The role of insurers in the connected home

Smart home insurance could be a risk or an opportunity. To succeed, insurers must manage potential pitfalls and remain in dialogue with customers to ensure their needs are met. They also need to partner and participate in ecosystems.

Five risks facing smart home insurance:

  1. Disintermediation: From manufacturers to services and utility industries, everyone wants to be involved in the Smart Home, to be the brand that owns the relationship with the customer. There is a real risk of disintermediation for insurance companies who do not take steps to engage customers about how insurers can meet their needs and so become part of that customer’s smart home eco-system.

  2. Misunderstanding customer needs: A survey of consumers and insurance professionals undertaken on behalf of Ageas revealed that insurers and customers are not talking the same language when it comes to IoT. For example, 11 % of consumer respondents said they thought IoT was the name of a new movie and 33 % said it was a website. So, if they have thought about it at all, what customers say they want from a smart home insurance product may not coincide with what insurers think they want.

  3. Connected home insurance products may not make money: Smart home insurance products require many different sensors in the home at an estimated cost of EUR 400 per home. If the average home insurance in the UK costs EUR 200-300, then discounts on premiums are not sufficient to get people to make the investment themselves. To achieve the desired ubiquity of devices, insurers may have to carry the capital costs of the equipment and lend the devices to the customers.

  4. Mitigating risk could lead to shrinking premiums: The insurers' smart homes hypothesis is that IoT devices in the home will prevent or at least mitigate risk, which in turn should reduce claims. Customers who make their own investments to reduce home risks are likely to expect lower premiums.

  5. Data-focus rather than customer-focus: Underlying every smart home insurance initiative is the data. But how much, of what types of data do we need? What will the data actually tell insurers and how can it help them prevent and mitigate claims? More importantly, will the customer even be happy for an insurer to have all their data? The real danger here is that data issues could shift the focus away from customer need, which is at the heart of good insurance.

How insurers can manage key risks

Talk to customers
In response to the surprising results of the survey mentioned above, Ageas decided to find out more about their customers. For example: where they lived and with whom, how long they had lived there, what they worry about and why? Even though the questions were not directly related to insurance the results were very revealing. People did indeed worry about their house and possessions and wanted to keep these safe and well maintained, but their real concern was about people. This is starting to open up some interesting avenues for insurers to explore.

Beware of gamification and user unfriendly technology
Insurers may be tempted to create game apps to engage with customers on insurance issues. This may not necessarily be helpful. For example, a customer is only likely to check a water leak app a few times after resolving a problem, no matter how entertaining the app might be. Customers also want technology that simplifies their lives, like self-installing products. If installation is too complicated customers simply won’t use the technology. The risk is then that the insurer will be disintermediated.

Create own ecosystems and be part of others
As insurers create their own ecosystems, they can invite others in to them to partner on a variety of levels over issues such as: maintaining devices, interpreting data and generating alerts, responding to customers and building a network of services. Insurers can also move purposely into other people’s ecosystems. By offering core insurance products for the connected home, which customers can add to, the insurer can introduce other insurance-related products.

Moving forward
Insurance must start with the customer and be agile and flexible. Smart home insurance can bring rewards if insurers remain customer-focused, work to build their own eco-systems and willingly enter other systems through new and existing partnerships.

“The role of the insurer in the smart home is to understand what the customer wants, to know what you as an insurer are good at and to bring the two together”

About the speaker
Leigh Calton is Head of R&D, Ageas in the UK and specializes in spotting, interpreting and developing propositions in new and emerging trends, including connected homes.

Summary by David M. Taylor. This article is based on the "Risk Talk on Smart Homes" which took place on 21 November 2016 at the Swiss Re Centre for Global Dialogue.