance companies?
Insurance companies have the opportunity to play an integral role in redefining the future of home insurance from risk prevention, risk mitigation, risk response, and risk recovery, by partnering with smart home IoT startups to deliver new services.